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While many may have written off Amazon’s Kindle — along with the rest of its e-reader brethren — after the announcement of Apple’s iPad, I haven’t been so quick to judge. If anything, we may have to thank the iPad for spurring on more competition in the e-reader market. Take for example the news today that Amazon has potentially acquired Toucho, a New York-based start-up that’s focusing on touch-screen technology.

The news comes from an anonymous source for The New York TImes, but it has yet to be officially acknowledged by Amazon or Touchco. The purchase makes complete sense for Amazon, since Touchco’s technology would allow for them to cheaply bring multi-touch capabilities to future Kindles.

Unlike the capacitive touch-screen technology that has been popularized by the iPhone, new mobile devices, and now the iPad —  Touchco utilizes something call interpolating force-sensitive resistance (I.F.S.R.). Instead of requiring skin contact like capacitive touch-screens, Touchco’s technology uses resistors which detect different levels of pressure. And perhaps most importantly for Amazon, Touchco’s technology is much cheaper — it could cost “as little as $10 a square foot.”

In a previous report on I.F.S.R. by the NYT, the reporter noted that the force-sensitive resistors “become more conductive as you apply different levels of pressure, and then constantly scan and detect different inputs.” The technology should allow for “very low power, unlimited simultaneous touch inputs and the possibility of fully flexible multitouch devices.”

The only snag for Kindle fans is that Amazon won’t likely implement I.F.S.R. on current Kindle displays. The device uses an electronic paper display by E Ink — which offers paper-like quality, and remains one of the Kindle’s key selling points despite being limited to displaying black, white, and grey. Thanks to E Ink, the Kindle is also one of the few modern devices that doesn’t force you to stare at a bright back-lit screen, and it would be a shame for it to lose that feature.

A touch-screen Kindle is inevitable, but I hope that Amazon figures out a way to use Touchco’s technology in E Ink displays, rather than going with full-color LCD displays like modern laptops and the iPad. It’s likely that Amazon would want to compete more directly with the iPad by offering a full-color tablet of their own — and to do so this year they would definitely need to use an LCD display. Color E Ink technology probably won’t see widespread availability until the end of the year, and more likely not until 2011.

Just like with the announcement of the Kindle application store, Amazon has to balance keeping the Kindle competitive with similar devices, while also staying true to its core e-reader functionality. I’m hoping that Amazon doesn’t try to compete with the iPad too much — because in doing so the company risks losing what makes the Kindle a great e-Book reader.

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