In Inkling Habitat, the company’s founder and CEO, Matt MacInnis, sees an opportunity to take the digital reading revolution beyond Amazon and Kindle. He believes Amazon is totally reliant on text-based titles that make up only a fraction of the total book publishing market, and calls Apple’s iBooks Author — free software that’s supposed to let anyone create interactive ebooks for the iBookstore — a flop. “Our message to the industry is that the first bit of digital publishing was great,” he told me, “but the real stuff is just beginning.” It’s early days for Inkling, which has only 400 titles in its store so far compared to Amazon’s millions of Kindle titles. But MacInnis is convinced that the next step is illustrated: Textbooks, travel guides, cookbooks, how-to books, and so on. And it’s this area, he believes, where Inkling — not Amazon — will dominate.

As I reported last year, Habitat “lets publishers create interactive e-books with HD video, interactive features and 3D content in a free, cloud-based program. E-books can immediately be published to iPad [and now the iPhone] and the Web in HTML5, with updates pushed to both platforms at once…Multiple groups can collaborate on the content simultaneously, so a production editor in New York City can look at the same project as a designer in India, simultaneously.” Starting Tuesday, publishers using the platform can also export their books as EPUB files, so that they can sell them through Apple’s iBookstore and other platforms. And each book created on the platform is fully indexable by Google.

Eight months ago, MacInnis told me, the cost of taking content from a print-destined file and turning it into structured content that can be crawled by Google or easily navigated on an iPad was $30 to $60 per page. “We’ve gotten that down to $3 a page,” he said. The tool is free for publishers and consumers, though Inkling will take a 30 percent cut of each sale through the Inkling store. Beta clients included O’Reilly, Frommer’s, Workman, and Wiley; new publishing partners announced Tuesday include HarperCollins, DK, Lonely Planet, Rick Steves Kaplan and Time Inc.

Inkling is also launching a subscription enterprise product, intended to compete with Adobe, that allows clients to build products under their own brands on top of Inkling’s APIs. Clients at launch include Pearson, the world’s largest book publisher; Elsevier; and Wolters Kluwer. Presumably, the enterprise clients’ subscription fees help keep Habitat free.

Finally, Inkling is rolling out an academic model of Inkling Habitat, which is completely free and doesn’t take a cut of sales. The company is partnering with the 20 Million Minds Foundation, which is backed by the Bill and Melinda Gates Foundation and will distribute 50 free, open-source textbooks to community colleges in California.

Overall, the iBookstore contains 1.5 million books that have been downloaded 400 million times so far, Apple CEO Tim Cook said. The main changes to iBooks — which isn’t updated in the iTunes Store as of this writing, but will be today — are a continuous scrolling option for ebooks (so you can just flick instead of turning virtual pages — a feature readers may or may not care about) and better integration with iCloud so that ebooks sync across devices. You can tap to share a passage on Facebook or Twitter. The company also added support for Korean, Chinese and Japanese, bringing the total number of languages supported to over 40, according to Cook.

In addition, Apple’s self-publishing platform iBooks Author, which lets users create graphics-rich ebooks (like textbooks) for iPad, is being updated. It gets new templates, the option to create portrait-only (as opposed to landscape) books and other customization options.

“Apple (NSDQ: AAPL) spent a year and a half to build eight textbooks,” Inkling CEO Matt MacInnis said. “In two years, we’ve built 200.” Inkling Habitat is available immediately to a “select group of publishers” in an early adopter program, and will be available to everyone later this year.

Inkling Habitat lets publishers create interactive e-books with HD video, interactive features and 3D content in a free, cloud-based program. E-books can immediately be published to iPad and the Web in HTML5, with updates pushed to both platforms at once. (Well, iPad is available now and Web publishing will be added later this year.) Multiple groups can collaborate on the content simultaneously, so a production editor in New York City can look at the same project as a designer in India, simultaneously. Every version of a product is saved, so changes can always be rolled back.

O’Reilly is a partner at launch. iPad publisher Open Air has already released three titles using Inkling Habitat technology, though the program has not been formally announced until today.

The program is free, but in order to use it publishers must agree to make the books they create with it available through Inkling’s store (in its iPad app and on its website). Inkling takes a cut of the revenues from those books. Unlike with iBooks Author, publishers can also sell the books they create through other channels (their own websites or as individual apps, for instance) and Inkling does not take a cut of those sales.

McInnis demoed the product for me and it looks very easy to use. It’s key for not just publishers but laso the digital content producers they work with — often, teams in India — to know how to use the platform. Inkling has already partnered with the two largest digital content producers, Aptara and Innodata, to train them and they are now ready to use it.

