First of all, in most European and South American cities, becoming a licensed tour guide is more than simply paying a fee for a license to run a tour.   Most guides must study countless numbers of hours and pass a battery of examinations to get a tour guide license.  Some guides even need to speak multiple languages.   Some are even required to meet other requirements, such as taking follow up courses, in order to maintain their licenses.

In cities like Paris, Siena, and Florence, licensing requirements are strictly enforced.   I pity the non-credentialed person who even attempts to run a tour in the Louvre or on the streets of Siena.   In Peru, I have even heard stories of unlicensed "guides" being banished from the country.

Since licensed tour guides need to go through rigorous training in order to get their credential, there is a high probability that your guide is knowledgeable and will be able to add to the touring experience.   Not only can they relay their expertise, but they should be able to answer nearly any question you might have.

Another advantage to using a guide is they can usually get you entrance into an attraction without waiting in line.

One of the issues with employing private tour guides is that they can be expensive.    Good guides in Paris, for instance, can be in the 400 euro per day range.   So, if you can split the cost amongst a small group of travelers, let's say 10-14, the cost per person goes down significantly and the quality of the tour does not.

In London, a company called London Walks (www.walks.com) uses licensed guides to conduct scores of different walks from "Jack the Ripper" to "Westminster Abbey" to the "British Museum" for a fee of 9 pounds per person.   Just show up at the designated tube stop to meet the guide.   I have been on these walks with as few as 8 travelers and as many as 40.