Apple’s iPad has so dominated the tablet-computer market that one Silicon Valley venture capitalist recently told me that “there is no tablet market—there is an iPad market, and then some hangers-on.”

But all that just changed with the introduction of the new Amazon Kindle Fire, a seven-inch tablet that costs only $199—less than half the price of the entry-level iPad, which boasts a 9.7-inch screen and costs $499.

Amazon CEO Jeff Bezos introduced the Kindle Fire at a lavish event in New York City, where he described it as “an unbelievable value.” “We’re building premium products at nonpremium prices,” he said.

The Kindle Fire, which will ship Nov. 15, boasts some clever touches, including a speedy new Web browser that Amazon’s engineers invented.

Amazon in the past has downplayed its rivalry with Apple, saying that Kindle and iPad were meant for different kinds of users.

But now the battle has shifted into open warfare, with Bezos even mocking Apple for forcing users to sync their iPads by connecting the device to a computer with a cable, calling that “a broken model.”

In other words, make no mistake: this is war. And the stakes could not be higher. Amazon and Apple are fighting to see who will control the world of digital media.

Amazon began on the content side, and Apple began on the device side. But now they’ve met in the middle.

Unlike all of the other tablets that have tried (and failed) to compete against the iPad, the Kindle Fire comes with the same secret weapon that has made the iPad such a hit: immediate access to an electronic store selling digitized books, movies, and music.

The Kindle Fire comes loaded with software that lets you buy digital content from Amazon with the click of a button. You can think of it as a digital shopping cart that lets you scan the shelves at Amazon and grab whatever you like.

Another plus: Whatever content you buy is automatically backed up in Amazon’s cloud servers. You can delete it and get it back whenever you want. Unlike the iPad, which has to be synced to a computer via a cable, the Kindle Fire syncs wirelessly.

Since the Kindle Fire runs Google’s Android operating system, it can download apps from Amazon’s Android App store. Amazon also introduced a speedy new Web browser, called Amazon Silk, that splits work into two pieces—a lot gets done on Amazon’s servers, and a little gets done on the device itself, the result being that pages flash up really quickly.

Another clever move is that Amazon has tied Kindle Fire to its Prime service, which for $79 a year lets customers get free shipping on packages and free streaming of movies and TV shows from Amazon. Buy a Kindle Fire and you get a 30-day free trial subscription to Prime.

There are still some shortcomings. The Kindle Fire has no camera or microphone, and can only work on WiFi, as it lacks support for 3G networking. The Kindle Fire comes with only 8 gigabytes of memory, versus 16 for the low-end iPad—but Amazon lets you store any content you purchase on its servers, at no charge.

Tim Bajarin, president of Creative Strategies, a Silicon Valley research firm, calls the Kindle Fire “a game changer” and says it will be “an important product for Amazon and for the industry.”

But Bajarin says the smaller screen on the Kindle Fire makes it unable to really compete against the iPad. “This is not an iPad killer,” Bajarin says. “There is no such thing.”

Bajarin says the Kindle Fire will appeal to people whose main use for a tablet involves reading books and who consider computer-like functions (email, Web browsing) and movie watching to be secondary needs.

Amazon’s previous Kindles have been smaller, simpler devices, with black-and-white screens meant only for reading. They use E Ink, a technology that is great for reading text, even in direct sunlight, and also uses very little battery power.

Until today Kindle prices started at $114, but now Amazon has slashed the price of a basic Kindle to $79. Amazon also introduced today the Kindle Touch, a black-and-white Kindle with a touchscreen that sells for $99, and the Kindle Touch 3G, which has free 3G wireless service and costs $149.

Amazon won’t say how many Kindles it has sold, but in the past the company has claimed Kindle was the top-selling electronic device in its store.

The first Kindle came out in 2007. It was the coolest gadget around—until the iPad arrived in 2010 and became a smash hit. The iPad 2 shipped in March of this year, adding a camera and a faster processor. Apple has sold nearly 30 million iPads so far, and since it came out Amazon has tried to market the Kindle by touting the virtues of its black-and-white screen, which is easier on the eyes than the bright, back-lit LCD screen on the iPad.

The argument was that iPad was great for browsing the Web or watching a movie, but nobody would read a novel on it because their eyes would get sore. Somehow, a lot of people seem not to care, and are happy to read books on an iPad.

Pundits have long expected that Amazon would roll out a full-color tablet. The newly announced seven-inch model may just be a start. Some analysts expect Amazon to introduce a bigger tablet, one more comparable to the iPad, sometime in the next year.

Can the Kindle Fire—this one, or a larger version in the future—really become a credible rival to Apple’s iPad? Can it escape the fate that has doomed other iPad-wannabes, from Samsung, Motorola, and Research in Motion to HP?

Investors seem to think so. Amazon shares were up $5, to $229, Wednesday morning on the news of the launch. Whether customers will react with as much enthusiasm remains to be seen.

As for me, I’m going to place my pre-order as soon as I click “send” on this story.