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We, along with most investors, have become accustomed to thinking of Google (NASDAQ:GOOG) as the leader in online search and advertising, and Amazon.com (NASDAQ:AMZN) as the king of e-commerce.

We were therefore surprised to see competition between the two heating up in the arena of digital books. As is by now well known, Amazon.com has accelerated the market’s adoption of digital books by creating the Kindle, an electronic book reader that allows bibliophiles to download and begin reading any one of more than 200,000 books in less than 60 seconds. Most are priced at $9.99, regardless of page length.

The Kindle 2, which began shipping in February, is off to a good sales start, judging from the comments of media pundits, though curiously Amazon.com has refused to disclose any sales figures for the Kindle. Through the Kindle, Amazon hopes to control, or at least influence, sales of digital books, newspapers, magazines, and play an even bigger role than it has in the delivery of hardcover and paperback books.

Enter Google. A few years back, Google began its electronic library project, scanning out of copyright books from the University of Michigan, Stanford, Harvard and other university libraries. The thinking was that Google would make widely available the world’s knowledge. While that may be true, the company stands to monetize through advertising the electronic display of these books through its search engine.

A couple of weeks ago, Google fired a shot across the bow by giving Sony (NYSE:SNE) the digital rights for more than 500,000 out of copyright books (published before 1923). Thus Sony, may sell, or give away, versions of these electronic books for use on its own electronic e-book reader, and hold the bragging rights, at least, temporarily, to an electronic library about twice the size of Amazon’s.

Google may simply be uncomfortable with too much power residing in the hands of Amazon, with so much at stake in online ad revenue from online book searches.

Whatever Google’s motivation and Amazon’s response, this unfolding battle bears close scrutiny, for the future of electronic reading and publishing surely hangs in the balance.

Disclosure: no positions

Source: Google vs. Amazon: Battle of the Book