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Amazon.com Inc. (NASDAQ.AMZN), the world's largest online retailer, threw the gauntlet at Apple Inc. (NASDAQ.AAPL) by claiming that its third generation Kindle or Kindle 3 has been "sold out" within days of its launch as demand far exceeded supply.

Amazon boasted on its website, Monday, that Kindle 3 has "sold out" within days of launch due to overwhelming customer demand and anyone who places order for the new Kindle from Amazon today will not get their hands on the device at least until September 4.

"Due to strong customer demand, Kindle is temporarily sold out. Shipments will be prioritized on a first-come, first-serve basis," the online retailer said on its website. Amazon, however, did not say how many Kindle 3s were "sold out." Ever since iPad was launched in April, Apple has sold over 3.2 million units of the device.

So what makes Kindle 3 so popular?

According to Amazon, Kindle 3 has turned out to be so popular because of the improvements made on the device.

The new 6-inch screen Kindle is a slimmed-down version of its predecessor, with Amazon claiming that it's "21 percent smaller and 15 percent lighter."

The device, Amazon said, is 20 percent faster and has double the storage space – 4GB - compared to earlier models, so it can hold up to 3500 books.

The new Kindle, the company said, also has a better display – with the contrast on the screen 50 percent better, texts appear sharper and clearer.

The battery life of the device has also been improved - with wireless settings off, the new Kindle can go now for a month without a charge. The earlier Kindle or Kindle 2 could last for 2 weeks without needing a recharge.

The buttons in the new Kindle are also different from the earlier version. In the new Kindle, the Home button has moved to the bottom of the keyboard, and the joystick navigation cluster of Kindle 2 has been replaced by a D-pad like approach with a 5-way navigation square, with an oval Menu button above it, and a Back button beneath it.

Other enhancements in the new Kindle are voice guided text-to-speech menus and a new "experimental" Webkit-based browser. The PDF reader has also been improved with a new dictionary lookup, notes and highlights and password-protection features.

However, the deal-breaking aspect of Kindle 3 is its attractive price tag - $139 (for Wi-Fi model) and 4189 (for Wi-Fi+3G model).

In fact, the price of Kindle 3 is the most attractive thing about the device since it's not only cheaper than the iPad ($499 upwards) but also cheaper than other e-readers like Barnes & Noble's Nook, which costs $199 (Wi-Fi and 3G) and $149 (Wi-Fi only), Borders Group's Kobo e-Reader which costs $149 and the Sony Reader Daily Edition, which costs $250 (the non Wi-Fi e-reader retails for $150).

The other good thing about Kindle 3 is that, unlike the iPad, you don't pay separately for data connectivity because it's included in the price of the e-book that you download.

The Kindle's battery also lasts longer than that of the iPad - 4 weeks versus 10 hours.

Other major advantages of Kindle 3 over the iPad are:

 One:  The iPad has a backlit LED display, which is not easy on the eye. On the other hand, Kindle uses digital ink called eInk that does not cause the eye to strain.

 Two:  Apple's iBook Store is a far cry from Amazon's Kindle Store. The Kindle Store boasts of over 630,000 books, including new releases and 104 of 112 New York Times Bestsellers which are typically $9.99 or less, over 50 top US and international newspapers including The New York Times, The Wall Street Journal, USA Today, The Washington Post, Financial Times, The Times (UK), The Daily Telegraph and The Daily Mail, and over 35 top magazines, such as The Economist, Newsweek, Time, The New Yorker, Forbes, Fortune and PC Magazine. The Kindle store allows users to purchase books, magazines or newspaper online, download them in less than 60 seconds, store them in their personal e-library, and never lose them (Kindle books are automatically backed up by Amazon so customers can re-download titles from their library).

 Three:  Though the iPad features some cool stuff like accelerometer sensor for auto-rotate and a multitouch display, yet, clearly none of them is actually a deal-breaker for a potential e-reader buyer.

 Four:  Kindle 3 measures 7.5x4.8x0.335 inches and weighs only 8.5 ounces (Wi-Fi model). The bigger 9.7-inch Kindle DX measures 10.4x7.2x0.38 inches and weighs 18.9 ounces. In comparison, the iPad measures 9.56x7.47x0.5 inches and weighs 1.5 pounds (Wi-Fi model). In other words, the Kindle - both the 6-inch and 9.7-inch models - is smaller and weighs much less than the iPad and is easier to carry around.

No wonder, Amazon boasts that the Kindle is the most-wished-for, most-gifted product on Amazon with the most 5-star reviews and is the No.1 bestselling item for two years running. Amazon Vice President (digital) Ian Freed also claims that Amazon controls 70 to 80 percent of the e-book market.

As for Amazon's "sold out" announcement, we don't know whether it's a tactic to scare its rivals, including Apple, into submission but one thing is for certain - the e-reader market will never be the same again.

Meanwhile, the bigger 9.7-inch screen Kindle DX, which costs $379, is available in stock.

Shares of Amazon.com closed up 1.85 percent at $120.07 on Monday.

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