In fact, the e-reader was never supposed to be a big part of its business, but now it is seeing the merits of pursuing a hardware business as well.

Today, the Toronto-based company is unveiling its latest e-reader, which comes with the same gray-scale displays that the devices are known for, but boasts a touch display. Users will be able to flip to the next page of the book with a swipe of their finger, a much more natural motion than having to use a directional keypad.

Starting today, the new Kobo eReader Touch Edition will be available for pre-order at Indigo in Canada and Best Buy, Borders and Wal-mart in North America. It will cost $130, and will start shipping in early June.

The company’s first-generation device will be marked down to $100.

“By default, we launched the first device to get into the market,” said Todd Humphrey, Kobo’s EVP of business development. “But what we found is we were able to remain competitive….We are an e-book company, but the device is part of that strategy. We’ll continue to put out top-tier devices in the market.”

Kobo, which celebrated its one-year anniversary in December, announced in April that it had raised a $50 million round in venture capital to help it go up against some serious competition.

Also pursuing e-books are much larger rivals, such as Apple with the iPad, Amazon with the Kindle and even Google. Additionally, Barnes & Noble, which has invested heavily in the Nook, plans to introduce a new e-reader tomorrow at an event in New York.

Humphrey said the decision to produce additional devices does not mean the company is less invested in the digital e-book side of the business.

“I think we are a hardware company in the sense that the device is a pure reading device. They aren’t suddenly getting emails or ads, or allowing people to play Angry Birds. Our consumers have told us they like a single-purpose device, and we will continue to meet the needs of our customers,” he said.

Other e-readers are morphing into tablets as companies see the success of the iPad, and Amazon is rumored to be working on one of its own.

Kobo says it has more than 3.6 million users in more than 100 countries.

But it has not disclosed how many of its original Kobo devices it sold, just like Amazon, which also refuses to say how many Kindles it has sold. The biggest hint it provided recently was that it is now selling more e-book titles than paperback and hardback combined.

Humphrey would not say if a tablet would be next for Kobo or not.

“We have nothing to announce, but we are looking at all the options. We want to enable great reading experiences,” he said.

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.

That’s as close as the Seattle-based e-commerce company has come to revealing its sales numbers–ever.

In the past, it’s spoken in broad strokes, claiming that the device was “the fastest selling ever” or that the “Kindle is far and away our bestselling gift item.”

CEO Jeff Bezos also predicted that sales of electronic books will surpass paperback sales by next summer or fall, and sometime after that they will surpass the combination of paperback and hardcover sales.

Truth be told, that’s likely the more important figure for Amazon, rather than hardware sales. With an app virtually on every portable device, including the iPad and several smartphones, its electronic book distribution reaches way beyond the number of Kindles in the wild.

However, with increasing competition from Apple’s iPad and other devices, like the Barnes & Noble’s Nook, there’s still plenty of competition.

For context, the Kindle team says the number of Kindles sold this holiday season is more than the number sold in all of 2009. The sales figures were first mentioned and reported by Daring Fireball.

In September, Barclays’ Douglas Anmuth guessed that Amazon will sell about five million Kindles this year with the help of the latest redesign and more appealing $139 to $189 price points.

Oh. No. That can’t be it, either: Here’s another Amazon press release, which tallies up Kindle sales without actually telling you how many Kindles Amazon has sold.

As usual, Amazon presents a comparison instead of a count: The company says it has moved more third-gen Kindles, which went on sale in August, than its total of older models for the last three months of 2009. Pause. Does the apples-to-pears nature of this one throw you for a loop? Me too.

And another data point: Amazon is now selling more Kindle titles than hardcover and paperback books. That’s a new wrinkle on an old bragging point: In the past, Amazon said that it had sold more Kindle titles than hardcovers.

Not surprisingly, Amazon doesn’t mention the impact of  the iPad on its e-book sales, but it’s likely substantial, since iPad owners can read Kindle titles on Apple’s tablet.

