What do you do? My advice: Turn the Kindle for iPad app into the most exciting reader app in the industry.
You might have noticed that Amazon has released several "Kindle for..." apps up to now. There's a Windows one, a Mac one, an iPhone one, etc. They're all intended to complement the Kindle, not replace it...and that's the problem with the iPad version.
It only took a couple of hours of iPad use to realize I'll never touch my Kindle again. Ever. All my Kindle books are now on my iPad. Do I mind that the iPad's backlit display isn't as easy on my eyes as the Kindle's? No. I read off that iPad display for about 10 hours on Saturday and my eyes felt the same as they did the day before.
And while I love the Whispersync technology Amazon uses to keep my place across devices, I really don't see myself reading books across devices now. I can't put the iPad down. I used to read a bit in bed on my iPhone but now I'll just do the same with my iPad. The Kindle for iPad app is brain-dead compared to the iBooks one though. Even the dictionary feature on the Kindle is missing from the app. Then there's the glaring issue with no sample support. That's right. I can't preview Kindle books through the iPad app, so how do they expect me to buy anything from them?! (UPDATE: I stand corrected. You can download Kindle samples to the iPad app.) Amazon has apparently also conceded the newspaper/magazine segments to Apple as there's no way to read your Kindle subscriptions through the iPad app.
As long as this app is nothing more than a bare-bones reader Amazon is giving me zero incentive to buy ebooks from them. Why would I make my content investment in a dead-end technology when I could probably get the same title through the iBookstore?
So Jeff, resist the temptation to limit the functionality of the Kindle for iPad app. Make it as rich as possible. Make it extensible so that new types of content can be added to it. Reach out to the community and see what features excite them. Experiment and innovate! Don't let it rot on the vine like the "Experimental" features have on the Kindle.
Kindle sales are already going to take a hit because of the iPad. You'll continue selling to people who are convinced the Kindle offers a better reading experience than the iPad. It doesn't though.
You can afford to lose the hardware battle but you really don't want to lose the content battle. Focus on your reader apps and make them world class, OK?
P.S. -- The iPad is great but it's not without its flaws. Click here to read the details of my first day with this very promising device.