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Google realized selling ebooks was going to be about .0001% of their annual gazillion dollar profit.
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I expect this is the problem. They don't want to run a bookstore, which is a time-intensive fraught-with-complaints industry; they want to license the books they've scanned to libraries and universities and maybe ebook stores. They *really* don't want to play Amazon's game of setting up "also viewed" lists and star ratings (and patrolling them for trolls & spam).
They scanned a bunch of books; they want to sell access to the scans. But the holdup on the lawsuit agreement is a big impediment--they were expecting, by this time, to be able to sell access to everything they've got with automated royalty payments being sent to authors; the leeetle problem of having to actually *negotiate contracts* with every author that's not controlled by one of the handful of client-contracts they've already got, makes it not worth their effort.
They also don't want to deal with proofreading. Their OCR system is among the best available, maybe *the* best--but none of them deal well with varied fonts and scripty italics and tiny, cramped type, and as more customers try to read the free epub versions and find problems, those people are less likely to pay for books from the same store, assuming they'll have the same problems.
Sure, the free 20% time can be used on ebooks. And if a programmer or group of them comes up improvements, they might move forward with this. But I could understand if they don't bother, because what they really wanted to sell is rather massively illegal. They're already in the midst of a whopping lawsuit for which the judge has thrown out the first settlement agreement as being a cozy collusion between Google & some publishers and firmly in violation of several aspects of copyright law.