Want to read about Kindle sales from a source other than Amazon? No problem. Here’s a discussion of J.P. Morgan’s report on the e-book boom, and one from Citi about the impact of the Kindle on Amazon’s P&L; Mark Mahaney thinks the Kindle will account for seven percent of the company’s revenue this year.

New Generation Kindle Device Sales Already Surpass Fourth Quarter 2009 – The Peak Holiday Shopping Season and Busiest Time of Year on Amazon

Amazon.com Customers Now Buying More Bestsellers on Kindle Than Paperbacks and Hardcovers Combined—At a Rate of 2 to 1

SEATTLE—October 25, 2010—(NASDAQ: AMZN)—The new generation Kindle devices are the fastest-selling Kindles of all time and the bestselling products on Amazon.com and Amazon.co.uk.  Today, Amazon.com announced that sales of the new generation Kindle devices since their introduction have already surpassed total Kindle device sales from October through December 2009.

“It’s still October and we’ve already sold more Kindle devices since launch than we did during the entire fourth quarter of last year—astonishing because the fourth quarter is the busiest time of year on Amazon,” said Steve Kessel, Senior Vice President, Amazon Kindle. “Readers continue to choose Kindle for its all-new electronic ink screen with 50 percent higher contrast, readability in bright sunlight, long battery life of up to one month, light 8.5 ounce form, flexibility to read their books across all major LCD devices and platforms, and low $139 price.  It’s clear that this is going to be the biggest holiday for Kindle yet—by far.”

In addition, Kindle book unit sales continue to overtake print on Amazon.com, even while print book sales continue to grow.  During the past 30 days, Amazon.com customers purchased more Kindle books than print books—hardcover and paperback combined—for the top 10, 25, 100, and 1,000 bestselling books on Amazon.com.

“For the top 10 bestselling books on Amazon.com, customers are choosing Kindle books over hardcover and paperback books combined at a rate of greater than 2 to 1.  Kindle books are also outselling print books for the top 25, 100, and 1,000 bestsellers—it’s across the board,” said Kessel.  “This is remarkable when you consider that we’ve been selling hardcover and paperback books for 15 years, and Kindle books for just 36 months.”

Other recent milestones for Kindle include:

• In the 12 weeks following the introduction of the new generation Kindles, Kindle devices or Kindle-related items such as Kindle books and covers represented 15 of the top 15 bestselling items on Amazon.com and Amazon.co.uk combined.

• Amazon sold more than 3 times as many Kindle books in the first nine months of 2010 as in the first nine months of 2009.

• The Association of American Publishers’ latest data reports that e-book sales grew 193 percent between January and August 2010. Kindle book sales growth during the same period exceeded this rate.

The latest to hazard a guess: Barclays’ Douglas Anmuth, who estimates that Amazon (AMZN) will sell about five million Kindles this year. Driving those sales, the device’s latest redesign and its more appealing $139/$189 price point.

“We expect Amazon will sell more than 5 million Kindles this year, going toward 11.5 million in 2012,” Anmuth says. “We believe a bifurcated market has clearly developed between more expensive, multi-function tablets and cheaper, dedicated eReaders. We expect the Kindle to maintain and even grow share of the eReader market, while Amazon’s Apps strategy enables the Kindle store to be the leading eBooks seller across a wide range of devices. We project total Kindle related revenue to reach $1.7 billion this year and grow to $4.3 billion in 2012.”

An interesting bit of crystal ball reading, particularly in light of Amazon CEO Jeff Bezos’s prediction this past summer: “I predict we will surpass paperback sales sometime in the next nine to 12 months. Sometime after that, we’ll surpass the combination of paperback and hardcover. It stuns me.”

I’ve had a love-hate relationship with the device since I bought my first one about 9 months ago. As a frequent traveler and voracious reader, I’ve found the Kindle to be nearly ideal. I never have fewer than a dozen books in its memory, and they’re always things I want to read.

