E-Readers Digest

Michael O'Hara

The American independent bookstore has been dangling from a ledge for much of the past decade. While Amazon.com stomped upon the fingers of one hand, Barnes & Noble, Borders Group, Walmart and Target plucked one finger each over the past year, the former two with their introduction of proprietary “tethered” e-readers competing with Amazon’s Kindle, and the latter two through a vicious price war last holiday season that squeezed much of the margin out of theretofore profitable best sellers. While Walmart’s and Target’s decision to trade away margin for volume is distressing to independents, Amazon’s, Barnes & Noble’s and Border’s proprietary e-readers threaten to divide three ways the territory of the publishing industry’s newest and potentially most profitable frontier: electronic publishing.

But a new American superhero may be swooping in to rescue this damsel in distress. Last Wednesday, The New York Times reported that The American Booksellers Association, a trade group comprised of retailers with approximately 1,200 independent bookstores in the U.S., is on the verge of completing a deal with Google to make Google Editions the primary source of e-books on the websites of its independent bookstores. As it has done before with videos (YouTube), maps and satellite streetscapes (Google Maps), weather reports, news, email accounts (gmail), cloud-based storage and office productivity software (Google Docs), picture storage (Picasa) and blogs (Blogger), Google’s partnership with the ABA evidences its populist charter: Google wants everyone to have unfettered access to every book at any time. And here’s the important part of Google’s manifest for retailers: it wants people to have access to e-books regardless of e-reader device.

This partnership makes good sense for independent retailers, each of whom alone is in no position to develop its own electronic book library and even more powerless to create a proprietary e-reader. Nearly all in the industry agree that we are at the early stages of a revolutionary shift in publishing. The International Digital Publishing Forum reported that approximately $91.0 million of e-books were sold in the first quarter of 2010 (at wholesale prices), up from $55.9 million in the fourth quarter of 2009. The Association of American Publishers reported that e-books overtook audio books in 2009 with net sales reaching $313.0 million last year, up 176.6 percent over the prior year. Missing out on this part of the publishing market could prove lethal for any bookseller.

The beauty of the Kindle for Amazon is that it is tethered to its own e-bookstore and useless with anyone else’s. This means that Amazon could make itself not only the most convenient resource for its loyal customers, but also the sole source of supply for its vast e-library. (Recognizing that iPhones, iPod Touches and iPads vastly outnumber Kindles, Amazon made its Kindle software available to Apple users as an “app” so that they can read Kindle books on Apple devices. One can also now buy the Kindle at Target stores.) Seeing this benefit, Barnes & Noble joined the battle just after Christmas last year with its Nook device (which, unlike the Kindle, allows for color displays) in a bid to tether its customers to its proprietary online offering (the Nook can now be bought at Best Buy; and Hewlett Packard has teamed up with B&N to offer a jointly branded bookstore for its pc devices). In March, Taiwan-based Digitimes reported that demand for the Nook exceeded that for the Kindle as measured by manufacturing output. In May, struggling Borders Group made a grab to tether its own loyalists, and pilfer some of Amazon’s and B&N’s, by introducing both the Kobo for only $149.99 – much lower than the Kindle’s comparable offering (sold at $259) – and the Libre eReader Pro for only $119.99. Both Amazon and B&N reduced the price of their offering in response to Borders’ aggressive move, causing some industry pundits to predict that the pricing battle for pure e-book readers will go to $0 as the giant booksellers seek to lock down customers to long-term exclusive relationships through proprietary e-readers.

Through Google Editions, the search engine giant looks to spoil the land-grab for the big three booksellers by allowing users to access books from a broad range of websites using an array of devices, including one’s personal computer or smartphone. In this regard, Google Editions is not merely the salvation of a distressed retail subcategory, it is an embodiment of pure capitalism. Google Editions seeks to bust up the exclusive connection between e-reader and e-bookstore by making its library e-reader agnostic. The big three booksellers’ tethered offerings remind one of the line of “tying arrangement” anti-trust cases. Tying arrangements, which are not always illegal (think razors and blades, for example), arise when a supplier of a desired and important product requires customers to buy downstream items exclusively from them. Applying the logic of these cases to the e-reader debate, the seller must have sufficient economic power with respect to the tying product (the e-reader) to appreciably restrain free competition in the market for the tied product (e-books) in order to have anti-trust concerns. Google’s market power and its e-reader agnosticism likely eliminate anti-trust concerns for the three booksellers, as does the competition among the three of them which effectively reduces the economic power of any of them. But Google Edition’s biggest impact may be its potential to level the field for the independent bookseller.

To Google’s chagrin, however, we must remember that our country was built on limited capitalism, not pure capitalism. As such, we have given meaningful monopolies to parties who have advanced the cause of technology or the arts in the form of patents and copyrights (and, in some instance, trademarks, service marks and trade dress protection). These intellectual property rights embody a bargain between the originator and society: the creator of the good work will have some period of time to exploit the fruits of his labor exclusively as a reward for his dedication of the work to the public (making it available to all in an intelligible way) after the monopoly period has expired. Google Editions, therefore, will ultimately have to be a creature of compromise with the publishing industry. Over the past two years, the industry and Google have litigated over how Google will pay the industry for the creative content Google will make available. If left to its own devices, Google might give away everyone’s content for free, since its own business model is built on controlling and organizing other people’s information in order to drive traffic, relevance and, ultimately, advertising money for itself. The publishing industry, as is true with artists, scientists and engineers, wants to preserve control over distribution so that its creators will make money and therefore be incentivized to create. Google and the publishers appear poised to agree to pricing tiers that will differ for books under copyright and still in print, books under copyright and not in print and books not under copyright (the latter of which will be made available for free). With this settlement in people’s line of sight, it appears the industry is embracing Google, at least as much as they can without offending Amazon, Barnes & Noble and Borders.

Google’s secondary goal with Google Editions is to enhance its role as collector and organizer of our important information, and books are about as important to us as anything could be. Its primary goal, of course, is to be super-relevant in all things so people spend money advertising through them. Google is already a verb used to identify people and to map locations; the search engine company wants it to become a verb used to locate books, too. One can be assured that the American Booksellers Association shares Google’s hopes in this regard.