My first job out of college was at an independent publisher, and one of my tasks was to FedEx gigantic stacks of printed book files, marked up with red pencil notes and Post-Its, to a design team in India. (This was in 2006, not that long ago!) It was incredibly nervewracking, from my point of view — the packages got lost or sidetracked somewhere in India more than once, which I swear was not my fault — and just the process of sending them back and forth took forever, even though both our team in New York and the producers in India were working quickly.

Being able to log onto a cloud-based program, manipulate files directly, send notes to designers, publish immediately and always roll back if you make mistake is a total lifesaver — and may be regarded that way by publishers who have been wary to publish interactive e-books because it is so expensive. Also, because Inkling Habitat doesn’t charge for the platform but relies on a revenue share of the finished product, the company has an incentive to work with publishers throughout the proces. “Their win is our win,” said MacInnis, “and their failure is our failure.”

Inkling is based in San Francisco and has raised $17 million in funding.

It’s still the case that non-iPad devices won’t support *.ibooks files without some tweaking and converting — which could cause them to lose most of their enhancements, and also is forbidden by the EULA — so the updated license agreement does not really change anything except to possibly make some people a little less mad.

Here’s the new language:

If you want to charge a fee for a work that includes files in the .ibooks format generated using iBooks Author, you may only sell or distribute such work through Apple, and such distribution will be subject to a separate agreement with Apple. This restriction does not apply to the content of such works when distributed in a form that does not include files in the .ibooks format.

And here’s the old language:

If you charge a fee for any book or other work you generate using this software (a “Work”), you may only sell or distribute such Work through Apple (e.g., through the iBookstore) and such distribution will be subject to a separate agreement with Apple.

The new EULA clarifies that Apple does not somehow own the content you create in iBooks Author; it only seeks control over works outputted in the *.ibooks format. So it’s fine for a user to repackage that content into, say, a Kindle book.

“It’s akin to Microsoft (NSDQ: MSFT) trying to restrict what people can do with Word documents, or Adobe (NSDQ: ADBE) declaring that if you use Photoshop to export a JPEG, you can’t freely sell it to Getty,” writes Mac developer Dan Wineman.

Apple says that e-books created in iBooks Author must be sold exclusively through the iBookstore. Authors can only distribute them elsewhere — through their own websites, for instance — if they are free.

Here’s the official language from the iBooks Author license agreement:

IMPORTANT NOTE: [This is right at the top of the agreement, on the first page]
If you charge a fee for any book or other work you generate using this software (a “Work”), you may only sell or distribute such Work through Apple (e.g., through the iBookstore) and such distribution will be subject to a separate agreement with Apple. …

B. Distribution of your Work. As a condition of this License and provided you are in compliance with its terms, your Work may be distributed as follows:
(i) if your Work is provided for free (at no charge), you may distribute the Work by any available means;
(ii) if your Work is provided for a fee (including as part of any subscription-based product or service), you may only distribute the Work through Apple and such distribution is subject to the following limitations and conditions: (a) you will be required to enter into a separate written agreement with Apple (or an Apple affiliate or subsidiary) before any commercial distribution of your Work may take place; and (b) Apple may determine for any reason and in its sole discretion not to select your Work for distribution.

Some developers and Apple bloggers are upset about the restrictions: “As far as I know, in the consumer software industry, this practice is unprecedented…” Wineman writes. “When I make something myself, no matter what software I use to make it, then — assuming it doesn’t infringe any copyrights — it’s my right to distribute it however I want, in whatever format I choose, for free or not.” John Gruber calls the license agreement “Apple at its worst. Let’s hope this is just the work of an overzealous lawyer, and not their actual intention.”

Others, however, don’t see the big deal. “All Apple is doing with this restriction is saying that if you directly profit from this free tool and platform that we have created, then we deserve our cut,” writes iOS developer David Smith. He thinks it’s more significant that the books can be distributed anywhere if they are free: Apple has “created an avenue for non-commercial distribution that would exclude them entirely. That is actually unprecedented.”

Frederic Lardinois at SiliconFilter notes that the content still belongs to the author: “It’s the book Apple cares about – the final product the program generates, not the content you put into it. iBooks Author is, in the end, just a tool for laying out your content so it looks nice on the iPad. Nobody is stopping any author or publisher from using another tool to sell the same content on another platform.” (If you’re interested in what exactly the *.ibooks file format is, here’s an examination from Baldur Bjarnason.)

Overall, Apple’s rules could be a sign that Apple is gearing up for a battle against Amazon (NSDQ: AMZN) and its own proprietary Kindle format. “Platform wars have come to the book business,” writes academic publishing consultant Joseph Esposito. “There will be some publishers who will develop products for all available platforms (at great expense) and others who will focus on one platform alone (giving up a big piece of the market).” But “the publishers’ dream of creating content once and having it run everywhere is just that, a dream.”