First off, the Apple iPad. My thoughts: It was one of Steve Jobs’ worst presentations in many years. It was dull. He lacked energy and attitude, which reflected on the device he was introducing more than the device itself was a let-down. Because, really folks, can any one device save publishing? And movie-making? No. However, the iPad is another example of a fascinating blend of pragmatism and accomplished design that is going to be attractive to the average person who has been thinking of a lighter, more convenient PC, an e-reader or a new television.

At the entry price, $499, it’s a steal compared to the comparably priced Kindle DX and sexier than all the netbooks on the market wrapped in a big ball of sexy, with sex on top. The iPad is going to eat the low-end of the market that Apple has so famously “missed” during the past couple years—as though not selling MacBooks for $500 was doing the company damage—for its proverbial lunch while barely cannibalizing Apple’s MacBook sales. The higher cost iPads will be subsidized by carriers wanting to compete with AT&T.

Moreover, with the next generation of e-readers clearly stuck somewhere in the same price range, iPad is poised to destroy the glutted market of E-Ink devices by presenting a singular color-capable choice as an alternative to one of the 50+ e-readers on the market now. Amazon will counter by licensing Kindle features far and wide, getting its PC client onto new netbooks in exchange for a small fee or a small share of ongoing revenue from the PC OEMs.

But Amazon’s real challenge will be staying hip when it’s business strategy is looking so very square. In a little remarked posting by Kara Swisher at AllThingsD, she shared a video clip of Steve Jobs talking with her colleague, Walt Mossberg, after the iPad announcement. In that clip, Jobs says that the $9.99 e-book price point will soon be a thing of the past, because publishers will “pull their books” from Kindle to sell them for a higher price—on iPad. Many took this to mean that Apple will sell books for $9.99. Others missed this completely because they focused on what Jobs has said in the past about reading. But listen carefully. Jobs clearly says, in response to Walt’s question about why someone would pay $14.99 for an iBook title when they could get it for $9.99, that it will not be a problem as soon as publishers decide to draw the line with Amazon. Jobs says “the prices will be the same,” meaning that prices will rise as people shift to a reading experience they value more.

And MacMillan did draw that line this weekend, pulling down its Kindle books. As I have been saying for a while, $9.99 isn’t set in stone and cannot last. Amazon has never been in the business of selling e-readers, only the process of building libraries it can serve to digital readers. This is why Kindle on the iPhone and iPad are more representative of Amazon’s future than the Kindle hardware it sells today. Jobs hasn’t crushed Amazon, he enabled it to get out of the hardware business. Look for Kindle books for the iPad to be priced higher and have more features—you don’t think Amazon has had Mac and PC coders around for 18 months without making some real improvements on the Kindle software, do you?

What of MacMillan, which initiated an embargo on Amazon’s $9.99 price point? It is just the first publisher to launch a salvo over e-book prices, it won’t be the last. Amazon has been losing money on best-sellers for almost two years. The business is unsustainable at $9.99 for Amazon and publishers. In one real way, Apple is saving publishing, because it is pulling the biggest book distributor’s fat from the fire, as PaidContent explains here.

Final thoughts on the iPad. The name is awkward, but the trash talk will settle down. It’s unfortunate that Apple managed to alienate women, one of its target audiences for the iPad. At the same time, in many dialects, “iPad” will sound exactly like “iPod.” The biggest change in the hardware between the announcement and shipping will be the appearance of subsidized hardware deals, most likely from T-Mobile.

We haven’t seen the future as much as version 0.92 of the future. Pads ahead, as well as books. But look for many tablets from other manufacturers, too.

After three days of CES, I have some thoughts on the e-reader market that need to gel a bit. However, I did talk with a number of guests on the Lenovo Live Webcast about e-readers, tablet computers and the transmission of culture. The archive is here, if you’d like to take a look.

I wrote a lot about the idea of exploding the limitations of the book in the last installment. Getting beyond the covers. Turning from a distribution model to a reader-centric model. It’s simple to argue that change is needed and to say what needs changing. Here, I offer a few specific ideas about lines of research and development that I would like to see begun by publishers, who, if they wish to remain viable—let alone profitable—must undertake immediately. The change in book publishing will happen at a faster pace than the collapse of newspaper and music publishing did, making a collective effort at research and publication of the results for all to discuss and use, critical during the next 18 months. Think open sourcing the strategy, so that a thousand innovations can bloom.

Making books into e-books is not the challenge facing publishers and authors today. In fact, thinking in terms of merely translating text to a different display interface completely misses the problem of creating a new reading experience. Books have served well as, and will continue to be, containers for moving textual and visual information between places and across generations. They work. They won’t stop working. But when moving to a digital environment, books need to be conceived with an eye firmly set on the interactions that the text/content will inspire. Those interactions happen between the author and work, the reader and the work, the author and reader, among readers and between the work and various services, none of which exist today in e-books, that connect works to one another and readers in the community of one book with those in other book-worlds.

Just as with the Web, where value has emerged out of the connection of documents by publishers and readers—the Web is egalitarian in its connectivity, but still has some hierarchical features in its publishing technologies—books must be conceived of not just as a single work, but a collection of work (chapters, notes, illustrations, even video, if you’re thinking of a “vook“) that must be able to interact internally and with other works with which it can communicate over an IP network. This is not simply the use of social media within the book, though that’s a definite benefit, but making the book accessible for use as a medium of communication. Most communities emerge long after the initial idea that catalyzes them is first published.

These communications “hooks” revolve around traditional bibliographic practices, such as indexing and pagination for making references to a particular location in a book useful, as well as new functionality, such as building meta-books that combine the original text with readers’ notes and annotations, providing verification of texts’ authenticity and completeness, curation (in the sense that, if I buy a book today and invest of myself in it the resulting “version” of the book will be available to others as a public or private publication so that, for instance, I can leave a library to my kids and they can pass it along to their children) and preservation.

Think about how many versions of previously published books, going all the way back to Greek times, when books were sold on scrolls in stalls at Athens, have been lost. We treasure new discoveries of an author’s work. In a time of information abundance, however, we still dismiss all the other contributions that make a book a vital cultural artifact. Instead, we need to recognize that capturing the discussions around a book, providing access (with privacy intact) to the trails that readers have followed on their own or in discussions with others to new interpretations and uses for a text, and the myriad commentaries and marginalia that have made a book important to its readers is the new source of infinite value that can be provided as the experience we call “reading.” Tomorrow’s great literary discovery may not be an original work by a famous author, but a commentary or satire written by others in response to a book (as the many “…with sea monsters and vampires” books out there are beginning to demonstrate today). Community or, for lack of a better way of putting it, collaboration, is the source of emergent value in information. Without people talking about the ideas in a book, the book goes nowhere. This is why Cory Doctorow and Seth Godin‘s advice about giving away free e-books makes so much sense, up to a point. Just turning a free ebook into the sale of a paper book leaves so much uninvented value on the table that, frankly, readers will never realize to get if someone doesn’t roll the experience up into a useful service.

The interaction of all the different “versions” of a book is what publishers can facilitate for enhanced revenues. This could also be accomplished by virtually anyone with a budget necessary to support a large community. The fascinating thing about the networked world, of course, is that small communities are what thrive, some growing large, so that anyone could become a “publisher” by growing a small community into a large or multi-book community.

Publishers can, though they may not be needed to, provide the connectivity or, at least, the “switchboards” that connect books. The BookServer project recently announced by The Internet Archive takes only one of several necessary steps toward this vision, though it is an important one: If realized, it will provide searchable indices and access to purchase or borrow any book for consumption in paper or a digital device. That’s big. It’s a huge project, but it leaves out all the content and value added to books by the public, by authors who release new editions (which need to be connected, so that readers want to understand the changes made between editions), and, more widely, the cultural echoes of a work that enhance the enjoyment and importance attributed to a work.

What needs to exist beside the BookServer project is something I would describe as the Infinite Edition Project. This would build on the universal index of books, but add the following features:

• Word and phrase-level search access to books, with pagination intact;
• A universal pagination of a book based upon a definitive edition or editions, so that the books’ readers can connect through the text from different editions based on a curated mapping of the texts (this would yield one ISBN per book that, coupled with various nascent text indexing standards, could produce an index of a title across media);
• Synchronization of bookmarks, notes and highlights across copies of a book;
• A reader’s copy of each book that supported full annotation indexing, allowing any reader to markup and comment on any part of a book—the reader’s copy becomes another version of the definitive edition;
• An authenticated sharing mechanism that blends reader’s copies of a book based on sharing permissions and, this is key, the ability to sell a text and the annotations separately, with the original author sharing value with annotators;
• The ability to pass a book along to someone, including future generations—here, we see where a publisher could sell many copies of their books based on their promise to keep reader’s copies intact and available forever, or a lifetime;
• An authentication protocol that validates the content of a book (or a reader’s copy), providing an “audit trail” for attribution of ideas—both authors and creative readers, who would be on a level playing field with authors in this scenario, would benefit, even if the rewards were just social capital and intellectual credit;
• Finally, Infinite Edition, by providing a flourishing structure for author-reader and inter-generational collaboration, could be supported by a variety of business models.

