Things are going better than expected at Amazon HQ. They recently released their third quarter financial results, and they were pleasantly positive. Even in a stagnant economy, the company reported an increase in cash flow of 98% over last year.

Leading the charge was none other than our deal old friend, the Kindle.

“Kindle has become the #1 bestselling item by both unit sales and dollars – not just in our electronics store but across all product categories on Amazon.com. It’s also the most wished for and the most gifted. We are grateful for and energized by this customer response,” said Jeff Bezos, founder and CEO of Amazon.com. “Earlier this week we began shipping the latest generation Kindle. Its 3G wireless works in the U.S. and 100 countries, and we’ve just lowered its price to $259.”

While their success is no doubt impressive, Amazon would be remiss if they rested on their laurels. As we all well know, Barnes and Noble is releasing their own Nook to compete with the Kindle 2. Priced at $259, the Nook offers more features than the Kindle 2, including a touchscreen for navigation and the ability to lend books purchased through the Barnes and Noble store, for the same initial investment.

As if Amazon weren’t operating at a disadvantage already, Barnes and Noble revealed Tuesday that they would soon be reselling Plastic Logic’s QUE in their stores to compete directly with the Amazon Kindle DX. The QUE features a roughly 10″ diagonal screen, like the Kindle DX, and features native support for common business filetypes like Excel and Powerpoint.

The QUE was originally slated to release in 2009, but Plastic Logic pushed its debut until early next year. It was previously reported that the QUE’s store of online content was to be fueled by Barnes and Noble, but the agreement to actually sell the QUE in stores and on their website is a new one.

I harbor no inherent loyalty to Amazon, but it seems to me that the ball is in their court. Their biggest competitor will soon release a product with more features and at the same price point as their primary model, and next year even their market for premium e-Readers aimed at business users is compromised. The move to make the Kindle International the standard SKU at $259 was a step in the right direction, but it’s clear to even the casual observer that it’s not going to be enough.

They can ride their name recognition for the time being, but it’s going to take a big price drop or a major development in their product line before Amazon can consider themselves the leaders in the market again. And that, ladies and gentleman, is why competition, even in as small a market as e-Readers, is a brilliant thing.