Can 8×8’s new cheap video conferencing compete with free?

VOIP and hosting provider 8×8 (s eght) announced a new video conferencing service Tuesday designed to appeal to the small and medium-sized business (SMB) market. The service, called 8×8 Virtual Room, provides unlimited video conferencing with up to 20 participants at a time for a low monthly fee of $199 a month — which is a major discount over most room-based systems. But can it compete with a growing number of free video chat solutions that have been rolled out for the consumer market?

8×8 Virtual Room was built on the company’s voice and video platform, and keys into its existing unified communications system. As many as 20 participants can join, either by clicking a web link or dialing into a toll-free number. There’s no equipment to buy and there’s no software necessary to download to make things work. There is, however, a $199 a month subscription fee for unlimited video conferencing. But only the host needs pay for that, and for a limited time 8×8 is offering a year of the service at a half-off, $99 discount.

Altogether, the service seems an attractive alternative to room-based systems from companies like Cisco (s CSCO) and Polycom (s PCOM) that are out of the price range of most SMBs. It’s even an attractive alternative to recently launched video conferencing services from companies like Vidyo and Blue Jeans Network that are also aimed at the SMB market. The main competition for 8×8 might not be from lower-cost solutions driving prices down in the enterprise market, but an influx of consumer technologies that are “good enough” and free.

The release of 8×8’s Virtual Room comes after Google (s GOOG) unveiled its own multi-user video chat service Google+ Hangouts, which has proven incredibly popular even after just a few weeks after launch. While it only allows 10 participants at a time, instead of 20, some users have found ways to daisy-chain Hangouts sessions to enable a larger group to take part.

The timing also coincides with a big push by Skype to become ubiquitous on connected and mobile devices, in social networks and in the enterprise. Skype’s multi-user video chat service isn’t free, but at $8.99 a month Skype premium is cheap enough — and with hundreds of millions of users, it already has a large installed base. Integration with Facebook will only increase that number, as will the eventual integration with enterprise and consumer services from Microsoft, which acquired the video chat company for $8.5 billion.

It’s all about the “economics of good enough” — that is, why pay for enterprise features you might not need when good enough will do? For SMB users, the question is whether 8×8’s pricing, features and flexibility will be able to compete with consumer services that are much cheaper or even free.

Check out this video of 8×8 CEO Bryan Martin interviewed at GigaOM’s Structure 2011: