The iPad is billed as an eBook reader. Apple built a very pretty, Classics-like reader app for the iPad called iBooks. But more importantly, Apple created a new eBook distribution system based on the previous successes of the iTunes and App Stores: the iBookstore. It seems to me that Apple would be crazy not to make a version of iBooks for the iPhone, ideally one that syncs like the NYT reader app showed off on stage yesterday. But doing so makes me wonder if the relationship with Amazon will change.

Amazon’s Kindle app for the iPhone is brilliant. The UI is better than the Kindle’s making annotations and note-taking much easier. The WhisperSync capability is convenient for reading bits of a book while away from the Kindle, standing in line at the bank etc. I wouldn’t want to read an entire novel on the tiny, back-lit screen, but I know of many people that do.

Nevertheless, the iBookstore changes the game because Apple will get a cut of every book sold — the distribution fee — something that it does not get from books sold by Amazon and downloaded into the Kindle app on the iPhone. How will this impact competition from Amazon’s Kindle app, which effectively “duplicates functionality”, a sin known to lead to disbarring from the App Store? I see a few choices for Apple:

1. Make iBook an exclusive iPad app, which will help differentiate it from the iPhone/iPod touch, and prevent competition by not approving an Amazon Kindle app for the iPad. Kindle users with iPhones can continue on their merry way.
2. Make an iPhone version of iBook with WhisperSync-like functionality, which increases reading platforms and hopefully sales, don’t allow Kindle on the iPad, and find some way of de-approving the iPhone Kindle app to prevent competition.
3. Let both iBook and Kindle compete side-by-side on all devices.

Despite potential lost sales for the iBookstore, allowing Amazon Kindle books to be read on the iPad could translate into more hardware sales, which are probably worth more to Apple than the commission on book sales. Furthermore, Kindle users are already used to tablet-like hardware and are primed for a device like the iPad. A portion of those may not feel so loyal to E Ink and switch. Some Amazon customers might buy at the expense of a Kindle, eschewing the iBookstore completely. Or they may keep on using the Kindle, feeling that the iPad’s reading functionality is only secondary, but appreciate the capability to read their Kindle library if they want to. Regardless, we have a few months to consider this problem. I don’t know how Apple worked its deal with the publishers, but as a Kindle user, I hope it turns out to be option #3.