One of the notions that everyone, readers and publishers included, have to get over is the idea of a universal format. Text these days is something you store but not something that is useful without metadata and application-layer services. Infinite Edition, as the illustration above shows, is a Web services-based concept that allows the text to move across devices and formats. It would include an API for synchronizing a reader’s copy of a book, as well as for publishers or authors to update or combine versions.

Done right, an Infinite Edition API would let a Kindle user share notes with a Nook user and with a community that was reading the book online; if, at some point, a new version of the book were to be printed, publishers could, with permission, augment the book with contributions of readers. Therein lies a defensible value-added service that, at the same time, is not designed to prevent access to books—it’s time to flip the whole notion of protecting texts on its head and talk about how to augment and extend texts. As I have written elsewhere over the years, this is a feature cryptographic technology is made to solve, but without the stupidity of DRM.

Granted, access to a book would still be on terms laid out by the seller (author, publisher or distributor, such as Amazon, which could sell the text with Kindle access included through its own secure access point to the Infinite Edition Web service) however, it would become an “open” useful document once in the owner’s hands. And all “owners” would be able to do much with their books, including share them and their annotations. Transactions would become a positive event, a way for readers to tap into added services around a book they enjoy.

Publishers must lead this charge, as I wrote last time, because distributors are not focused on the content of books, just the price. A smart publisher will not chase the latest format, instead she will emphasize the quality of the books offered to the market and the wealth of services those books make accessible to customers. This means many additive generations of development will be required of tool makers and device designers who want to capitalize on the functionality embedded in a well-indexed, socially enabled book. It will prevent the wasteful re-ripping of the same content into myriad formats in order to be merely accessible to different reader devices. And the publishers who do invent these services will find distributors as willing as ever to sell them, because a revived revenue model is attractive to everyone.

ePUB would be a fine foundation for an Infinite Edition project. So would plain text with solid pagination metadata. In the end, though, what the page is—paper or digital—will not matter as much as what is on the page. Losing sight of the value proposition in publishing, thinking that the packaging matters more than the content to be distributed, is what has nearly destroyed newspaper publishing. Content is king, but it is also coming from the masses and all those voices have individual value as great as the king. So, help pull these communities of thought and entertainment together to remain a vital contributor to your customers.

This raises the last challenge I presented during my talk. The entire world is moving to a market ideal of getting people what they want or need when they want or need it. Publishing is only one of many industries battling the complex strategic challenge of just-in-time composition of information or products for delivery to an empowered individual customer. This isn’t to say that it is any harder, nor any easier, to be a publisher today compared to say, a consumer electronics manufacturer or auto maker, only that the discipline to recognize what creates wonderful engaging experience is growing more important by the day.

As I intimated in the last posting, this presentation didn’t land me the job I was after. I came in second, which is a fine thing to do in such amazing times. Congratulations to Scott Lubeck, who was named today as executive director of the Book Industry Study Group. I have joined the BISG to be an activist member. I welcome contact from anyone wishing to discuss how the BISG or individual publishers can put these ideas into action, a little at a time or as a concerted effort to transform the marketplace.

The electronic publishing supply chain is dominated by distributors, particularly those that wield a popular format as leverage to gain a larger share of revenue from publishers, who are still trying to determine how to change their product to address opportunities when books are not trapped in paper. Just as the music industry in the late 90s was led by the nose by encoding companies that charged a million or more dollars to “rip” a new version of a record label’s catalog to address a new format, today’s e-book industry is being hauled along by distributors who trade “free” encoding and distribution of e-books to publishers in exchange for rights to do so. The only major difference between the e-book industry today and music industry of 1999 is that more rights are being exchanged for encoding, where music remained a cash business that sapped the labels of massive amounts of money to keep up with new formats and channels for music. There are, however, plenty of e-book services companies trying to reproduce the music encoding phenomenon with publishers who, thinking that they can pay for a format will then be able to distribute the resulting files directly.

