Google Enters Bookselling Business - Analyst Blog

While Google Inc (GOOG) has been talking about publishing orphan (in copyright, out-of-print) books for a while, the company has announced Google Editions, its play in the mainstream digital bookselling business. The story was first published by the Wall Street Journal.

The plan is to make books easily searchable by mentioning the title in the search box, which would among other links, also provide the link to the Google Editions version of the book. Users would be able to preview a section of the book if they prefer, before clicking to make an immediate purchase.

Therefore, the Google service would be available on any connected device, including ebook readers from top competitors Apple Inc (AAPL), Amazon.com (AMZN), or Barnes & Noble Inc (BKS) through Google Editions apps.

The digital bookselling exercise is likely to gather momentum, as distribution of books becomes much easier. Even smaller bookstores would be able to sell digital versions through Google Editions. Larger publishers will also welcome the opportunity, since distribution will undoubtedly become broader and more hassle-free.

Google already has a large number of book publishing partnerships and depending on the way revenue is split, this number could increase hugely.

Google Editions is one in a string of initiatives by the company to diversify its product line. While some have been confused at the large number of varied acquisitions the company has been making, others have commented that they made good investments.

But we are of the opinion that Google is taking aggressive measures to broaden its revenue base, as the online search advertising market gets more competitive. Moreover, the company is a leader in the space, so growth and acquisitions will face significant regulatory scrutiny (as we have seen in the case of the AdMob deal).

Google has been making small and steady investments in alternative energy and recently spent $38 million on a wind energy project. The company already uses solar power for most of its own needs.

Google has also launched its own mobile operating system, Android, which is currently being used by Motorola (MOT), HTC, as well as a number of other companies in some of their newer devices. Google’s own smartphone, the Nexus One adds to this strategy.

We currently have a Neutral rating on Google shares, although we are getting more bullish about it. The shares are down 19.2% year to date, representing just 20.3X our earnings estimate for fiscal 2010, so valuation is also favorable.