But will the Kindle ever be free?

“It’s not possible. The economics don’t work,” Jay Marine, a Kindle director said in an interview. “At $114, we think it is the best deal for a consumer electronic. We sell a lot of consumer electronics, so we should know it’s a good deal.”

What if it were tied to other offers, like Amazon Prime, which costs $79 a year and offers free two-day shipping and access to free streaming movies?

“I don’t know how to do it. I would not get your hopes up,” he added.

Three years ago, the first Kindle went on sale for $399, and each subsequent price drop led to a spike in sales.

Last year, when Amazon dropped the price to $139 for the Wi-Fi model and $189 for 3G, it became the company’s best-selling product in history. What’s more, robust sales helped catapult Kindle books to become the most popular format on the giant bookseller’s site, surpassing hardback and even paperback books.

The new Kindle introduced today will cost $114 when it comes out on May 3. That’s roughly the same price as 10 paperbacks. It will be sold by Amazon, Best Buy and Target.

Marine’s comments aside, it appears Amazon is doing everything it can to bring the price of the device down. This time, it has squeezed another $25 out of the system with assistance from advertisers.

The Kindle at $114 will display full screen ads on the home screen, and a much smaller banner ad will appear at the bottom of the screen when using the menu. Ads will not appear inside books (and nothing changes for the more expensive Kindle models). Initial advertisers that have signed up include General Motors, Procter & Gamble and Visa.

At the new price point, the Kindle will inevitably attract a few more hold-outs. But without hitting the $99 sweetspot, it’s questionable whether it will be enough for the masses, especially since it will now ship with advertisements. ”We know price matters. We expect people to love it,” Marine said.

To be sure, Amazon is trying to make the experience sound as painless as possible.

For starters, the Kindle with Special Offers will have the exact same hardware that’s on sale at $139. It includes the same battery life, storage capacity and screen resolution.

And, the advertisements themselves are being sold less like a display banner and much more like a daily deal that a user has opted into, much like what Groupon and LivingSocial are offering today via email. The name “special offers” says it all. In fact,  Amazon will offer $20 gift cards for $10, a near-identical deal to the one LivingSocial offered earlier this year, which led to more than one million sold.

Marine said there’s no direct connection between LivingSocial and Amazon today despite the company’s $175 million investment in the company.

Other specials include: $6 for six Audible books (normally $68), $1 for an album from Amazon MP3 Store and $10 for $30 of products in Amazon’s Demin Shop. Users will also be able to help dictate what ads end up appearing on their homescreen by placing votes on a system Amazon calls the AdMash.

Not once has Amazon revealed how many devices it has sold, preferring to speak in vague terms, such as millions of sales, or Kindle sales eclipsing “Harry Potter and the Deathly Hallows,” the seventh book in the children’s series.

Maybe that will change now that Amazon will have to respond to advertisers, who want to know the size of the audience it is reaching.

Nah, probably not.

So here’s a Web ad campaign that cuts to the chase, and simply tells you up front that it’s stalking you.

And the chances are very, very high that you’re not going to care.

That’s because the ads come from AdExchanger.com, a very niche (and very good) trade publication that focuses exclusively on ad technology. And the only way you’re going to see the ads will be if you’ve visited AdExchanger.

And that means that you’re almost certain to understand and embrace concepts like “retargeting”–following a prospective customer from site to site using electronic tracking signals.

Which is why AdExchanger’s campaign comes right out and tells you that it’s using retargeting to serve up the banner ads–its an in-joke.

Again, anyone who’s seen the ads in their natural habitat understands what’s going on here, but to spell it out:

• AdExchanger’s John Ebbert–he’s the publisher, editor, janitor, etc. for the one-man operation–sets an electronic “cookie” on his site.
• That allows Google’s AdWords service to find browsers (it isn’t actually able to identify people, a fact that’s important for Ebbert and everyone else in ad tech right now) that have visited the site. Then it serves those browsers ads when they visit other sites.
• The ad campaign is designed to remind people to come back to AdExchanger, and/or visit its Facebook page.

“It was an interesting opportunity to use retargeting to have a conversation about a conversation,” Ebbert says. And to use one of the oldest marketing techniques in the book–get people to give you free advertising by talking about your advertising.

Meanwhile, a side note for “content creators” trying to figure out how to make a living: Consider thinking small.

That’s what Ebbert has done here, and it’s working very well for him. AdExchanger is microscopic by Web publishing standards–it attracts a mere 35,000 unique visitors per month–but that’s all he needs to make a living in Manhattan.