Unfortunately for publishers, the channel is controlled by application and hardware developers who have the actual customer relationships. Amazon, which has been toying with the question of whether to compete directly with publishers for more than a year, finally did so last week by signing Seven Habits author Stephen Covey to an e-book deal that completely circumvents the publisher of the books, Simon & Schuster. When I made my presentation in November, this suggestion was greeted with horror and a reflexive dismissiveness that has been beaten into sensibility by the hard reality that publishers have never mastered the customer relationship.

Publishers have excelled at the paper distribution process, actually managing to earn profits despite the vast return rates that paper books produce by the nature of mismatched supply and demand. With electronic publishing and the Web, publishers can certainly reduce returns—indeed, that is what most publishers I talk to are banking on in order to survive the transition to mixed paper and digital publishing—but no one establishes a branded relationship with a publisher, simply because books are aimed at readers’ attention, which is completely fungible, shifting from one publishers’ products to another’s from day to day and read to read.

Competing for attention and building brand reputation for reliable, enjoyable or authoritative writing (though books will be much more than writing in the near future, as Fast Company‘s Adam Penenberg pointed out on Wednesday), requires that publishers reject the idea of a finished and closed product that exists between the the covers of a book so that the work can be freed to interact with readers in a networked marketplace.

The book supply chain is built on defined products at a time when readers are beginning to define the use of their attention in radically different ways, collecting not whole finished works, but instead discovering parts of books in other books, on Web pages and in articles, and reading their way into those titles over time. Reading relationships are accretive, they build up over time. You find a quote you like and recall it, perhaps writing it down. Later, you come across the author’s name, the same quote or another quote somewhere else and make additional connections to the work where that quote resides. Finally, you might go searching for the book or the author to see the whole idea in the context it was presented, in a book you order online or check out from a library.

However, publishers have existed as definers of whole products that could not be broken up for improved discovery. The ISBN used over most of the world to define a book’s identity exists not primarily to help the reader find the book but to help the publisher account for the book and make the appropriate payments. If a publisher is going to issue individual chapters of a book, they must treat each as a separate whole with a unique ISBN, which defeats the purpose of relating chapters and sections of a book to the whole. While those accounting problems are still vital issues, particularly if we are going to compensate writers for their hard work, the bookkeeping related to whole books doesn’t facilitate the way readers enter works today.

Books must be findable in parts, discoverable by turns from the fragment to the whole to compete with the rush of data people can access today. Books are increasingly sustainable, to address the slide above, which is a good thing, though utterly useless if the supply chain remains designed to complete the circuit between publisher and distributor to the exclusion of the reader and an author who may have more than one idea to sell at a time. Solve that one problem, the question of how to treat the parts of a book as well as the whole, and the rest of the challenges a publisher has in participating in the reader’s experience of value fall into place.

A book that is freed from the binding and social in the social media sense, that it acts as a connector of people, along with ideas, can be constantly renewed through the connectivity and curation a publisher can provide across time, over generations and between far-flung readers.

In short, the publisher can be the hub around which a book is organized and with which the readers interact both with the text and the community that book represents. Do this, and a “small” book of a few tens of thousands of copies becomes viable as an investment, because each book creates new sales opportunities by opening the door to adding value later, through the book, the e-book and across editions.

Exploding the old fixed-asset based book supply chain requires publishers take the lead. One of the primary concerns expressed when I presented this idea was that I did not address the distributors and retailers deeply, but this was a political issue and not a practical problem. Someone has to lead the way to a new definition of value in publishing and forgive me if I think it is the publishers. Distributors are primarily concerned about pricing and inventory—the notion of a book that stays “on their books” as an item in inventory after it is sold is antithetical to the distributor’s business model. Certainly, a distributor could participate in ongoing revenue from a book that continues to create value after the initial sale (which could be a “freemium” offering that drives revenue from a variety of sources, including advertising and curation of new, related ideas that are offered to readers in the future), but they don’t need the ongoing revenue if they have made their margin on the initial sale.

Retailers, on the other hand, are creatures of their communities, if they are successful. Failing retailers have become moribund because they remain enslaved to the distributor’s processes, they serve only as the disgorging point for the book supply chain if they have not carved out a unique services-oriented niche for their customers.

As the slide at the right notes, book retailing is leaving the physical bookstore, but that doesn’t mean the bookseller is doomed.

