According to Rohan, the Fire is selling very, very well. So well, in fact, that on Sunday evening he raised his estimate for fourth-quarter Fire sales to six million units from five million, proclaiming the device a true tablet market contender.

“Kindle Fire has staked out an important market position due to its loyal Amazon customer base and attractive (low) device pricing,” Rohan said in a note to clients. “We believe the lower hardware price will correlate with high e-book and video content attach rates.”

In other words, there’s some serious potential upside to be had in incremental e-commerce spending via the Fire, and Amazon’s aim is to milk it for all it’s worth.

“We believe that software attach rates correlate inversely with the hardware price. From Amazon’s perspective, this could drive real upside in its North American media segment revenues,” Rohan concludes. “From a cost perspective, the shift to digital delivery of content could help Amazon avoid costly free shipping subsidies. Hence, we believe there is a great deal more to the Kindle device strategy than most have discounted.”

How big a toll? That one’s up for debate: Richard Rosenblatt’s company says the changes, which affect the traffic that Demand’s sites get from Google, aren’t significant enough for the company to change its guidance.

Most of Wall Street disagrees, and has been hammering Demand shares for the last couple of weeks. DMD is now trading around $16.70, down from a peak of more than $27 earlier this year.

In a note published today, Stifel Nicolaus analyst Jordan Rohan argues that investors are overreacting (Stifel helped take Demand public in January), and keeps his “buy” rating intact. A worst-case scenario, he says, is that the Google changes will clip Demand revenues by 10 percent and EBITDA by 20 percent–but Wall Street has pummeled Demand much more than that.

Rohan (and many others) are very interested to see what Demand says on its May 5 earnings call:

EHow and Demand Media had a great deal of momentum all the way through the first quarter and into the second quarter. But there is now this new variable with which to contend–it is hard to forecast traffic if there is volatility in index rank. How does that all balance out? To the extent that is possible to broaden the range of possible outcomes for the year, without abandoning the guidance altogether, we believe that would be incrementally positive, at least compared to current levels of fear. Maintaining guidance for full year revenue and EBITDA would be even sweeter, if possible. The “what can be done” part of this is key, in our view–own up to the weaknesses, identify the steps required to address those weaknesses, and correct course. Quickly.

Which sounds great. The problem for Demand (and many other publishers, including the New York Times, which said that its About.com had been beaten up by algorithm changes, too) is that it’s entirely possible that Google isn’t done adjusting its search formulas.

And what if it’s just beginning to overhaul search?

If so, every Google-dependent publisher is going to have a very hard time responding to each and every change the search giant makes. Which means that Demand Media’s fortunes will be in flux for some time. And it will be very hard to make Wall Street feel good about that.

But until then, here are the reasons the Daily won’t work, followed by the reasons it will. They’re both from the same guy–Stifel Nicolaus analyst Jordan Rohan. From his note published yesterday:

CONS:

1. Consumer Acceptance Could Take Time: Nobody really knows the future of the iPad daily, and the official launch party is not “where the rubber meets the road” in terms of understanding consumer acceptance of such a new concept.

2. Hype or Reality?: Hype does not necessarily translate into market share, revenue, or cash flow.

3. Control: Apple tends to control its environment so tightly that there may be clashes down the road with apps offered by Yahoo!, Google, Facebook, AOL, Amazon, and a host of other Internet companies. This could reduce overall profit potential for iPad publishers.

4. Understanding the revenue model will be key. Online ad networks and other intermediaries could be left on the outside, looking in, if the iPad remains a premium offering with high CPMs. The subscription model is somewhat irrelevant unless it scales to support a vibrant advertising environment. We will have to wait and see on that key point.

PROS:

1. Product Differentiation: News Corp could marshal the resources of its newspaper, cable television, studio, and Internet divisions to differentiate the product from most other companies.

2. Apple is a powerful ally. The recent track record of product innovation and commercialization at Apple is unmatched. If Apple is willing to throw its weight behind this initiative, along with News Corp, then the chances of success are high.

3. Playing Offense: If News Corp can make an iPad daily work, then other media companies will begin to play offense as well. And that is generally a good thing for innovation, and ultimately for advertisers and marketers alike.

4. Makes More Sense than Wired for iPad: Mid last year, we attended a pre-launch event for Wired magazine’s iPad initiative, which Conde Naste marketed at a surprising $5 per copy. The product was beautiful, but results were mixed at best. And it was a monthly, not a daily, which implied that the frequency of visitation was much lower.

