Amazon Establishes Digital Publishing House

  After coming to dominate traditional book sales, Amazon has been a key driver in the growth of eBooks, initially working with publishers to consider digital sales, then producing the Kindle eReader, which undercut the limited competition at the time with a reader that offered better performance and a cheaper price.  Amazon has continued with innovative marketing, creating free eReader apps for most platforms, and making arrangements to offer Project Gutenberg's growing collection of public domain works (including many great works of literature) for free.  All these factors have combined to drive eBook sales to the point where Amazon now sells more eBooks that printed books.

  Amazon hasn't stopped there, however.  Instead of limiting its offerings to works from traditional publishers, Amazon created a system for self-publishing - authors could post their work on the Kindle marketplace, bypassing the traditional middlemen of agents and publishers (and their cuts).  This has caused some disruption, with some very successful authors deciding to publish themselves (see this post).
  Amazon's now taken the next step, and established it's own publishing house, announcing that it will publish more than one hundred titles this fall, in both print and digital versions.  It's already had one success with The Hangman's Daughter.  Originally published in German, Amazon bought the rights, had it translated, and has now sold 250,000 digital copies.  Traditional publishers claim that Amazon is actively recruiting top authors, and offering the full range of services and support that agents, publishers, and critics provide.  As such, Amazon is competing directly with the traditional publishing industry.
  While most publishers approached for a story in the NY Times refused to comment on the record, Dennis Loy Johnson of  independent publisher Melville House quipped “Publishers are terrified and don’t know what to do."  Agent and e-publisher Richard Curtis elaborated - “Everyone’s afraid of Amazon.  If you’re a bookstore, Amazon has been in competition with you for some time. If you’re a publisher, one day you wake up and Amazon is competing with you too. And if you’re an agent, Amazon may be stealing your lunch because it is offering authors the opportunity to publish directly and cut you out."
    Amazon's impact on publishing may not be over, either.  There was talk, surrounding Amazon's launch of it's Kindle Fire tablet, that Amazon was trying to establish what would amount to a book subscription service offering Kindle readers access to a wide range of titles for an annual fee (or as part of Amazon Prime).  If realized, such a service could have significant impacts on reading habits and book purchasing.
  Amazon executive Russell Grandinetti responded this way - “The only really necessary people in the publishing process now are the writer and reader... Everyone who stands between those two has both risk and opportunity..”
  The risk is faced by the traditional gatekeepers (publishers, distributors) who used their position to dictate terms, particularly with non-established authors, and grab a larger share of value.  They've lost their control over access to book publishing and the traditional business model that was based on it.  The opportunity is for anyone who can find a way to add value to the author's work.  And there is a lot of opportunity for that, for Amazon, for publishers, and other entrepreneurs as well.

PS - Amazon launched its science fiction, fantasy, and horror imprint, 47 North, last week.  Among scheduled releases are works (and series) from a number of top genre writers, including Dave Duncan, B V Larson, Greg Bear, Neal Stephenson, and Stephen Leather.  The 47 North imprint will join Amazon Publishing's other imprints - AmazonEncore, AmazonCrossing, Powered by Amazon, Montlake Romance, and Thomas & Mercer..

Sources - Amazon Signs Up Authors, Writing Publishers Out of Deal,  NYTimes, posted at CNBC
Amazon's Announcement of 47 North Sci Fi Imprint, e-reads blog
Amazon Publishing website

Edited to include postscript and added sources (19 Oct. 2011)