Ask yourself, how many other things has Amazon done that seemed a bit out there, but turned out to be brilliant moves? How about competing with Apple with a tablet computer? Also ask yourself, how do these crazy or out-there seeming things fit with an overall vision in retrospect? I think the answer is: amazingly well.
My best guess is that Jeff Bezos has a roadmap for the next 5 years and vaguer plans for the next 10 or 15. (I happen to know that Intel had a roadmap out to 15 years in the late 90's, so it's not unheard of in tech to plan on this timescale. Probably a good thing to note for serious investors in the stock market.)
EDIT: I've said it before on HN -- Bezos is a player of the game at Steve Job's level. He's just not getting up on the really big stage and so avoids becoming a target of celebrity attention.
More than that, eBooks have no marginal cost outside of the royalty they negotiate with the publisher. If they make Kindles super cheap, and make eBooks super cheap, they own the book market. If they own the market then they can dictate royalties to publishers. ("We've decided to sell your book for $10, so we're going to pay you an amount that makes that retail price profitable for us. Or you can sell your book at Borders... oh wait.") Then they can keep selling eBooks for $10, and do so profitably by paying publishers less. Like I said, Internet Walmart.
Or in other words, Amazon is the ultimate middleman. It's not about ebooks. It's about making Amazon the most frictionless way to buy anything.
If they own the market then they can dictate royalties to publishers.
If they own the market, they can disrupt the publishers. If I were Amazon, I'd be creating software infrastructure to enable serious businesses to create and market curated collections of content because that's all publishing is in its purest form, be it books, music, or whatever. Distribution is plumbing, and why would someone choose to compete with Amazon on that front?