The device itself isn’t very different than the old Kindle. But it explains where Amazon sees itself expanding.

At first, they hyped it as just a new way to read books. Then, three months ago, Amazon (AMZN) CEO Jeff Bezos paced the stage to announce the second-generation of the Kindle. Its primary purpose, too, was to read books. Sure, it could also deliver blogs, magazines, and newspapers, but just like Amazon's original business model for its Web site, the Kindle would focus on books first and expand from there.

Wednesday, Bezos was back onstage to announce a new incarnation of the Kindle just three months after unveiling the previous one. The new device is called the Kindle DX—which gives the device the unfortunate and impersonal naming convention of both video games and cars—and it's meant to do a whole lot more than read books. It's a wunderdevice that can display textbooks, newspapers, and personal documents.

But couldn't the old Kindle do all of that too? Yes—but you wouldn't know it from today's debut. On paper, the big differences are that the Kindle DX is 4 inches larger than the one you bought last month and comes installed with a PDF reader. But that's not the point. The point is that Jeff Bezos wants you to do something different with it.

Here's the Amazon spin, paraphrased: With the PDF reader you can better scan all those documents you would otherwise print out and lug around with you. Since newspapers are printed on big pieces of paper in the analog world, they should be displayed on bigger screens in the digital one. Textbooks, with all their graphics, diagrams, and charts, wouldn't look any good on a 6-inch screen. But that 10-inch screen will really make the black-and-white images pop off the digital page.

For those extra 4 inches and a PDF reader, you'll pay $130 more for a DX than a regular second-generation Kindle—$489 total.

So why did Amazon bother? To make money, of course. The new features—though mockably sparse—offer subtle clues to Amazon's revenue plans for the next decade. Each of the DX's prospective growth areas needs either the PDF reader or a bigger screen to generate revenue. Here's how:

Newspapers
The emphasis on newspapers was the most curious part of the press conference. Arthur Sulzburger Jr., head of the New York Times Co. (NYT), came out to do a song and dance about how the Kindle is an exciting new opportunity for journalism. The New York Times, Boston Globe, and Washington Post all signed up for pilot programs to subsidize the cost of a Kindle DX if the buyer agrees to a fixed-length subscription and lives "outside the delivery area of the paper." (It's not entirely clear what that means for the ubiquitous rags; the details of this deal are, frustratingly, being withheld until this summer.) The last Kindle handled papers just fine with 6 inches. So why start touting newspapers now with the DX?

Advertising. After the press conference, a reporter asked an Amazon rep whether there's any advertising that accompanies the newspaper content. After a pregnant pause, she said there wasn't but that she wouldn't rule it out in the future.

Now the big screen starts to make sense; the more real estate for text, the more real estate for ads. The DX appears to be a sleeper agent, waiting to be activated to fight the good fight for the future of journalism. As of now, Kindle users pay a subscription fee to get the newspapers delivered, but they're ad-free. At some point soon, I suspect we'll see ads—possibly even interactive ones—running alongside the content. When that happens, the newspaper content will have about as much room left as on a 6-incher.

Personal Documents
Yes, the PDF reader comes with the Kindle, but getting your PDFs (and other documents) onto the device is a nuisance. Two options: go through a user-unfriendly experience of e-mailing Amazon a file, where it'll convert it to a Kindle-friendly format and e-mail it back to you. Then you've got to download it, plug the Kindle into your computer, and essentially use it as a USB drive to move the file over. The problem with that, as if there weren't one already, is you need to have your Kindle with you whenever you're moving documents.

Correction (May 7, 2009): The paragraph above is partially incorrect. PDFs can be directly dropped into the Kindle via a USB cable. Other documents—Word files, image files, etc.—need to go through the conversion.

Option 2 is more fit for our cloud-computing age: upload your documents to a server and have them delivered to your Kindle. For that, there's a price: 15 cents per document. To get the documents onto the Kindle you have to e-mail them to your special Amazon account, which will then push them over to the Kindle. Each time you do that, Amazon will charge you. (If you send really big files, it'll cost you more than 15 cents.) It's an annoyance for the user—but a fledgling business model for Amazon.

To Amazon, the 15 cents are almost pure profit. All the company needs to do is upload your file to a server, which the Kindle then pulls back down. The only cost for Amazon is running those servers, and they already have that infrastructure in place because of their cloud-computing business. So don't think of it as 15 cents; think of it as a nearly 100 percent profit margin.

Textbooks
The textbook industry is seriously inefficient. Students spend hundreds of dollars on books, use them for one semester, then sell them back for less than half the value. The costs are exorbitant because there are so few copies produced and the book is cycled out of curricula completely within a few years. This great chart from a college-bookstore association shows where all the money goes and also implies that 55.9 percent of textbook costs could be saved if they were delivered digitally, bypassing college bookstores. Amazon wants as much of that 55.9 percent as possible. That's a whole lot of profit for an industry estimated to be worth $8.6 billion.

To reap that reward, Amazon is betting it needs a bigger screen. And here, it's probably right. Textbooks are often heavy on equations, graphs, and charts. You need a big screen to display it all, and for that you need a Kindle DX. For students, too, the high price point is a nonissue. They already spend about $488 a year on books. If Amazon were smart, it would have added $1 to the DX's price to match the students' current outlay. Students appear to be the only demographic that the DX is actually well-suited to serve.

This business model, though, hinges on people actually choosing the $489 DX over the very similar $359 6-incher. Something tells me Bezos may be back in three months for another press conference. This time he'll be announcing a price cut.