Amazon’s loving its Kindle owners. The retail giant is letting Kindle owners who sign up for its US$79 Prime service borrow an ebook each month for no extra fee. Prime is a premium service for Amazon customers that started as an offer of unlimited shipping for a one-time annual payment. That US$79 fee now includes the original shipping offer, a streaming video service with 13,000 movies and TV shows, and the Kindle Owners’ Lending Library.

The Prime service is restricted to US residents at the moment. In addition, to take advantage of the Kindle Owners’ Lending Library, you need to be — a Kindle owner. A Kindle app user won’t cut it. Amazon is clearly using this to encourage its users to support the full Amazon kit.

Members of the lending programme can choose from an initial catalogue of 5,000 titles. There’s no time limit on their loan period but they can only check out one ebook at a time and they can borrow a maximum of one ebook a month.

And it looks like it’s not just libraries who struggle to get ebook lending rights from publishers. Amazon has had to do some arm-twisting itself to get publishers on board. There are no titles from the US Big Six publishers and the company admits that in some cases it’s actually buying a copy at full wholesale price each time the ebook is borrowed. Amazon is clearly determined to prove its belief that lending will be good for everyone, not just Amazon. “Kindle owners will read even more, publisher revenues will grow, and authors will see larger royalty checks,” argues Russ Grandinetti, Vice President, Kindle Content.

The Kindle Owners’ Lending Library follows Amazon’s move in September to open up the Kindle platform to ebooks borrowed from public libraries.  This initiative, again for US customers only, is operated through a partnership with library ebook distributor OverDrive and shows Amazon’s determination that its Kindle owners won’t be penalised for their loyalty: library ebooks are almost universally now in the EPUB format which isn’t directly readable on Amazon gadgets.

While today’s move is great for Amazon’s customers, and might be good news for publishers and authors, it should prompt libraries to consider how it might impact on them longer term. It’s clear now that lending books on a commercial scale will no longer be a de facto library monopoly. Amazon and others (Google has already hinted at some sort of rental service) are determined to supply digital content to consumers in as many ways as they want it. And they are sure to do it in a way that makes commercial sense for both Amazon and the publishers and authors who, for now, can call the shots on how — and whether — these deals are done.

One thing is for sure, when it comes to doing deals to get digital lending rights, libraries are no longer the only game in town. If libraries aren’t feeling threatened, they should. Are we going to see something akin to the impact of cash-rich pay TV which routinely outbids free-to-air and public service broadcasters for premium content? If our libraries become repositories of second-tier content, we’ll all lose. This doesn’t have to happen but it needs big changes all round to give our libraries the chance to stay relevant.

A couple of weeks ago, the publishing industry’s EPUB3 specification was finally signed off. This was the cue for device makers and e-reading app developers to build it into their next releases and for publishers to start work on enhanced ebooks. Now Amazon has responded with its own next generation ebook format, Kindle Format 8 (KF8), complicating things for publishers.

Like EPUB3, the new Kindle format introduces support for the latest web standards, HTML5 and CSS3, and adds a host of new features that will allow development of much richer ebooks. From Amazon’s announcement:

KF8 is the next generation file format for Kindle books – replacing Mobi 7. As showcased on Kindle Fire, KF8 enables publishers to create great-looking books in categories that require rich formatting and design such as children’s picture books, comics & graphic novels, technical & engineering books and cookbooks. Kindle Format 8 replaces the Mobi format and adds over 150 new formatting capabilities, including fixed layouts, nested tables, callouts, sidebars and Scalable Vector Graphics, opening up more opportunities to create Kindle books that readers will love.

This is good news. But for those of us who had hoped that EPUB3′s arrival might prod Amazon into adopting direct EPUB support, this announcement is a pretty clear indication that, if it comes at all, it will be some way into the future. We’ll have richer, higher quality ebooks but we’ll have incompatible formats. For the time being, this probably won’t bother Amazon’s users who are a happy lot. Amazon has done a great job of pleasing them with an eco-system that’s easy to use, with the best selection of ebooks, and support for most of the e-reading devices they’re likely to want to use.

But for publishers, it could add challenges as the new features these formats offer mean ebook production requirements and costs will scale up. And for the newly-minted EPUB3, it poses a challenge to stay relevant as Amazon’s importance as the number one sales channel might tempt some publishers to bypass it.

Even where sales of EPUB ebooks lag behind Kindle sales, many publishers have now built their workflow around EPUB as their primary source files. These convert well into the current Kindle format, allowing publishers to maintain a single format. To keep this workflow, it will be important that Amazon supports error-free EPUB3 conversion in its Kindle Gen 2 toolset. But as complexity increases, so do the opportunities for things to break. We won’t know until Amazon releases more details whether EPUB3 can continue to serve as this reference format. Indications are that EPUB3 is a richer format so publishers might want to restrict themselves to a feature subset that’s common to both platforms. No mention yet, for instance, of JavaScript support, MathML, or EPUB3′s extensive accessibility features.

