Q&A: Would Google Be Stupid to Start Charging for Google Voice?

Last Updated Aug 26, 2010 6:39 PM EDT

Google (GOOG) Voice, the search giant's Web telephony service, is back in the news for enabling VOIP calling inside Gmail. Even better, TechCrunch has hinted that Voice will begin porting numbers from cell phone carriers soon. With number-porting at work, a slew of smartphone users will flee AT&T (ATT) or Verizon (VZ) in hopes of Voice's promised land: sending and receiving their phone's calls, voicemail and text messages with their phone and computer.

But Google has said it will start charging for domestic calls eventually, though those calls will remain free "at least through the end of this year." Will new users be haunted by the prospect of getting smacked with fees after falling in love with the service? In short, is Google shooting itself in the foot?

Rafi Mohammed is an economist, pricing expert and author. Below, he explains how Google's success or failure at pricing Voice has bearing on prices across the Web, from e-books to startups:

If some of the more unique social web companies like Twitter were to begin charging, how would they set prices?
The notion of setting a price is all about capturing value. The price of the umbrellas sold by street vendors in New York City goes up when it's raining, because the notion is: What is the customers next best alternative? To get soaked and run ten blocks? When you're creating a new service, what I'd emphasize is a value statement, saying to customers: I know you have a few alternatives, but let me tell you why mine is better than the competition you're looking at.

Isn't it hard to put a value on something like a tweet? What's the alternative?
For something like Twitter, they would do have to do customer interviews to figure out what the value is to them, and rely on experts inside the company to estimate what people would pay.

Has a service like Facebook become a "staple" in the economic sense of the word? Let's say it started charging. What would happen?
When Facebook started, value was questionable. Now it has such a network effect that people now really understand the value of it, putting Facebook in a much better position. Their real challenge is that once you offer something for free, it's very hard to get customers to pay for that product. Instead, it's better to offer entry-level things for free, and then charge for different attributes.

Does that make "free trial subscriptions" for software a bad idea?
Well, it's clear to the customer that it's a promotional effort. Everyone considers that they've giving out a month free and then you have to pay. The challenge is when something is offered for free and all of the sudden the service offers to charge you. By offering "free" you really devalue the product.

Google Voice says it may start charging for some calls next year--calls which are currently free. Is this a bad approach because it's so vague?
In Google Voice's case, there is a next best alternative. There's a marketing pitch: we know you can use other phone services, so we're going to base our prices off of that. So it'll be more of a challenge, but it can be done once Google has a next best alternative in mind. As a user, you'd be slightly upset, but your second reaction would be: what are my next best alternatives? You'd see quickly how Voice is worth it to you. Lot of times the transfer from free to paid is dependent on how the message is sent to consumers.

What about IT companies, whose customers are corporations? They can't exactly survey their account-holders and ask them how they'd feel about a price hike.
One of the key things that IT companies already do is offer customers satisfaction surveys. Those are good, but they could be amended to better understand how consumers are using their products and services, so as to figure out how exactly they create value for those customers. Companies have a hard time understanding that they can segment customers. Some will value your service much higher than others, and you can use that data in your negotiations. You can setup different versions for different types of client.

What area of tech are you watching most closely?
Television. The media companies are starting to capitalize on how customers are reaching their content in different ways, and TV moving to Web is going to be an area that will be extremely important. E-books are another area. Amazon (AMZN) recently said it is selling more e-books than hardcovers. The push for cheap e-books is a mistake. Customers set value based on next best alternative, as I've said, so I think publishers should look at the move to electronic as an opportunity to save an industry that was struggling with profitability.

To read more about Rafi Mohammed, click here.
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