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Google Takes on Amazon's Kindle in E-Book Battle

Just when it seemed nothing could dampen the success of Amazon's Kindle, Google today announced it's entering the e-book market through a partner program that allows authors to sell digital versions of their books online.

"We've consistently maintained that we're committed to helping our partners find more ways to make their books accessible and available for purchase. By end of this year, we hope to give publisher partners an additional way to sell their books by allowing users to purchase access to Partner Program books online," Google's Gabriel Stricker told InternetNews.com.. We want to build and support a digital book ecosystem to allow our partner publishers to make their books available for purchase from any Web-enabled device."

Amazon (NASDAQ: AMZN) is currently dominating the nascent e-book space, after successful rollouts of the Kindle 2 in February and a large-screen version, Kindle DX, last month. Meanwhile, rivals including Barnes & Noble and Plastic Logic are scrambling to introduce their own respective answers to the Kindle, but they don't appear to pose the threat that Google (NASDAQ: GOOG) could with its resources, according to one analyst.

"Google could become a powerful competitor to Amazon in the e-book market. They have huge financial resources as well as links now to a large repository of scanned books that could be monetized, and they could work out deals with the publishers to make it worth their time and effort to place their books within a Google eBook store," Tim Bajarin, principal analyst at Creative Strategies, told InternetNews.com.

Furthermore, what makes the Google announcement notable is that the partner program appears to offer components that front-runner Amazon lacks with its proprietary system that's limited to iPhones, iPods and Kindles -- variety in the way readers access the digital books, and perhaps, a revenue split that's more favorable for authors. Google has said it would allow publishers to set prices for e-books sold through the new service.

Bajarin agrees that for Google to emerge as a formidable Amazon rival, the company needs to be more author-friendly. "It's too early to tell what the revenue split would be, but they would have to give authors a better deal if they want to attract them to their site," he said.

Forrester analyst Sarah Rotman Epps also said she believes that Amazon's author revenue model is a weak link." Publishers have a love-hate relationship with the Kindle. On the one hand, it gives them another distribution channel for their content. On the other hand, as Dallas Morning News CEO James Moroney pointed out in his recent testimony to the U.S Senate subcommittee on the future of newspapers, Amazon keeps 70 percent of the revenues and leaves only 30 percent for publishers ... . Other vendors will create more productive relationships with publishers, giving publishers more control over the way their content is displayed and priced as well as enabling ad serving," she wrote in the report "How Big is the eReader Opportunity?"

Another area where Amazon may be vulnerable is pricing, as e-readers don't come cheap -- the Kindle 2 is $359. "It's hard to justify a price tag of more than $300 when consumers can buy a serviceable netbook for the same price. The race now is for the $249 price point, and Forrester anticipates that there will be at least one product on the U.S. market at the $199 price point by late 2010," says Epps.

Author and pricing issues aside, perhaps the most critical component for a successful Google e-book service is the inclusion of a streamlined download and payment processing system, said Bajarin.

"For this to work, Google would have to have a more open platform and build out its own back-end download services tied to their payment system, but Google is a resourceful company and if anyone could emerge that could take on Amazon in this space it would be this search giant," he said.

The Kindle series is widely lauded for its content delivery, done in partnership with Sprint, in which readers wirelessly access and download e-books without having to hunt for Wi-Fi hotspots or pay for Internet connections.

In fact, e-book shipments are taking off, with worldwide shipments expected to grow from almost 1 million units in 2008 to close to 30 million units in 2013, according to an In-Stat report out today. The report cites Amazon as the leader with its Kindle lineup, due to its content delivery service.

In-Stat isn't the only research firm expecting huge gains in the e-reader space. "Competitors will attack Amazon's market position by launching new features, expanding content beyond books, dominating markets outside the U.S., reducing costs and improving relationships with publishers. While frequent book readers drive device and content sales today, the next five years will see an explosion of the e-reader textbook market, and in 10 years, the market will be driven by businesses going green in government, education, health, and other sectors," Epps said.

Meanwhile, Epps predicts carriers will enter the e-book equation, which provides an opportunity for extra revenue, and though Google declined to comment, it could open the door to partnerships with mobile network operators.

"E-readers represent two new revenue opportunities for mobile service providers. First, mobile operators can lease their networks to support e-reader devices in a wholesale model, as Sprint currently does with Amazon. Second, there's a potential revenue stream for selling eReader content direct to consumers if they themselves become the device distributors, as Orange in France has tested with its 3G Read&Go device for newspapers and books. Mobile operators control the network on which the eReader ecosystem is based; companies such as Palm, which has a niche following of e-book readers already, Research In Motion, which has a partnership with Fictionwise, Verizon/Vodafone, and Virgin Mobile are well-positioned to seize at least part of the e-reader Opportunity," says Epps.

On the Amazon front, meanwhile, the Kindle 2, is getting positive reviews -- and likely making money though Amazon's policy is to refrain from releasing sales figures. It comes as no surprise that Google may want a slice of the pie.

"Amazon and Sprint are providing an easy-to-use, end-to-end content delivery solution for the consumer, which is essential for mass market adoption of an emerging technology. Rumors abound of new entrants to the e-book market, and the amount of digital content is only increasing. In-Stat reports that e-books represent a strong revenue opportunity for component suppliers, equipment manufacturers, and now wireless operators, alike," Stephanie Ethier, In-Stat analyst, said in a statement.

The news comes at a time when the digital book battle is heating up, as Amazon's Kindle 2 will be followed by the large-screen version, Kindle DX, targeted for newspaper audiences and publishers, due out later this year for $489. Amazon also recently scooped up Lexcycle, the maker of the most popular iPhone e-reader app in a bid to further boost its position in the e-book market.

Barnes & Noble (NYSE: BKS) entering the fray by buying its own app maker, Fictionwise, and the bookseller is rumored to be creating a device aimed squarely at the Kindle.

Amazon and Barnes & Noble aren't the only big-name competitors poised to battle it out in e-books, however. Sony and Google partnered to bolster Sony's digital reader division, which several years ago began offering Kindle-like e-readers and an e-book store.