It's commonly said that Amazon makes more money from advertising than from sales, but I've never yet found figures that back that up.
For example, if you look at
https://www.insiderintelligence.com/insights/amazon-revenue/, you discover that Amazon sales in Q4 2021 (not counting third party) were worth 66.08 billion. Advertising services were worth 9.72 billion--not even close.
I suppose one could argue that Amazon gets more advertising money than sales revenue from indie authors specifically, but I've never seen data to back that up, either.
Of course, it's possible Amazon could decide that it will prioritize selling advertising over making sales. The problem with doing that is that most indie authors don't have huge advertising budgets, so making their sales drop won't necessarily make their ad spends go up. And those indies with more advertising money to spend probably won't be willing to operate at a loss, as a newbie might attempt for a while. In other words, an author operating like a real, successful business would operate will only put more money into ads in certain situations, not in a knee-jerk way if sales drop. They will consider many factors, and I'm not sure Amazon can accurately measure them all.
With both populations, it's possible Amazon will lose money if it miscalculates (sales will drop more than advertising will make up for).
Then there's Amazon ego to consider. Amazon wants to make money. But it also wants to rule the world. It wants to be the dominant seller in every field it can manage. That's not consistent with throwing away sales right and left. Discovering new things to read keeps people looped into Amazon's ecosystem, as you yourself point out. Making discovery worse raises the specter of people actually shopping somewhere else.
