I'm guessing people would put up with a fair amount of advertising if they got a free Kindle. I read a PDF copy of our locale free daily and the ads are still quite noticeable. I know it's not on a kindle, but if you flip through page by page you are still going to notice things. The ads would have to be reformatted, to be more inline, but that's doable.

And it's twice as cheap to buy a Kindle in year 1. Year two is $644m in savings. That's a lot of ads that don't have to be sold, a lot of sales staff who don't have to be selling it, etc etc.