Rohan, by the way, is ultimately bullish on the Daily, and he was that way before he got a look at the thing at Rupert Murdoch’s apartment last night. Now he’s very, very bullish, but he’s been embargoed from talking about it until noon today.

The Daily’s formal unveiling will start an hour earlier, at 11 am ET, and I’ll be liveblogging then; check back here in a bit for a link.

Until then, you can check out this preview from CNN, which got an “unofficial sneak peak” [sic] at the Daily. Spoiler alert! It reads a lot like the preview I ran yesterday, written without the benefit of any peaking [sic].

(Disclosure: This site is also owned by News Corp. Which didn’t get me an invite to Murdoch’s party or, per above, any advance look-sees).

We see little to stop Google from reaching 70 percent market share eventually; the question, really, comes down to, ‘How long could it take?’”

– RBC Capital Markets analyst Jordan Rohan, March 2006.

No wonder the Department of Justice was going to file suit to prevent Google’s (GOOG) proposed advertising partnership with Yahoo: The company controls nearly three quarters of the search market. Research outfit Hitwise reports that Google’s share of the U.S. Internet search market rose to 71.7 percent in October from 71.16 percent in September. A nice little jump from the 64.49 share it claimed a year ago.

And what of Yahoo (YHOO) and Microsoft (MSFT)? Well, they fared about as you would expect. Yahoo’s share fell to 17.74 percent in October from 18.06 percent in September and 21.65 percent a year ago. In contrast, Microsoft’s share rose slightly to 5.4 percent, up from 5.36 percent in September.

Sadly, that’s a decline of about two percentage points year-over-year. Not even a respectable showing for an also-ran. ‘Course, that will all change if Microsoft ever gets around to acquiring Yahoo–or, at least, its search business. Together the two companies would control almost, but not quite, a quarter of the search market.

According to new metrics from Hitwise, Google’s (GOOG) share of the U.S. Internet search market grew to 70.77 percent in July. That’s a 10 percent increase over the same month last year. The search juggernaut’s growth came once again at the expense of rivals Yahoo (YHOO), Microsoft (MSFT) and Ask. The market share of all three declined in the same period–Yahoo’s to 18.65 percent, Microsoft’s to 5.36 percent, and Ask’s to 3.53 percent.

Seems that search really is a natural monopoly business, as Credit Suisse analyst Heath Terry once noted. “We believe that search is a natural monopoly business and expect that over time Google will continue to gain share until they have effectively reached 100 percent,” Heath wrote in a research note to clients last year. “Over the last two years Google has gained 50 [basis points] of share/month in the U.S. and 60bp globally. We expect these share gains to accelerate as declining scale makes it more difficult for competitors to justify the technology investments needed to maintain search result quality.”

If that’s the case, if search is a natural monopoly business, then Google is apparently its natural monopolist. After all, a 70 percent share of the search market is … well, it’s obscene, really. And it begs many a question about the company’s partnership with Yahoo and the potential antitrust problems it may present. No wonder the document outlining the terms of two companies’ search advertising deal is so heavily redacted …

According to new metrics from Hitwise, Google’s (GOOG) share of the U.S. Internet search market grew to 70.77 percent in July. That’s a 10 percent increase over the same month last year. The search juggernaut’s growth came once again at the expense of rivals Yahoo (YHOO), Microsoft (MSFT) and Ask. The market share of all three declined in the same period–Yahoo’s to 18.65 percent, Microsoft’s to 5.36 percent, and Ask’s to 3.53 percent.

Seems that search really is a natural monopoly business, as Credit Suisse analyst Heath Terry once noted. “We believe that search is a natural monopoly business and expect that over time Google will continue to gain share until they have effectively reached 100 percent,” Heath wrote in a research note to clients last year. “Over the last two years Google has gained 50 [basis points] of share/month in the U.S. and 60bp globally. We expect these share gains to accelerate as declining scale makes it more difficult for competitors to justify the technology investments needed to maintain search result quality.”

If that’s the case, if search is a natural monopoly business, then Google is apparently its natural monopolist. After all, a 70 percent share of the search market is … well, it’s obscene, really. And it begs many a question about the company’s partnership with Yahoo and the potential antitrust problems it may present. No wonder the document outlining the terms of two companies’ search advertising deal is so heavily redacted …