Google today announced it will enter the e-book distribution business with a service, Google Editions, which will sell electronic copies of as many as 500,000 books offered by traditional publishing houses. The service is amazing, because the company has found a way to increase the retail distribution cost of e-books relative to paper books. Think about this—the zero cost copy of an e-book will be the basis for Google keeping substantially more, as a share of list price, to deliver a Google Editions e-book through a third-party retailer than buying directly from Google.
It may seem attractive to retail partners, which will purportedly include Amazon, Sony and Barnes & Noble, but even they’ve got to be scratching their heads about the added overhead Google built into its pricing scheme. An e-book purchased from Google Editions will list for the same price as the same book offered by a publisher through Amazon or Sony, for example, and Google will pay the publisher 63 percent of the list price. But, if the book is purchased in Amazon Editions format through Amazon or Sony, publishers will only get 45 percent of the list price.
Google said it will share the additional 18 percent with the retailer, though “most” of that 55 percent reportedly will go to the retailer. My guess is that by “most,” Google means the retailer will get 25 percent and Amazon 20 percent, or some approximation of that split. This seems a concession to make sure the Google Editions format books are carried by retailers.
Let’s break that down. For a bestseller, which the market has decided should be priced at $9.99, the publisher will earn $6.29 when Google Editions sells a copy. When that same Google Editions e-book is sold through a third party, the publisher will earn only $4.49. Intermediaries increase their share of revenue, even though they’ve taken on no inventory risk.
Publishers get 63 percent for selling directly and 45 percent for a Google Edition book sold through a third-party retail site. It defies all the economic logic of digital distribution. The likelihood that Google will really get more e-books from publishers on those terms compared to those offered by Amazon, Sony or Barnes & Noble to the same population of publishers strains credibility. But, we shall see.
More bad news: DRM
While the Google Editions e-books will be readable in a browser, they will not be unencrypted. Google makes clear that books will come with DRM, because they have created a way to let readers access files when not connected to the Net but without the ability to share those books with others. Books will be tied to a Google account, just as GMail, Google Docs and other services.
The retailers, all of whom have introduced proprietary e-readers and, except for Sony, which offers ePub formatted e-books, should be