Borders severing times with Amazon is getting alot of play in the business world. One analyst from Citigroup believes that Borders accounts for 2-3% of Amazon sales. I have real questions about the profitability of the digital download centers.

Borders currently buys direct from the publisher at a 40% discount as do most bookstores. It’s markup is then 40% minus any coupons or sales. Borders currently sells the Sony Reader. Sony has its own retail distribution of ebooks. Sony purchases its ebooks from the publisher (likely at the same 40% discount) and then resells them for 20% off. Borders will have to sell the Sony books for the same cost thus earning them no money or at a higher cost which makes me question why I would even buy an ebook at Borders digital download center. Unless Borders comes up with its own device, not tied to Sony, I can’t see ebooks being a big profit center unless the money is being made on the sale of the electronic reading devices. And if Borders sells its own branded ereader, then will that mean yet another secure format?

Ditto with Itunes and IPods. Borders can’t possibly make a profit selling 99c songs off of ITunes. It’s interesting times ahead and hopefully these changes will mean good things for customers instead of more confusing ebook formats and complicated Digital Rights Management.