Amazon announced today that it is launching Kindle Library Lending, working with OverDrive to support Kindles and Kindle apps on other platforms on OverDrive’s digital lending platform for public libraries.  The timing of the announcement was unclear, given that the service won’t be available until “later this year.”

OverDrive is apparently adding server-side support for Amazon’s Kindle DRM technology, so that it can distribute e-books that are readable on all Kindle devices and apps.  This will make OverDrive the first third-party service provider to support the Kindle DRM

This announcement throws an interesting twist into the recent controversy over lending of e-books from public libraries.  One of the complaints that library and user advocates have made about digital lending is that DRM has prevented e-books from being readable on and portable across different reading devices and software.  The distinction between the two is important, so let’s examine them.

Currently, patrons of libraries that use the OverDrive service can borrow e-books and read them on just about any popular device except Amazon Kindles.  OverDrive uses the Adobe Content Server/Digital Editions platform, which runs on just about every e-reader devices except Kindles, as well as on software apps for Windows, Mac, Linux, Android, iOS (iPhone, iPad, etc.), and BlackBerry.  When Kindle Library Lending launches, that limitation will be removed.

Instead, library patrons will most likely have to choose which e-book format they want based on what device they have.  This will, ironically, lead to overlap: you will be able to choose either format if you have a PC, Mac, Android device, or Apple iOS device.  If you have a Nook, Sony Reader, Kobo Reader, or IREX, you’ll choose the Adobe format; if you have a Kindle, you’ll choose the Kindle format.  As far as portability is concerned, e-books will be readable across these two highly overlapping subsets of devices.  Amazon’s Whispersync feature will even preserve margin notes you write on borrowed e-books without revealing them to other borrowers.

You still won’t be able to “re-lend” your e-book to a friend or family member unless they use your reading device or your user account, and you still won’t be able to move your e-book from a device in one of the ecosystems to one in the other ecosystem — for example, from a Nook to a Kindle or vice versa.  But that’s a pretty low number of restrictions, given that this is library lending we’re talking about, not purchase and ownership.

Given the recent price drops, it looks like the Kindle is on its way to being a loss-leader product for Amazon — which will make up the revenue through its margins on e-book sales.  So why would Amazon want to support library lending?  Apparently because library e-book borrowing is popular, and the Kindle’s lack of support for it gives Amazon’s competitors a differentiating feature that consumers consider to be important.  As Amazon’s press release suggests, the Kindles’ ability to read library e-books is up there with their display quality, battery life, and other features in the ultra-competitive e-book reader race.