The eReader market is quickly changing from one dominated by a few monolithic competitors into a highly volatile playground for small market also-rans. Consider Plastic Logic’s Que. Originally slated to be positioned opposite the Kindle DX in Barnes & Noble stores, Plastic Logic recently released a press release saying it was still-born even before it was able to hit the market.

“We recognize the market has dramatically changed, and with the product delays we have experienced, it no longer make sense for us to move forward with our first generation electronic reading product,” said Plastic Logic CEO Richard Archuleta. “This was a hard decision, but is the best one for our company, our investors and our customers.”

While it resembles defeat in a way, this was a smart tactical move by Plastic Logic. The newspaper-sized eReader category, including the Kindle DX, has failed to gain much mass market acceptance. Users are more apt to expect an experience similar to Apple’s iPad from a device the size of the Que, replete with integrated multimedia elements and animated page turns. Devices sporting eInk technology are rapidly skewing cheaper and more portable, neither of which are the $649 8.5×11 inch Que’s forte.

Plastic Logic seems to be of the belief that their proprietary plastic electronics technology will carve out a niche for them when they do have a launch-ready product, but that remains to be seen.

Of course, while Plastic Logic is bowing out of the eReader race, albeit temporarily, the product category has seen the entrance of a new competitor: the Bambook, by China’s Shanda Literature company. While their approach to hardware appears fairly derivative, with a 6-inch display and Wi-Fi and 3G connections, their real game-changing twist is their approach to selling books.

While American eReaders continue to lean heavily on the big six domestic publishers for the content populating their devices, Shanda Literature utilizes direct relationships with many of their most promising authors. Their “cloud bookstore” offers just 10,000 books by traditional Chinese publishing houses, while playing host to the original published works of a whopping 1.1 million independent authors.

This is a revolutionary approach to selling the written word. In the Kindle bookstore, Amazon takes a 65 percent cut off the top, leaving just 35 percent of revenues for the publisher and author to squabble over. Meanwhile, Shanda Literature shares between 20 to 50 percent of their revenues directly with these independent authors. That democratic approach to revenue sharing is certain to make Amazon look like a money-grubbing corporation by contrast, should domestic authors ever get wind of this news.

Looked at together, this pair of stories underscores something very important about the eReader market. The key to the survival of entrants large and small is going to continue to be with innovation in the sales and distribution of eBooks themselves, not with hardware, which is made obsolete so quickly.