Instead, a talented bookseller can create a cultural service that thrives in a value chain based on well-defined parts of books interacting in a networked marketplace with socially connected readers. In order to do this, the bookseller must break with the existing supply chain, which asks them to manage their inventories, and focus on service to the reader, who will reward providers of value—publishers and retailers working together—with revenue. As Amazon, Barnes & Noble and Google Books have demonstrated, each of these ubiquitous interfaces to books has begun to build significant value, each in unique ways, in the networked marketplace. So, too, have stores and sites like Powells City of Books, which has not been hurt by the rise of online competitors, because it focuses on identifying its customers’ interests and providing deep service in response.

Publishers should consider cutting loose much of their sales forces and co-investing with them to create myriad specialized retail experiences that focus on categories of readers. This deep fragmentation of the book market began during the paper publishing era, when romance, mystery and other genres became industries unto themselves.

In the digital book era, that specialization can cut deeply into the pools of interested readers and differentiate based on services built around knowing a community’s tastes, knowing how to enthuse and tap the resulting passion among readers, and so forth. This is one aspect of bookselling about which I disagree with Seth Godin’s recent video presentation, in which he suggests publishers might auction exclusive rights to books—no, instead, retailers should create high-value audiences that want enhanced experience and service, including special editions and access to the author in forums conducive to intimacy appropriate to the readers’ habits. Retailers can sell that to publishers for higher shares of revenue.

Publishers must lead this change, because they remain the sole focal point within the distribution system that can— that has for decades—assembled all the resources that make books. Authoring is only one step in book production, and book distribution is another category of activity that publishers have managed, though not on behalf of authors as much as they will need to in the future. Publishers must include readers and writers in the value chain if they want to provide the services that will create the greatest value in a digital book market (one that includes paper books and other artifacts of the author/reader relationship, as well).

If publishers can take up that challenge, they will continue to thrive. If not, readers and authors will certainly find the answers they want in a retooled reading experience that shuts the door on the majority of the existing publishing industry and its current economics. Unfortunately, asking publishers and distributors to change isn’t the safest path and it certainly didn’t get me the job I was seeking that day. The politically safe path is the one that will kill publishing.

Next, we’ll look more closely at that retooled reading experience.

Two interesting factoids emerge from the marketing verbiage: First, Kindle books outsold paper books on Christmas Day, the first time that has ever happened; Second, the Kindle is the “most gifted item ever in our history,” according to Bezos. The first may not mean much, since Christmas Day isn’t necessarily a normal shopping day, though the volume of Kindle books sold suggests that on that day a lot of new Kindle users started stocking up on e-books. The second, an aggregate figure that appears to reflect all gifted items over all time, may be very significant or mean absolutely nothing at all, as the increase in online shopping and gifting continues to dwarf previous “record-setting” gift sales by the law of large(r) numbers.

Nevertheless, it is clear that this was the Kindle Christmas. During the third quarter of 2009, I estimated that Amazon sold 289,000 Kindles on sales growth of 60 percent year over year. We can assume, given the disappointing availability of most competitors, that Kindle grabbed a very large percentage of e-book reader sales this holiday season. However, it was also a poor Christmas overall, in terms of retails sales, even if Amazon did sell more stuff than ever before.

So, how many more Kindles sold between the end of the Q3 and Christmas Day? Extrapolating from previous quarters, and assuming this was a break-out sales season for Kindle, meaning that it more that doubled over the previous quarter, factoring in the sales of Kindle books versus paper books as Christmas gift cards were redeemed yesterday, I estimate Amazon sold 419,000 Kindles in the fourth quarter, or 145 percent of the sales in Q3.

That would make the total number of Kindles sold to date 1,491,000. Kindle now represents approximately 65 percent of the hardware reader market despite the appearance of Barnes & Noble’s Nook, which may reach 30,000 units in the quarter because of delays.

I still don’t think Amazon is in the hardware business for the long term. It’s all about building digital library lock-in.

Despite the increasingly rapid changes in reading due to technological evolution, the folks with whom I was talking rightly believe that they should not revolutionize their business simply for the sake of revolution, and I was perceived, unfortunately, as a revolutionary. They represented publishers, distributors, supply-chain enablers and book retailers, all of whom need to embrace changing roles as they constantly refine those roles in response to greater information about what is in a book, how books are used and what readers think about the books they purchase, borrow or steal. Having worked in publishing—in many forms and markets—for 25 years, and for several huge publishing companies destroyed by the failure to change, I think my perspective is one of pragmatic realism. Certainly, the publishing industry I arrived in as a newspaper/magazine reporter is largely gone, victim of its failure to evolve with the times, with the reader’s habits.