It will certainly be in Amazon’s interests to make sure that ebooks look and function as well on a Kindle as they do on an EPUB3-compatible e-reader. What we still don’t know is whether Amazon might use its current dominance to lead, rather than follow, the industry standard. We’ve seen this in the “browser wars” that for many years saw web browser vendors, especially Microsoft, introducing non-standard features to try to keep users in its camp and drive the standards in ways that suited their interests. Could we be in for the e-reader wars?

We might start to see the so-called “embrace and extend” strategy that’s familiar in the wider tech world. This tug-of-war strategy sees a dominant vendor selectively adopt an industry standard in a show of inclusiveness but extend it with unique features in an effort to draw developers and users into its ambit. We’ve already seen Apple filling the vacuum prior to the release of EPUB3 with its own ‘fixed layout EPUB‘, an extension of the EPUB standard aimed at the illustrated book market that only works with its iBooks e-reader app.  Here’s hoping EPUB’s dream of a single format isn’t stillborn and Amazon, Apple and others decide to play nicely this time. Otherwise, publishers and users will get caught in the cross-fire of another format battle.

Amazon has announced its long-anticipated entry into the tablet market with the US$199 Kindle Fire, due to go on sale 15 November and US-only for now.

While some were anticipating an iPad Killer and several commentators are disappointed that it’s not, taking Apple head-on today was never going to be Amazon’s strategy. Following Apple’s playbook (no pun intended)—where it launched the low risk iPod Touch before the iPhone, then the iPad—Amazon was always going to take the long route to competing with Apple in the tablet market.

It’s started on this route with the Kindle Fire, producing the gadget for the rest of them, at a price point for the rest of them. It’s half the iPad’s starting price of US$499. And it’s a techie-free zone in a form factor that’s familiar to millions of Kindle users as well as users of the popular Barnes and Noble Nook Color: lightweight, book-sized, 7 inch (18cm) screen with widescreen viewing rather than the larger (and heavier) 10-inch/25cm form of the iPad. The initial unit is WiFi only with no 3G option yet.

Steve Jobs may be right about the superior general-purpose usability of the larger iPad, but Amazon can afford to optimise its smaller gadget for a more targeted reading audience while still selling millions. And colour means it can start to open up to magazines and video, quietly growing its content catalogue and licensing deals. It cleverly sidesteps direct competition with the iPad for now, while building the foundations for full-scale battle later. Expect the bigger screen version by Christmas 2012 at the earliest.

And by the way, it’s Android-powered. You wouldn’t know it from Amazon’s marketing which is aimed at a decidedly less geekish crowd than Google’s other partners will be attracting to early Android efforts. Amazon launched its low-key Android appstore a few months ago and has built a solid, curated collection of apps already. Expect many more now that Amazon has a platform for games and other hot-selling app categories.

As part of its launch, Amazon also announced a new web browser called Silk. While you might think the world doesn’t need another web browser, more than likely when we look back, Silk will be the more important announcement in the Kindle Fire’s launch.

What’s different about Silk from most other web browsers is that it off-loads to Amazon’s huge servers in the cloud a lot of the heavy lifting associated with downloading web pages. Instead of all the work happening on the user’s local device, Silk splits requests so that some or all of the files in a web page request can be optimised and downloaded from cached copies on Amazon’s servers. This could reduce the time for a page to appear by 10- or 20-fold and reduce file sizes to limit data usage.

For mobile users on slower and more expensive connections, this will be a major boost. And when you think about where media is headed (yes, to the cloud—including books), this is going to be a key competitive driver for Amazon. For US users, the Kindle Fire will come bundled with a free 30-day subscription to its Amazon Prime video and TV streaming service.

[As an aside, it should highlight the misguided net neutrality debate. Amazon's potential advantage from Silk provides another reason why extreme adherence to net neutrality will end up reducing, not improving, competition and access. Any ISP should be able to offer a premium web-browsing service for customers who want to pay for it. If not, those customers will migrate to a small number of powerful, vertically-integrated technology/content players like Amazon, reducing the number of viable channels for content providers.]

While the Kindle Fire stole the limelight, Amazon also updated its black and white Kindle family. There’s now a touchscreen version which benefits from a slightly bigger screen within the same form factor. The entry level Kindle, just called “Kindle” and using a simple 5-way controller for navigation, now starts at US$79 in the US (US$109 in international markets which currently aren’t offered Amazon’s cheaper-in-return-for-viewing-ads option). The original Kindle is now called the Kindle Keyboard and starts at US$99 (US$139 without ads), as does the new Kindle Touch.

New Zealand and Australia, like other international markets, will just have to wait for the new Kindle Fire with no announcement yet on likely availability. Given Amazon’s mid-November US shipment date, it’s unlikely we’ll see wide international distribution until after Christmas, unless Amazon finds itself stoking a less-than-hot Fire in the pre-Christmas run-up. Don’t hold your breath.

Are publishers making windfall profits from ebooks? The recent round of financial results coming from major book publishers suggests they are but they are staying tight-lipped.

A recent case was Random House which posted a solid result in the face of tough trading conditions. Its parent company Bertelsman was clearly pleased with its book division saying, “at Random House the U.S. business and the digital operations performed especially well.” No more detail was given but this result comes as the company’s core US trade book market has seen upheaval and double digit declines in the reporting period.

