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Amazon earnings up, profits down

Also: Building a robot army.

Amazon announced better than expected quarterly results yesterday, causing its shares to rise by as much as 15 per cent in after hours trading. Net income fell 35 percent year-on-year to $130m, from $201m in first quarter 2011, but Amazon reported $13.19 billion in revenue, up 34 percent over last year and beating estimates of $12.9 billion.

The shrinking profit margins represent a quarter focused on investment for Amazon, not just in terms of its infrastructure and technology, but also in its acquisition of Kiva Systems, which makes robots for warehouse management, and its promotion of the Kindle Fire, the company's multimedia Android-based tablet which many analysts believe is being sold for little to no profit on the hope that media sales will make up the loss in the future.

Apart from profits and revenue, the big push made by Amazon in the earnings report was its growing status as a publisher in its own right. The company's founder and CEO, Jeff Bezos, said:

I’m excited to announce that we now have more than 130,000 new, in-copyright books that are exclusive to the Kindle Store – you won’t find them anywhere else. They include many of our top bestsellers – in fact, 16 of our top 100 bestselling titles are exclusive to our store.

Many of these books are technically self-published, but a growing proportion of them are published by Amazon itself, and the company is now making a move to bring that business from digital to print. Its acquisition from Penguin of the rights to publish the James Bond titles in the US is just one example of this expansion.

Notably absent from the report is any mention of the Department of Justice's suit against Apple and six major publishers for price fixing. In an investor call, however, the companies CFO said:

We do think that the suit is a big win for Kindle owners and we look forward being allowed to offer more lower prices on Kindle books.

As John Gruber notes, the accusation that Apple is engaging in anticompetitive practices is ironic, given Bezos' statement:

So 16 percent of bestselling titles are exclusive to the Kindle Store — and the Department of Justice is investigating Apple’s iBookstore. Got it.

The report also highlights the company's growing transformation into a retailer focusing on digital products, with nine of the ten top sellers on the American site in the last year being digital or related goods, including Kindle, Kindle books, movies, music and apps. Which makes it interesting that, in the last year, Amazon has increased its headcount by 73 per cent, rising from 37,900 to 65,600 employees. The company neglected to mention what the increased staffing was directed at.

With almost 20,000 extra employees, and now a robot army running its warehouses, the company doesn't seem to be backing away from its presence in the physical world any time soon.


Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Is anyone prepared to solve the NHS funding crisis?

As long as the political taboo on raising taxes endures, the service will be in financial peril. 

It has long been clear that the NHS is in financial ill-health. But today's figures, conveniently delayed until after the Conservative conference, are still stunningly bad. The service ran a deficit of £930m between April and June (greater than the £820m recorded for the whole of the 2014/15 financial year) and is on course for a shortfall of at least £2bn this year - its worst position for a generation. 

Though often described as having been shielded from austerity, owing to its ring-fenced budget, the NHS is enduring the toughest spending settlement in its history. Since 1950, health spending has grown at an average annual rate of 4 per cent, but over the last parliament it rose by just 0.5 per cent. An ageing population, rising treatment costs and the social care crisis all mean that the NHS has to run merely to stand still. The Tories have pledged to provide £10bn more for the service but this still leaves £20bn of efficiency savings required. 

Speculation is now turning to whether George Osborne will provide an emergency injection of funds in the Autumn Statement on 25 November. But the long-term question is whether anyone is prepared to offer a sustainable solution to the crisis. Health experts argue that only a rise in general taxation (income tax, VAT, national insurance), patient charges or a hypothecated "health tax" will secure the future of a universal, high-quality service. But the political taboo against increasing taxes on all but the richest means no politician has ventured into this territory. Shadow health secretary Heidi Alexander has today called for the government to "find money urgently to get through the coming winter months". But the bigger question is whether, under Jeremy Corbyn, Labour is prepared to go beyond sticking-plaster solutions. 

George Eaton is political editor of the New Statesman.