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Friday, February 12, 2010, 07:50 am PT (10:50 am ET)

Amazon may compete with Apple iPad by giving away free Kindles

As Amazon's e-book business continues to evolve in the wake of the Apple iPad announcement, a new rumor suggests the company is exploring the possibility of giving a Kindle reader to its best customers.

Michael Arrington of TechCrunch reported Friday that Amazon is considering a promotion that would give a free Kindle to subscribers of its Amazon Prime service. At a cost of $79 per year, Prime offers free two-day shipping on selected items, and one-day shipping for just $3.99.

"These are Amazon's very best customers — the ones who tend to make multiple purchases per month," Arrington wrote. "And they are also likely to buy multiple books per month on their Kindle devices. If those users buy enough books, and Amazon gets the production costs of the Kindle down enough, Amazon can get Kindles into “millions” of people’s hands without losing their shirt."

Citing a "reliable source," he said Amazon's goal is to find a way to put a Kindle in the hands of Prime subscribers without losing money on the deal. The company ran a promotion in January where they asked users to try the Kindle, and those who were not satisfied were given a full refund, but got to keep the hardware.

The moves are just another example of Amazon rethinking its Kindle platform following Apple's iPad announcement. The company recently purchased touch-screen maker Touchco, which it plans to incorporate into the Kindle's hardware division for a future version of the device.

Amazon has said it has sold millions of Kindles, but has not given an exact number. Still, the e-book market has proved to be of value to the online retailer: The company revealed last month that it sells six Kindle e-books for every 10 physical books.

The Kindle and large-screen Kindle DX are available in over 100 countries, and the Kindle iPhone application is available in Apple's App Store in over 60 countries. E-books can be synced between the Kindle reader, PC software, and Apple's iPhone and iPod touch. Kindle software is also forthcoming for the Mac and iPad.

But Apple hopes to counter Amazon with its recently announced iPad. At the product's unveiling, Apple co-founder Steve Jobs credited Amazon with pioneering the e-book market with the Kindle, but he said Apple intends to improve on that model. "We're going to stand on their shoulders and go a bit further," he said.

With a 9.7-inch screen and a starting price of $499, the iPad offers a vibrant, color screen suited for a variety of multimedia consumption, while Amazon's e-ink, black-and-white Kindle is best suited for reading books.

Apple will serve books for the iPad through its iBookstore, due to be a part of the iBooks application for iPad. The software features a 3D virtual bookshelf displaying a user's personal collection, and allows the purchase of new content from major publishers. Like the Kindle, it will offer content from the New York Times Bestsellers list.

The introduction of the iPad has driven publishers to force Amazon into higher prices for new hardcover bestsellers. While books are currently priced at $9.99 on the Kindle, that is expected to rise to between $12.99 and $14.99 by the time the iPad launches in March.