In order to take on Apple's slimmer and lighter iPad 2, Amazon has announced the launch of a cheaper Kindle which lends its screen space to advertisers and sponsors.

The new Kindle is priced $114 and will be shipped from May 3. The cheaper Kindle shares the same hardware as the $139 Kindle, with the key difference being that the cheaper Kindle allows sponsored screensavers and special offers on the bottom of the screen.

The black and white ads will not intrude when users are viewing eBooks. The ads appear on the Kindle homepage from where users search and access eBooks.

Sponsors who have signed up to cash in on Kindle's popularity include Buick, Procter & Gamble's Olay and Visa.

Amazon is also introducing a Kindle app called AdMash which allows users to choose the most engaging display ad which will become Kindle's sponsored screensaver.

The $139 Kindle Wi-Fi has a 6-inch display with E Ink Pearl screen. It weighs 0.5 pounds and is 0.33 inch thin. The recently launched iPad 2 weighs 1.3 pounds and is 0.34-inch thin. The entry level Wi-Fi only iPad 2 with 16GB is priced $499.

Kindle is facing competition from a recent slew of tablets like iPad 2 and Samsung Galaxy Tab10.1 and 8.9 which are lighter than and as slim as Kindle. Thus, tablets have breached the distinguishing line of ergonomics which earlier made tablets unsuitable as eReaders due their size and weight.

However, by reducing the price of Kindle, Amazon has certainly upped the ante. Offering advertisers space on the Kindle display will help Amazon to further drive down the price of Kindle and content as well.

The joining of advertisers to reach out to eBook readers underscores the point that the eBook market is picking pace. Forrester Research forecasts that the eBook sales will reach a volume of $3 billion by 2015. It had forecast that in 2010 ebooks would reach $966 million in sales.

Forrester Research report states that about 7 percent of online adults who read books read eBooks. However, the chief characteristic of this 7 percent segment is that they spend the most money on books and read them too.

Also an average eBook reader currently consumes 41 percent of books in digital form which also includes readers who don't own an eReader, while readers who have eReaders consume about 66 percent of their books in digital format.

Here lies extensive potential in converting the average book readers into eBook readers, especially in making eBooks available through eReaders.

Amazon's strategy is to make eBooks ubiquitous in sync with its core business model which revolves around books. Thus, a cheaper Kindle surely augments Amazon's reach allowing it to sell more eBooks. For Amazon, Kindle is a medium, a device which is part of its ecosystem of Android apps store and recently launched music storage.

It is also attempting to create multiple delivery points for its content. Kindle is one such delivery tool for Amazon to successfully sell eBooks too in future.