While it seemed like the Kindle Fire was poised to set the tablet world on, well, fire… the iPad has continued to pad its lead (seriously, the puns just keep coming).

Instead of losing market share to the smaller, cheaper Kindle Fire, the iPad actually expanded it’s lead by 7% over 2011. The iPad now owns 68% of the tablet market.

It’s becoming painfully clear that Amazon should have released the Kindle Fire to markets outside the US… but for some reason they didn’t. Currently, the world’s largest e-tailer is sitting in 3rd place in the tablet space with a 5% market share (ALL of it coming from the US).

While this seem like a loss for the folks in Kindle land, I think it comes down to a line that’s getting extremely blurry. The Kindle, in my opinion, is still seen as an e-reader, while the iPad is seen as a tablet… NOT an e-reader.

These numbers are completely flip-flopped when it comes to ebooks market share and tablet market share. Apple owns 68% of the tablet market, but iTunes only has 10% of the ebook market. Amazon has a commanding 60% of the ebook market, and only  5% of tablet sales.

So, what’s next for these two tech giants? Obviously, it’s time for a showdown.

Ironically, these extremely competitive rivals have their eyes on each others’ slice of the pie. Think about it: Apple is supposedly working on a smaller iPad — one that may serve as a much more handy and functional e-reader.

Amazon, on the other hand, it struggling to position the Kindle as a true iPad alternative, not just a e-reader. That’s why it’s rumored that Amazon is getting ready to release a bigger, faster, meaner Kindle before the holiday season — for $99.

If you’re an author, writer, or info-marketer, this should really get you excited about digital publishing… it’s where the big dogs are going.

Check out DM’s newest creation: NumberOneBookSystem!