That’s because that audience of 35,000 includes every single person in the ad technology industry, more or less. And because that industry is so red-hot right now–VCs are pouring money into the business, and start-ups are vying for the attention of potential acquirers like Google, Yahoo and AOL–he’s able to do just fine selling sponorships at rates much bigger sites could never land.

This morning, the company announced a new service that allows publishers to embed ad-supported YouTube videos in their Web sites. The videos will be distributed through Google’s AdSense network and will carry two ad placements: a banner at the top of the video player that can be either text links or a graphical display, and a text link ad at the bottom. Ad revenue will be split between site publishers, video publishers, and Google. The ads themselves, according to Google at least, will be relevant to both video and site content, as well as “unobtrusive.” A win-win service for everyone involved.

“Content distribution on AdSense improves the overall Web experience by connecting consumers with more relevant information and entertainment on the sites they visit,” Google explained. “This new program is a scalable and cost-effective way to distribute content online, creates a new revenue opportunity for publishers and content owners, and helps advertisers reach their target audiences in new and innovative ways. It will also allow AdSense publishers a unique way to enhance their sites with fresh, dynamic content.”

Or gum them up with behemoth video ads fattened with Google Analytics code, something Google would never do to its own famously spartan pages. Remember, text ads save lives, flashy ads take them, as Rough Type’s Nick Carr aptly notes:

I’m sure I don’t have to remind you of how Google used to brag about the way its refusal to serve banner ads was literally saving people’s lives–a claim that earned it some fawning press coverage. Sergey Brin would point to the case where a fellow was in the early stages of a heart attack and went online to find out what he should do. As Fortune Small Business reported:

“ ‘He started using one search engine, but it was too slow because the banner ads were loading, so he switched to Google. After getting the information he needed, he headed to the hospital immediately … “Not only did our search engine save his life, but it shows that these decisions–like whether to use text-based or graphical ads–matter,” says Brin, the co-founder of Google.’

“I don’t think Brin talks about this story so much anymore. While Google has yet to incorporate graphical ads into its search pages, it does serve millions of them up to outside sites through AdSense. I wonder how many people in the throes of a medical emergency have rushed to a health-care information site only to find themselves helplessly waiting for some big animated AdSense ad to load (and, as well, the Google Analytics code to run). Now, these poor souls are also going to have to endure the loading of YouTube videos and their accompanying ads. I can only hope that they’ve kept up with their life insurance premiums.”

This morning, the company announced a new service that allows publishers to embed ad-supported YouTube videos in their Web sites. The videos will be distributed through Google’s AdSense network and will carry two ad placements: a banner at the top of the video player that can be either text links or a graphical display, and a text link ad at the bottom. Ad revenue will be split between site publishers, video publishers, and Google. The ads themselves, according to Google at least, will be relevant to both video and site content, as well as “unobtrusive.” A win-win service for everyone involved.

“Content distribution on AdSense improves the overall Web experience by connecting consumers with more relevant information and entertainment on the sites they visit,” Google explained. “This new program is a scalable and cost-effective way to distribute content online, creates a new revenue opportunity for publishers and content owners, and helps advertisers reach their target audiences in new and innovative ways. It will also allow AdSense publishers a unique way to enhance their sites with fresh, dynamic content.”

Or gum them up with behemoth video ads fattened with Google Analytics code, something Google would never do to its own famously spartan pages. Remember, text ads save lives, flashy ads take them, as Rough Type’s Nick Carr aptly notes:

I’m sure I don’t have to remind you of how Google used to brag about the way its refusal to serve banner ads was literally saving people’s lives–a claim that earned it some fawning press coverage. Sergey Brin would point to the case where a fellow was in the early stages of a heart attack and went online to find out what he should do. As Fortune Small Business reported:

“ ‘He started using one search engine, but it was too slow because the banner ads were loading, so he switched to Google. After getting the information he needed, he headed to the hospital immediately … “Not only did our search engine save his life, but it shows that these decisions–like whether to use text-based or graphical ads–matter,” says Brin, the co-founder of Google.’

“I don’t think Brin talks about this story so much anymore. While Google has yet to incorporate graphical ads into its search pages, it does serve millions of them up to outside sites through AdSense. I wonder how many people in the throes of a medical emergency have rushed to a health-care information site only to find themselves helplessly waiting for some big animated AdSense ad to load (and, as well, the Google Analytics code to run). Now, these poor souls are also going to have to endure the loading of YouTube videos and their accompanying ads. I can only hope that they’ve kept up with their life insurance premiums.”