As someone who believes we should often interact with media instead of passively consuming it, however, I don’t think much of the Kindle for any purpose other than reading a narrative. And given what a disaster “digital rights management” (DRM) is becoming for scholarship, culture and ultimately freedom, the device’s restrictions on how I can use what I’ve purchased are deeply troubling.

Still, I’ve been using it with some degree of satisfaction (as have enough other people to have helped boost Amazon’s stock price, so as the holder of several hundred shares I’m slightly better off in that way, too). The second-generation model improved nicely on the first–among other things, fixing some user-interface quirks, letting me charge it via a USB cable, and boosting the battery life.

The books I load onto the device fall generally under the casual entertainment category. I buy a Kindle book the way I buy a movie ticket (or did before going to theaters became such a crappy experience).

These are books, like most movies, that I’ll read or watch once and forget about. A physical book is more like a DVD–something I want to own and enjoy again and again.

So the kinds of books I tend to buy for the Kindle are the sort I’d often pick up at an airport newsstand, namely mysteries, thrillers and semi-trashy novels that I’d sometimes leave in hotels or airplane seat-back pockets once I’d finished them. (I also subscribe to several magazines, and consider it a favor not to see the advertising.)

Once I got accustomed to reading e-books, I started doing something that had been out of character in the analog era: buying new books that, in print, were available in hardcover only. Why? The price, typically $10 (okay, one penny less), was right. In fact, my new-book purchases soared.

But not for long. In recent weeks, Amazon (AMZN) or the publishers (or both) have done their best to deter me from buying the latest releases. Prices have gone up, way up.

Now, I often find books for which I’d have gladly paid $10 listed at $14 or $15. I save these to a list I keep on the Amazon website, called “Too expensive for Kindle,” and periodically check to see if the price has dropped. So far, not yet on any of these.

Hiking prices this way creates a bad deal for the customer. Amazon’s price for a new hardcover is typically just a couple of dollars higher. This means I could buy the hardcover, read it and donate it to my local library, and–after the tax deduction–come out ahead. I’d do even better taking the book to my local used-book store and getting cash.

But I almost never buy new hardcovers of books I don’t expect to reread or use as a reference, because a) I’m kind of cheap; and b) I can stand waiting for the paperback. So if prices stay high, I stay away.

Now, sellers have every right to charge more for popular books, especially when they’re new. This is basic supply and demand. But when the price only makes sense for people who consider the ultra-portability of an e-book paramount, that’s a turnoff for other potential buyers.

As a customer I also understand supply and demand. My demand is extremely elastic, and in this case it’s snapped.

Last week’s introduction of the Kindle DX was framed in many ways by different constituencies, but I was taken aback by the praise heaped on the device by several newspaper people, including the CEO of the New York Times Co. (NYT) (in which I also own a small amount of stock). Newspapers aren’t going to fix their considerable woes with Kindles, and anyone who thinks so lives in a fantasy world.

The DX, with its bigger screen, strikes me as potentially useful in several ways, possibly including the textbook function that Amazon hopes to jumpstart with the help of several universities (including the one that employs me). But if textbook publishers don’t radically cut prices on the outrageously expensive books they sell, they will find themselves creating a strong incentive for precisely what they don’t want: unauthorized copying.

I suspect the DX will prove most useful in more prosaic ways. For example, it could be a nearly ideal container and viewer for technical documentation–thick manuals that need periodic updating, where the cost of printing is prohibitive and the bulk of the books is daunting for the user.

Will all of this be made moot by the widely anticipated Apple (AAPL) “NetPad” or whatever it’s going to be called? I refer to a device that looks like a larger version of the iPod Touch, which would be a wonderful mobile multimedia player, among other likely capabilities.

I doubt it. If you enjoy severe eye strain, reading books on a back-lit, glossy display is just the ticket. The passive displays on Kindles, the Sony (SNE) e-reader and other such devices are much better for this kind of reading.

One size does not fit all in the emerging world of devices. Then again, one carry-on bag doesn’t hold all devices. For now, however, the Kindle has a place in mine.