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The market for iTunes and iPods have not collapse under pressure of the copious non-hardware-dependent competition out there. Amazon may eventually have to make the same kinds of concessions that Apple eventually did re: DRM and such, but as long as they continue to position their product as a superior usability option than trying to read on your phone or your laptop, they should have nothing to worry about. Even if this leads to a boom in readers, Amazon has the same advantage with the Kindle that the iPod has. Namely, popularity breeds popularity and being the first to get the concept right gives you a lot of momentum, even if competitors can produce technically equivalent/superior/cheaper products. People still want iPods, if Amazon plays it right, they'll still want Kindles.
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'He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me.'
-TJ
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