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Amazon Buys iPhone E-Reader App Maker

Amazon now controls the two top e-book applications for the Apple iPhone, following its acquisition of Stanza developer Lexcycle -- a move that extends the e-tailing giant's reach in the e-reader market beyond its own Kindle.

Lexcycle's free Stanza app for Apple's (NASDAQ: AAPL) iPhone and iPod touch claims more than 1 million downloads. The app provides access to a catalog of about 100,000 e-books in the open ePub format, which isn't supported by Amazon's (NASDAQ: AMZN) digital reader device, the Kindle.

"It's very early days for e-books and we believe there is a lot of innovation ahead of us," an Amazon spokesperson told InternetNews.com. "Lexcycle is a smart, innovative company and we look forward to working with them to innovate on behalf of readers. Lexcycle will maintain its business model while continuing to innovate as new opportunities arise."

She declined to comment on financial terms of the deal.

The deal makes Stanza the second e-book application owned by Amazon now on the iPhone. Last month, Amazon released the Kindle iPhone e-book reader, which is also free. Stanza and the Kindle iPhone app both compete with Wattpad, another e-book reader, which is the third most-download e-book application, followed by Barnes & Noble's Fictionwise eReader.

The acquisition comes at a time when the nascent digital book industry is heating up, with Barnes & Noble (NYSE: BKS) entering the fray by buying its own app maker, Fictionwise, and rumored to be creating a device aimed squarely at the Kindle, which Amazon updated earlier this year.

For its part, the latest edition of Amazon's e-book reader, the Kindle 2, is getting positive reviews -- and likely making money, according to a look at the cost of the device's components conducted by iSupply.

Still, the online e-tail giant may not want to be in the hardware business for the long-term, so making a deal with a software developer that knows the mobile market makes sense, Tim Bajarin, principal analyst at Creative Strategies, told InternetNews.com.

"Amazon's main goal is to be the premium supplier of digital books to any and all types of e-book readers, no matter what the device is," Bajarin said. "Clearly, the iPhone is an attractive platform but they understand that smartphones as well as new types of ebook readers will become great mediums for delivering digital books in the future."

"The Kindle itself was more a proof-of-concept device in that it gave them a solid medium to deliver their e-books, he added. "But Amazon has no desire to be in the hardware business in the long run, Amazon sees its greatest growth not in selling more Kindles but in getting their digital books on a plethora of devices such as smartphones, so that they ultimately can become the dominate provider of e-books."

Bajarin said he sees Lexcycle fitting in as a complementary business. "Lexcycle will now become their software arm that allows them to create an elegant e-reader that can be customized for smartphones, other e-reader devices and who-knows-what other type of mobile devices that may come out over time that could be used for reading digital books."

Amazon and Barnes & Noble aren't the only competitors poised to battle it out in e-books, however. Sony and Google just partnered up to bolster Sony's digital reader division, which several years ago began offering Kindle-like e-readers and an e-book store.