It’s become almost a cliche: A small company builds its entire product on the back of a larger company’s data. Big company pulls the plug, startup gets screwed. I know I should feel sympathy for the startup in those situations but the truth is, I rarely do. if your entire offering is dependent on data from, say, Twitter then you’re not really a company — you’re a feature. And free data isn’t a basic human right. Business is business, etc, etc, etc.

But then — very, very occasionally — a big company behaves in a way that misses business entirely and instead crashes straight into stupid. And that’s precisely what just happened with Amazon’s decision to ban social reading startup Findings from reposting extracts imported by Kindle users.

Findings was conceived by Betaworks‘ John Borthwick and author Stephen Johnson, and co-founded by Borthwick, Johnson, and developer Corey Menscher. It’s one of the ragtag band of startups that forms New York’s Betaworks investor and “startup studio” (see also: New Digg, Branch, Just.me). Findings’ aim: to be a kind of Tumblr for word-nerds, an easy way to share inspiring, provoking, stimulating, and otherwise fascinating little snippets of text, whether they be found on webpages, in magazines, or deep inside books. According to the company, over a million snippets (findings?) have been imported.

And it’s that third location — books — which lead to their current problems. Rather than asking Kindle readers to re-enter quotes from their favorite books — along with the attendant meta data (title, author, and the like), Findings provides an import tool for users to import Kindle highlights from their Amazon account. On the face of it, the feature is a win for everyone: Users don’t have to re-enter quotes and metadata, Findings gets a ton of new snippets and Amazon, well, Amazon doesn’t suffer any meaningful consequences, except that Findings is specifically designed to encourage people to read more books. But then came today’s announcement from Findings General Manager, Lauren Leto…

…part of our service has been the ability to make your Kindle reading more social by importing and sharing your Kindle highlights. A few days ago, Amazon formally notified us that they believe this functionality violates their terms of service. We don’t agree with them, but as a small startup, we know a few things.

The reason for Amazon’s sudden change of heart is unclear. When I spoke to Leto and Borthwick yesterday, they suggested that it might have been prompted by complaints from a publisher who didn’t understand the value of social reading. I’m not sure I buy that: In my experience, publishers — particularly larger ones — are really starting to understand the value of the Internet as a discovery tool for avid readers. So long as start-ups don’t ask them to work too hard — say, to hand over their digital files — most publishers seem at worst bemused and at best enthusiastic about social reading apps. Also, do we really believe that publishers are strong-arming Amazon into doing something they don’t want to do?

My bet is that Amazon made the call on its own: that, despite the fact it doesn’t actually own the copyright in the quotes that are republished, the company wants to ensure that Amazon.com is the only place where the snippets could be displayed. Perhaps with the new breed of Kindles, the book giant is finally going to get serious about social reading?

Whatever the catalyst, the result is the same: Findings users can no longer automatically import shared snippets from Kindle readers. And that’s just plain ridiculous.

In almost every case of technology disrupting traditional media discovery, someone loses. News aggregation commoditized breaking headlines to the point where newspapers could no longer justify spending hundreds of thousands of dollars on investigative reporting, only to have the meat of the story republished by the HuffPost or Gawker. Music discovery blogs, and radio services like Pandora, or jukeboxes like Spotify, chewed music companies down to the core. Netflix makes movie distribution less profitable. Craigslist killed classifieds.

The publishing industry as a whole, though, has proved itself much more immune to the economic consequences of “disruption”. Amazon has been accused of damaging publishing through its distribution monopoly, but really all it has done is moved money from the pockets of giant publishers into those of independents, individual authors, and (of course) itself. Individual publishers might be struggling — twas ever thus — but  the publishing industry as a whole is in pretty rude health and, once you include ebooks, people are buying (not stealing — buying) books in larger numbers than at any time in recorded history. In fact, book publishing might be the only segment in which disruption has the potential to make everyone richer, the old guard and the new kids. Providing, of course, they embrace the change.

Whether publishers and Amazon like it or not, social reading is the future of reading. Which is to say, the ability to share paragraphs from books with friends — or to form virtual reading groups, or to do the kind of fancy stuff that the folks at Small Demons want to do — are all natural demands of a generation that turn first to the Internet when it wants to get social around media.

And unlike, say, mp3 blogging or YouTube clip sharing which demonstrably cuts into the bottom line of the creators and distributors — no, Doctorow, shut up. It absolutely does — social reading encourages readers to read more books, without undermining the value of the core product. To wit, no one is going to stop reading an entire book because they’ve already seen the highlights on Findings.

As an author I find it fascinating seeing which clips readers choose to share on Findings (or on Amazon, or on their personal blogs). My publisher certainly doesn’t give a damn — the more publicity the better. Had the technology been around when I was a publisher at The Friday Project (which, by the way, gave away the full text of many of its books under a Creative Commons license), we’d have been over it like a rash. Again, the only logical explanation (to me, at least) is that Amazon agrees with above and is about to make a big play for social reading.

When I spoke to Leto and Borthwick, they made a decent fist of downplaying the loss of Kindle highlights. For one thing, they explained, the new version of Findings — which, fortunately, has just launched — focuses more on grabbing quotes and text from the public Web rather than ebooks. Leto admits that the focus-shift was partly prompted by concerns about the long-term viability of relying on Amazon’s data for the core of their product.

Borthwick insists that the shift towards Web sharing makes Amazon’s move little more than a “bummer”. Although, he admits, “If this had happened a few weeks ago [before the new version of Findings], it would have been… Well, I don’t know the technical term…”

“A clusterfuck?” I suggest. Leto laughs. Borthwick does not.

Leto, too, claims not to be overly concerned by Amazon’s move, which he believes is a “moment of temporary insanity”. She’s probably right.

As social reading continues to take off, even big, powerful Amazon will ultimately come to accept the new reality that readers expect to be able to share their highlights, and that that sharing will lead to increased book sales. Such win-wins are so rare in media disruption, it’s sad to see Amazon acting like a loser.

[Image courtesy Woodleywonderworld]