August 1, 2010, 12:00 AM

A New Chapter

Google will act as a wholesaler of e-books, aiding small e-retailers in a growing market.

Lead Photo

Better World Books is a for-profit venture that collects and sells new and used books online and donates a percentage of each sale to help fund literacy initiatives worldwide. It has a customer base that’s grown 92% in the past year, thanks, in part, to its social mission, says Xavier Helgesen, co-founder.

While the overall book industry’s sales shrunk 1.8% to $23.9 billion in 2009, Better World Books’ sales rose 45.2%. But with sales of e-books and e-readers exploding—Forrester Research Inc. estimates that online retailers will sell about $500 million worth of e-books this year—Better World Books would be left out of the biggest growth channel in the publishing industry, unless it found an economical way to sell e-books.

That’s because the return on investment isn’t there for a small retailer to develop its own e-book platform, says Helgesen. He estimates startup costs would amount to at least $1 million, including hiring additional staff and devoting time and resources to striking up and maintaining relationships with publishers to ensure that Better World would have e-books to sell.

Enter the giant

Enter Google Inc. The search giant announced in May that it plans to sell hundreds of thousands of e-books—including lucrative best sellers—direct to consumers, as well as to act as a wholesaler to other online book retailers like Better World Books. As a wholesaler, Google will buy books from publishers and resell them to bookstores, taking a commission of under 10% on each sale.

“If all we have to do is bring the customers, which would mean tying the e-book selection into our inventory, as well as maybe building a mobile application, our cost of entry into the market probably drops to around $100,000—that’s a far cry from $1 million,” says Helgesen.

Google’s entry into the e-book market—both as a retailer and wholesaler—could represent a watershed moment by dramatically increasing the number of titles available to consumers in electronic form. It could also make it a lot easier for independent web booksellers like Better World Books to enter a space that might have been closed to them because of the cost of developing the necessary technology. That means stiffer competition for the major players that have been aggressively promoting their e-book offers, including Inc., Apple Inc.’s iTunes Store, and retail chains Barnes & Noble Inc. and Borders Group Inc.

Although Google has been coy about describing its plans in detail, it has said the project will sell digital books that consumers will be able to read within a web browser from any web-connected device. That will set it apart from Amazon, which sells e-books that work on its own Kindle reader and on apps Amazon has supplied for certain devices, such as Apple’s iPhone and iPad.

That approach offers consumers convenience, says Dmitriy Molchanov, an e-book analyst with the Yankee Group. “Because the book sits on the cloud I can read my book on my iPad going to work, then read some more on my computer when I sit at my desk at lunch and then read it on my smartphone when I’m waiting for a cab,” he says.

By not tailoring its service to a particular piece of hardware, Google—as well as the retailers who sell its e-books—will gain a broad reach, says Forrester analyst Sarah Rotman Epps. “Consumers will be able to buy Google books from any device and that’s important because the number of devices is proliferating,” she says. “It’s in Google’s interest to be everywhere consumers are.”

Device agnostic

That device-agnostic approach is what appeals most to Powell’s Books Inc., which already sells nearly 250,000 e-books in Adobe, Microsoft and Palm formats with the help of digital distributor Ingram Digital.

Powell’s first began selling e-books in 1999 for the pioneering e-book device RocketBook, provided by a company that later went out of business. Powell’s added Adobe-formatted e-books two years later. But despite being an early entrant into digital book selling, e-books have never accounted for more than 2% of the merchant’s business, says Darin Sennett, director of strategic projects.

Sales have been limited primarily because many of the e-book formats that Powell’s sells are not accessible on some of the most popular mobile reading devices. For instance, the Adobe format can’t be read on an iPad, iPhone or BlackBerry.

Making e-books available to anyone with an Internet-enabled device would open up a significant new market, says Sennett. “I know more people who read on their iPhones than any other device and we don’t really play in that space,” he says. “But Google could quickly get us there.”

Working with a wholesaler like Google would also enable Powell’s to focus on selling books rather than devoting staff and resources to developing hardware or software, neither of which is a company forte, says Sennett. “This would allow us to think about selling books while Google focuses on the technical areas,” he says.

Without Google, entering the e-book market would be a non-starter for Better World Books, says Helgesen. “If you look at e-books’ growth they are growing fast but they’re a small piece of the overall book market,” he says. “So it wouldn’t make sense for us to spend the time and resources necessary to enter that market.”

But with Google providing the back-end infrastructure to sell e-books, the retailer will be able to offer another revenue channel with relatively little upfront cost—even if it decides to spend resources developing a mobile app that would make it easier for consumers to access or purchase e-books.

“For smaller guys like us, we know we’re not going to make a lot selling e-books unless the market suddenly explodes or it becomes a huge part of the industry,” says Helgesen. “But even so, this would enable us to give customers more options.”

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