After years of easy growth, Google ( GOOG) now has to make hard decisions, including squeezing money out of users. After squeaking by on earnings Thursday, Google announced that its sales chief was out, making him the third of the top four sales executives to hit the exit door in the past two months. Alarming perhaps, but there are other signs of change to consider, as well. Google announced that its popular video site YouTube will now feature a " shows" section for TV programs and movies. The deal, which imitates the General Electric ( GE) and News Corp. ( NWS) joint venture Hulu, includes movies from Sony ( SNE) and United Artists and builds on an agreement earlier this year with Disney ( DIS) to run some ABC and ESPN programs.
For now, the shows are free, and they typically include a commercial at the beginning of the program. CEO Eric Schmidt, speaking to analysts on an earnings conference call Thursday, said the project will start as a free service underwritten by advertising revenue, but that will change. "We do expect over time to see micro payments and other forms of subscription models coming, as well," Schmidt said. Google is under significant pressure to make more money off its YouTube unit, and the push into a Netflix ( NFLX) type of business suggests that the gloves are starting to come off. The move comes amid a crushing economic downturn that handed Google its first sequential drop in quarterly sales. The exodus of sales executives caps off a rather confusing strategy by Google that started by placing fewer yet more targeted ads, and then later completely flip-flopping by pushing more ads in more places.
The post-earnings analyst reaction was as mixed as Google's first quarter performance. If the economy improves, Google's prospects will brighten; if it doesn't, more painful adjustments are in order, say the analysts. Looking ahead, Google's efforts to pump up search ad volumes and the cost-per-click prices it charges advertisers, "will likely provide limited boost," until the economy starts to recover, Collins Stewart analyst Sandeep Aggarwal wrote in a research note Friday. That leaves Google in the same unpleasant position of having to slash more costs, Aggarwal notes. In other words, get ready for the post-bubble Google.