While visiting Walmart’s website in search of an obscure book, I discovered that it was neither in stock, nor capable of being ordered. But I was referred—electronically of course—to an unexpected source: Barnesandnoble.com.

Taking heed of the ancient proverb the enemy of my enemy is my friend, Walmart has evidently struck up a curious yet most sensible pact with Barnes & Noble, which, like itself, runs an expansive chain of physical, rather than virtual stores.

An alliance between the two brick and mortar titans certainly makes sense for a variety of reasons: first, Walmart and Barnes & Noble.com share the fear of Amazon.com siphoning off an ever-greater portion of their sales. Nearly 45 percent of Amazon.com’s sales come from electronics and general merchandise, rather than books and CDs. This percentage has been creeping up in the last two years and will continue to rise as a result of organic growth and Amazon.com’s impending acquisition of Zappos.com, an online apparel retailer.

Second, both Walmart and Barnes & Noble are trying to jump-start their website sales, even as they manage increasingly complex chains of physical stores. Both Barnes & Noble and Walmart are experimenting with new techniques to drive web-browsers into their stores, and vice versa. For example, merchandise ordered online at Walmart.com can be picked up in or returned to one of its retail stores. This saves the consumer shipping costs and brings more traffic to the store. In an effort to reinvigorate its holiday traffic, Barnes & Noble recently entered the ebook reader fray with the Nook, an electronic bookreader that will debut this month. The Nook is replete with numerous features and gimmicks to lure book and CD buyers into Barnes & Noble stores.

Even as they build their online presence, Walmart and Barnes & Noble face challenges from which Amazon.com is exempt, for the former are forced to pay state sales tax for merchandise sold in locations in which they operate. Amazon.com, on the other hand, is exempt from sales tax in most states, on the basis that it does not operate physical stores in such states. This allows Amazon to retain an important price advantage over its rivals.

In my quest to find the obscure book that brought me to Walmart.com, I finally found it, brand new, in stock and ready to order, in a place available for all to see, facing out from its own virtual bookshelf—on Amazon.com.

Weighing in at 11 ounces, and with a price tag of $259.00, Barnes & Noble’s, (NYSE: BKS) Nook represents the latest entrant in the growing ebook category.

Although portable ebook readers have been available for several years, Amazon.com (NASDAQ: AMZN) jump-started the category with the Kindle, a dedicated reading device that unlike its predecessors included two break-through technologies: the first, a unique gray scale imaging display manufactured by E-Ink of Cambridge, MA, allows readers to comfortably read and scroll through text, without the annoyance of a back-lit display. The second is a wireless transfer capability that allows hundreds of thousands for books to be downloaded in under a minute, regardless of page length.

Barnes & Noble will enter the ebook reader fray next month with the Nook, a new ebook reader that embeds many technologies used by the Kindle, and raises the ante in some areas. The Nook features the same digital display as the Kindle (made by E-Ink), as well as a wireless connection that enables fast downloads of ebooks. A novel yet controversial feature will be the Nook’s ability to share books between various electronic devices, for a period of up to 14 days, though the details on how this will work are still sketchy. The Nook will be powered by Google’s Android operating system, which has lately been appearing in a number of smartphones.

In a sense, Barnes & Noble may suffer from being the third entrant into the category, in the sense that Amazon may have shipped close to one million Kindles already, and Sony, for its part, has said it has shipped close to half a million of its ebook readers.

Amazon’s Kindle 2, the second incarnation of AMZN’s e-book reader, is lighter, faster, sleeker and less expensive than its predecessor, and began shipping in February, 2009, with a price tag of $359. AMZN recently reduced the price to $259.00, its second price cut in four months. Most Kindle books are priced at $9.99, regardless of page length, and are priced at a steep discount to their hardcover brethren. 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 does in the delivery of hardcover and paperback books.

At first glance, Barnes & Noble’s strategy appears to be a well-thought out way in which to build store traffic over the holidays. No doubt having the device in the store will give consumers an incentive to play with it. Additionally, the Nook will display various in-store promotions when it used inside any of Barnes & Noble’s bookstores. With Google powering the operating system, don’t be surprised if advertisements are flashed while using the device.

Not surprisingly, the Nook will not support books formatted for the Kindle.

Very little attention was paid to last week’s acquisition of E Ink by Prime View International. E Ink, based in Cambridge, MA, develops display technology that is used in both the Amazon Kindle and Sony ebook readers. The company was acquired by Prime View International, a Taiwanese company that makes both products. In doing so, Prime View no doubt intends to dominate the market for ebook readers. As the market heats up for ebooks and electronic news sources, it is likely that other manufacturers will enter the fray. The question is will they be able to make their mark without licensing E Ink.

While electronic books can be downloaded to virtually any type of computer device, the Kindle and Sony ebook reader feature an unusual display technology developed by E Ink that allows a lower level of power consumption, yet provides extremely crisp text on a computer screen—even when lighting conditions for reading are suboptimal.

To be sure, the Kindle and the Sony eBook reader are only the first dedicated devices in what is likely to be a long list of ebook options. Even now, Kindle-formatted books can be read on an Apple iPhone, and it is likely that Apple will feature some type of ebook reading capability in its next generation, top secret computing device, which some suspect may have more of the look and feel of an ebook reader than a traditional notebook PC.

As consumers continue to seek digital rather than paper-based reading content, the market for digital reading technology will continue to advance. Faster, lighter, more powerful and more affordable ebook readers featuring enhanced color graphics and low power consumption ought to make for an extremely dynamic market.

Google Faces Off Against Amazon

We, along with most investors, have become accustomed to thinking of Google as the leader in online search and advertising, and Amazon.com as the king of ecommerce.

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 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 ebook 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.