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Internet giant Google has entered the VOIP segment telephony with an offer of free local call service within  US and Canada to users of Gmail. If you are a Gmail user you can  just log on to Google.com/voice and talk free to any landline within North America. For international calls users have to pay anything from 2 cents to 99 cents per minute but always lower than the rates charged by telephone companies worldwide. A Google spokesman claimed that it had one million users calling in the first 24 hours of service, though a large part of the same could be of users testing the Gmail call facility.

Skype the pioneer of web based telephony which provides a similar service of phoning to landline or mobiles after connecting to the internet charges around 2.1 cents per minute for its domestic calls within the U.S.  and slightly below international call rates for other calls. Monthly subscription plan for Skype users within U.S. and Canada is as low as $3 per month. Skype’s popularity with its 560 million registered users is due to the fact that it has a very high voice quality and an excellent call connect rate, something that is easier said then done. Currently it attracts over 110 million users per month with 8 million using its paid service on a regular basis that accounts for its annual revenue of  $ 406 million.

For Google however the internet telephony market is not big enough to commit investment. Besides it will be hard pressed to provide a voice quality like Skype simply because Google uses bots extensively which can never monitor voice quality effectively like the hardworking executives do at Skype. As per Google spokesman Randall Sarafa, Google absolutely does not record or listen in on phone conversations. This will make it extremely difficult for Google to maintain an effective voice quality monitoring. So why did the internet giant suddenly enter this space?  Especially if it claims not to record or gather search data from international and local calls that it will transmit?

One reason for this is the market size of the mobile telephony which is evolving at a pace faster then corporate executives can think. Google understands that in the next 5 years Smartphone’s  will dominate internet search market, simply because the user volume will be 5 to 10 times bigger than the PC based search market. This mega market  would have no established search technique or market leader in search, Google’s bread and butter business today. However the internet phone call business could produce a platform for Google to transmit its formidable internet search capabilities to its free and paid telephone users and thus penetrate the mobile market.

The market dynamics of the smartphone is scary simply because of the awesome numbers it is expected to attract in the coming decade. The mobile market is already adding over a billion new customers annually and a fourth of these customer’s opt for the smartphone in the second or third year of use.  Google’s Android Operating System has been able to just penetrate 10% of the market as only Verizon among the major U.S. service providers use it. Nokia, BlackBerry and Apple the 3 big daddies of smartphone business use their own OS making Google search hit the blank wall for majority of smartphone users.

Google needed a strategy to change that. An application with an option for phone users to connect to internet search which internet telephony may provide. Already the mobile search advertisement market has picked up in Western Europe and expected to generate revenues of around $500 million this year.  The coming months may see the complete Google strategy come into play as it is widely expected to pick up Skype equity from its IPO or its investors in the coming months. After eBay disposed 70% stakes in Skype last year to an investor group for $1.9 billion last year, the Luxembourg based internet telephony and video chat major has filed for an modest $100 million IPO with the SEC that is expected to enlist the company in the US markets. Now that Google has entered the fray and may want internet telephony provide the link to its search engine for the explosive mobile markets, the dynamics of internet telephony may change forever.