So, it was ironic, I thought, that my opening remark, that the future has never been brighter for publishing (in this, I completely agree with Seth Godin’s remarks about the future of publishing here—I only wish I was a good a presenter at Seth), was greeted with a sense that I was trying to paint my revolution the color of the audience’s fears about the future of their individual business models. Sure, they were thinking, it’s bright if you don’t have to fire people, change the workflows at publishing houses, in composition and printing shops, and so forth.

Books are healthier than ever, really. According to Bowker, publisher of Books In Print, more than 900,000 books will be published worldwide this year. The United States produces more than five times as many titles as only a decade ago. Moreover, the breadth of the titles has never been greater, with genres and subjects exploding in their complexity. Just as the desktop publishing revolution produced an explosion of magazines and newsletters that transformed the periodical business in the late 1980s, print-on-demand and Web technology, including e-books, have multiplied the number of books, about every conceivable topic. Worldwide, the growth of titles published is growing faster than in the U.S., as it becomes infinitely more efficient to address language and geographically specific marketplaces with printed or electronic books.

Moreover, with more than $100 billion in local U.S. media spending in play because of the fall of the local newspaper, the opportunity to connect revenue with books that engage and sustain hyper-local communities, has never been greater. Succeeding in this market, however, means changing the entire book value chain, eliminating the value chain’s focus on distributors and retailers, turning it instead to models predicated on what the reader wants and values. Reader-centrism is the only viable basis for revivifying existing publishing companies, because every new player in the publishing market is starting their business based on close identification with their customer, the reader.

Now, I want to keep this short, and go on in future postings with more detail. But let’s look at the most recent description of what a publisher does that I was able to find, in Robert Darnton’s new book, The Case for Books. Darnton, the chief librarian at Harvard and an accomplished author captures what the publisher does as completely as possible:

“Publishers are gatekeepers, who control the flow of knowledge. From the boundless variety of matter susceptible to being made public, they select what they think will sell or should be sold, according to their professional expertise and their personal convictions. Publishers’ judgments, informed by long experience in the marketplace of ideas, determines what reaches readers, and readers need to rely on it more than ever in an age of information overload.”

“Publishers are gatekeepers, who control the flow of knowledge. From the boundless variety of matter susceptible to being made public, they select what they think will sell or should be sold, according to their professional expertise and their personal convictions. Publishers’ judgments, informed by long experience in the marketplace of ideas, determines what reaches readers, and readers need to rely on it more than ever in an age of information overload.”

Mike Arrington has announced his CrunchPad web tablet, covered here, is “dead”, blaming his manufacturing partner for cutting him out of the deal. In the frothy market that is media tablets, just as in other frothy markets Arrington has stirred up, this is a story suspiciously full of holes that make CrunchPad sound like a stunt all along rather than a real project.

Bizarrely, we were being notified that we were no longer involved with the project. Our project. Chandra said that based on pressure from his shareholders he had decided to move forward and sell the device directly through Fusion Garage, without our involvement.

Later, Arrington insists other manufacturers have offered easy terms to him for the rights to manufacture the device and that he had “blue chip angel and venture capitalist investors in Silicon Valley waiting to invest in the company since late Spring. We were simply holding them off until we launched, to eliminate some of the risk.” If he’d said they were holding off for better terms from VCs because the device had launched, I’d have found this plausible. The whole story is too nice to be taken at face value.

Because Arrington, a lawyer, discloses that he never controlled the intellectual property rights to the CrunchPad, other than the trademark, and apparently had very poorly formed business agreements around the project with Fusion Garage, his manufacturing partner, this has the look of a great deal of smoke around something he’d agreed he could market without understanding the business, design and development challenges. At one point, he suggests most of the project was “pushed to open source,” but then why is it impossible to build it with another manufacturer?

Arrington claims that “prototype b” of the CrunchPad was completed by his in-house team. Certainly, it would have represented the major functional features of the design, which, if open sourced, should be available for his use in providing a functional spec to other manufacturers who could have come up with their own solutions with different components. Since he writes that his team had the release candidate device running Win7 and a version of Chrome OS, the components involved surely are commodities supported with well-documented drivers and toolsets.

