I want to thank Cedric from Fictionpost.com for taking the time to put together this thoughtful question and answer thread and I will now attempt to answer Cedric questions in order:

First, I like the idea that they choose which ads go in their books – but will it stay that way forever?

Forever is a long time but yes as long as I am an integral part of this ADAP program the authors will be the final arbiter on the type of ads to be included in their ebook. That’s my promise as a fellow author!
1. In order to make a decent amount of money on advertising, you have to be getting decent clicks, and decent conversions. Follow this thought to the end, and you begin to realize that in order to make decent money through ads in your ebook, you have to be selling heaps of copies of your ebook. If you are selling that much, why do you need the extra revenue stream that will only be a fraction of your total earnings?

Keep in mind this advertisement should not be compared to your typical web banner advertisements but compared to a magazine ad. The difference is that the reader will see these ads and they get to choose if they want to linger or not on them. In comparison, I’ll ask what’s the last banner ad you can remember looking at while browsing a web page? Also, there will be different ad payment models available ranging from CPM, CPC and CPA/CPL so the potential revenue stream will vary accordingly.

Royalties are not what they used to be, believe me I have had a number of authors contact me complaining to me about their ongoing disappointment with their checks and this ad income can augment a weak revenue stream. Also, if a book is not moving well authors can feel more at liberty to discount or give their ebooks away and still make money. Moreover; readers are very price sensitive with many feeling that ebooks have been overpriced and for good reason! The Justice Department has been busy suing publishers such as Penguin for colluding on keeping ebook prices artificially high.

2. You say that you’ll target etailers outside of Amazon, or any of the other big 4 (Nook (B&N), Kobo (Kobo) iTunes (Apple)) — well, what percentage of ebook sales is made up outside of these main sites? I know that for niche topics, like various sub-genres of erotica and romance are there dedicated ebook sites that do okay at best, but I don’t know of any other site that a customer might go to buy a bestseller. Also, considering that ads need traffic, if the ad-implemented book can only be posted on a non-big-4 ebook site, where will the clicks and buys come from?

Nothing in ADAP precludes including independent publishers in the program and I will leave it at that since this is a matter of ongoing business negotiation. In the beginning I do not see ADAP as an important option for established novelists but this is a viable program for the 100,000 or so authors that are not on the best seller list but have released an ebook novel this year. Sad but true, there are far more lottery winners than there are successful author! These authors have spent thousands of dollars of their own money for editing and marketing with often very little financial return for their efforts.
3. You mention that an author will retain the ability to format their epub file, but will place markers for ad code to be inserted by your company. Why not allow the author to insert specific ad code themselves? Since epubs are just html dressed up nice (essentially), that should be possible. This would bypass the author having to send their book to you, before receiving it back and uploading it to the various etailers.

ADAP also polls the reader ad preferences in the Preference engine as well so the ads have to be generated by ADAP from an available ad pool and, depending on the arrangement with the publishers, ADAP will forward the ebook directly to the reader. In essence, each reader gets a customized ebook with the product ads they have agreed to be included. However; with the cloud technology being used in ADAP, there will be a lot of flexibility regarding the delivery mechanism and customization is possible.

Imagine allowing the reader-consumer the right to choose the ads they want to receive? I know I’m blocking those damn ED ads!
4. (more of a comment and not a question) Android tablets make for bad ereaders if they don’t have matte screens — and they all don’t have matte screens. I agree that we’re moving in the direction of a unified device, one that does all of our tablet, e-reading, and most computing tasks on a single, portable unit. But I don’t see the Kindle e-readers going anywhere for perhaps 5 years. They have far too much invested in that reader, and while they are trying to promote their Kindle HD tablets, their Paperwhite is their bestselling product. So, while I agree that your initiative is forward-thinking, since Amazon Kindle and the other big sites likely won’t allow your ad code into their ebooks, that makes it moot, or brings us to the question of: How will people expect to make money when they have to put their book (with your ad code) up on a channel that receives little to no traffic? As ebook etailers get larger, they’ll have stricter ad policies — are you doomed to swim in the small pond?

Being a techy I went with several B&N Nooks as a my primary ebook readers since they tended to have better specs than the Kindle plus you could root the Nook Color Reader thereby making it a full Android tablet.  I prefer the matte at the beach (actually it’s the matte is the only viable option) and the Nook Color everywhere else. To me the seven inch form factor for a tablet is optimal for reading ebooks so a seven inch Android tablet is more than a fair substitute plus you’re not tied to the Amazon or B&N ecosystem. Trust me when I say that dedicated devices tend to disappear as a technology matures.  For example look what happened to dedicated word processors machines at the beginning of the PC revolution! Look at what is happening to RIM’s Blackberry that was marketed as a business phone!

Also, the first generation ADAP ads are basically an image with a hyperlink so that would be difficult to block by publishers. By the way, I practice what I preach and I have added sample ads to my Flores Girl ebook and you can download a free copy for your own review at Floresgirl.com. You are correct about future formats that would require an app since it would be an easy matter for Amazon to deny the app at their store but that is a battle for a later date.

5. There is one thing I definitely agree with you on – it would be much better if the ads displayed in the Amazon Kindle could be controlled by the author. This, unfortunately, means that we are definitely headed in the direction of ads in ebooks, with Amazon (no less) as the pioneering driver. There is something almost sad about that, and it would likely behoove self-pubbers to get on board with the idea of controlling the ad space in their ebooks.

Agreed and at the very least I want to force the dialog upon Amazon so that they acknowledge they owe the content providers, i.e. the authors, a share of the ad revenue plus some say in the ads associated with their work.  I keep mentioning Amazon because they own a 45% share of all ebooks sold “worldwide”!