In some ways, libraries are in direct competition with bookstores. They provide the same products and they do so by very similar means. The big difference though is clientele. Libraries provide access to a resource, but at a cost. Since it is shared, you have to wait. Since other people are making purchasing decisions, you can't always read what you want. You also don't get to add the book to your private collection. This distinction is why libraries will never undermine bookstores, even when they carry ebooks.

Now I agree with you about libraries being public service. Public services may involve inconveniences. The problem is when the inconvenience becomes too great it ceases to serve the people who it is intended for. Families who don't have the financial means to buy books are unlikely to have the time to visit a physical library on a regular basis, while wealthier families can buy books without leaving their own home. So while access to literacy is remaining static for the former group, the access to literacy is increasing for the latter.

To be honest though, my biggest concern is property rights. For normal transactions, such as the purchase of a book, it is dangerous to allow the seller to set terms beyond those provided by law, such as copyright. If this continues to happen, we will effectively find ourselves with no property rights. If this continues to happen, we will not be much better off than serfs of days gone by. (Note: I'm looking at the bigger picture here. It will take more than books to tip the balance. Alas, this notion of licensing in place of selling is frightfully common these days.)