Why take apart the death notice like this? Tablets and e-readers are the hottest “category” in consumer electronics, with a glut in e-readers and many media tablets on tap for 2010, customers need to read between the lines of announcements that promise revolutions but may represent black holes for their money and time. In this case, Arrington has created expectations that a $250 touch-screen device can be expected to do what consumers want, to “surf on the couch.” He created a baseline expectation that has proven to be out of line with what is possible today. It is certainly possible in six months or a year, yet customers don’t need the noise of empty promises to add to the complexity of making buying decisions.

It sounded too good to be true and it was, yet there are plenty of people who want to buy the idea and will now say it could have been done if not for a legal showdown. Customers need real world class champions of products, not contenders who tell us they could have or should have won if only the breaks had gone their way. Customers’ time and money is too hard won to expect less.

As an author services play, Smashwords has sped to the front of the pack for e-book authors. Congrats to Mark Coker and team.

This is the definition of “glut” becoming reality. We can see a glut of e-readers coming and there’s no waving off the Kamikaze piloting most of those e-readers toward the deck. Will they blow up the fuel supply needed to get the next generation of e-reading off the ground? No, but the coverage will likely make it sound like e-reader failures mean e-book failure.

With excessive abundance comes failure, and that spectacular conflagration of hardware products, unfortunately, will dominate the headlines in this market next year as many, indeed most, of these devices are pulled due to lack of sales. They are ridiculously expensive for a market where the vast majority of customers buy one book or less a year—more than 180 million Americans don’t buy a single book in any year.

Many hardware makers will retreat and e-books, not the glut, will get the blame.

Today’s dedicated e-readers sell for roughly 10 times the price of a new hardback book. Most people don’t buy hardback books, so for argument’s sake, let’s say the average price paid for a book by the 120 million Americans who buy a book each year is $12. Amazon Kindle2 and Barnes & Noble’s Nook, both of which sell for $259, cost as much as 21.6 books, which suggests they break the book-buying budget for most people. I don’t want to suggest there is a magic price for reader hardware, because we’ll see some of the new e-readers announced this year selling for $59 next year, because retailers cannot get rid of them. That is a result of fierce competition, but leave it to the press and bloggers to turn the whole process into a mandate on e-books, not the expensive hardware.

This isn’t a horse race, but a complex evolutionary event, that cannot be reduced to headlines. Consider: “T. Rex extinct, world awaits silence of lifelessness” would have made the papers, if dinosaurs had had their Gutenberg.

Yet, it’s a short step from “people don’t want e-readers” to “people don’t want e-books,” one that hardware manufacturers will avail themselves of to explain to enraged investors whey they are bailing out of the e-reader market. That simple syllogism will lead to the wrong conclusion.

The most optimistic estimates are that five million e-readers will sell in the next 12 months, with approximately one million flying from shelves to eager readers this Christmas. Noelle Skodzinski, editor in chief of Book Business, speaking during the Digital Content Day @ Your Desk conference last week (which you can view on-demand for three months), cites very conservative sales levels, Simba Information’s estimate that only 500,000 Kindles will have sold by the end of this year. That’s a low number, I think.

Nevertheless, even if three million e-readers sell in the next year, there can only be two to five winners among device makers. Nook, Kindle, and the Sony Reader all have sufficient market exposure to ensure they will remain standing, but most others don’t stand a chance of hitting 30,000 units in sales. Dozens of these unshipped products will fail.

In the meantime, e-book sales and downloads will skyrocket relative to current levels, but still be capturing single-digit shares of the total book market. That will be progress for e-books.

For the device makers, it will mean we are getting closer to some kind of “iPod moment.” Skodzinski’s slides from the event compare Kindle sales to iPod sales in 2002, suggesting that we are on the steeper part of the hockey stick, but it’s not the right comparison. iPod marked a departure from the first-generation of MP3 players, but we are still in the stage of the market that music downloads was in the late 90s. There is no iPod, no Walkman, no IBM PC, yet. Kindle1, Kindle2 and DX are likely to the breakthrough e-reader yet unseen what iRiver MP3 players were to the iPod, and that is not to say that a future Kindle couldn’t be the “iPod of e-books,” though my instincts tell me the future of reading is a converged device.

For the “winners” in the hardware smackdown, their prize will be merely the opportunity to duke it out in the next round, when devices will have to be much cheaper or pack substantially more functionality at today’s prices.

Let’s not get distracted by the creative destruction going on all around e-book hardware, reading is thriving and certainly migrating toward digital uses.