Random House is following a trend here among major publishers who seem to be weathering the storm in the US book trade with few visible signs of pain. The expected pain—lay-offs, closures, major reorganisations—will be familiar to anyone who has lived through the wrenching changes that happen when companies with high fixed costs have to adjust to sudden, large and long term decline in their core business.

But with book publishers we’re not seeing this happen, at least publicly. My guess is that the companies have a profit buffer from very healthy ebook margins on what has become a big chunk of revenue, especially in the US market. This is buying time for a more gentle reorganisation of their businesses.

We’re probably seeing a situation today where a lot of income is being earned from backlist titles which will be very profitable once their modest digital conversion costs are recovered. And with frontlist, we might be seeing high ebook profit margins offsetting a lot of the impact of lower p-book sales as ebooks are bought in their place.

This points to the possibility book publishers might have a “softer landing” than their media peers as their market shifts to digital. So far, they’ve maintained relatively high ebook prices and relatively low losses to piracy compared to the situation that faced music or the challenges that still confront the advertising-driven newspaper and magazine sectors.

Authors will no doubt wonder to what extent they are funding publishers through the standard 20-25% royalty deals. Sensitivity to this issue probably explains why publishers are being so tight-lipped about their impressive success. There are real risks and upfront costs that make this royalty level justifiable for new titles—including cross-subsidies for increasingly marginal, but still important, print editions. But authors will justifiably want publishers to get more efficient and pass on some digital gains to the content creators.

Another key place for these profits to be invested is in promotional support. Not just the free sort which publishers tap so well with their sophisticated publicity operations, but paid advertising. Publishers have to start replacing a lot of the exposure that bricks and mortar booksellers delivered by upping their advertising and promotion budgets considerably. This will also help publishers maintain higher price points in the face of increasing competition from the 99 cent self-publishers that are beginning to dominate bestseller charts.

Hopefully, despite the financial buffer from ebook profits, publishers are quietly and determinedly beginning to restructure for a leaner future rather than using this short term windfall to delay making changes. Keeping those fat profits will provide the opening for new digital-only players, something that will ultimately cost the traditional publishers dearly.

When Apple took its heavy-handed action against retailers last month, stopping them selling from within iPad and iPhone apps, those retailers were inevitably going to search for ways to avoid this happening in future. Any business would want to know that its very existence wasn’t subject to the changing whims of Apple management.

It turns out that Amazon wasn’t just thinking about its vulnerability, it was well on its way to removing it. We’ve seen a first shot today with its launch of the Kindle Cloud Reader, a so-called web app for ebook reading.

Web apps can circumvent Apple’s App Store rules since they are actually applications that run on the internet (often with offline operation too) and are built using open internet technologies. They bypass both Apple’s proprietary programs and its App Store.

Kobo was quick to announce last month it planned to take this route albeit with an unspecified delivery date. This is understandable since it’s not a trivial development task to build an app with the level of usability demanded of an ebook reading app. The problem is that key technologies, especially the new HTML5, are still in their infancy and don’t yet match native apps for performance and usability.

Even Google fell at the last hurdle, releasing native ebook reading apps for Apple and Android platforms last year rather than HTML5 web apps for its Google Ebooks system. Google had been a vocal proponent of the web app and cloud reading approach in its build-up to the launch of Google Editions/Ebooks so their absence was a surprise and pointed to how technically challenging this route remains as these technologies still mature.

All of which makes what Amazon has just done especially impressive.

The Kindle Cloud Reader is an ebook reader app built using HTML5 and web technologies that looks and works just like the native ebook reading apps. And, of course, inside it is a link to the Kindle store so you can shop from within the app. The reader works both online and offline when there’s no internet connection available.

I’ve been playing with it this morning and it’s impressive. It’s hard to know exactly how impressive until I have time to curl up with a book or three and read for lengthy periods but my guess is that it’s going to be at least 95% as good as the current Kindle app, the benchmark for ebook reading apps in my opinion.

Most of the obvious differences from the native Kindle app relate to the slightly slower speed initially downloading an ebook and occasional pauses of a second or so in page turning. But most of the time, it’s quick, it’s very responsive, and it preserves the senstivity that the Kindle app has which makes a light tap or tiny swipe all you need to instantly turn pages. And it emulates the bookmarking, fonts, page sync and many other features of the native iPad app.

One missing feature is the way the Kindle reader switches from a single page view to a two facing pages when you switch to  landscape mode. I couldn’t see this feature and, while nice, it’s not a deal breaker and will no doubt be added to a future version, as will search capability hopefully.

In its first release, you’ll need either a Google Chrome browser or the Safari browser on a PC/Mac, or an iPad’s Safari browser (all of these broswers use the WebKit engine). No iPhone version is available yet and future support for other broswers, such as Firefox and Internet Explorer, is promised.

By putting out a first class web app, Amazon is almost certain to energise the whole move to this approach and away from native apps. While essential for some applications, native apps are an expensive route to take and become even more challenging with the demand to support multiple platforms. Developers like web apps because they promise a single app (with minor variations) that covers all platforms — as well as release from the tyranny and whim of Apple.