Why?
Because people can justify paying for a service if it helps them conduct their business and make money.
Thats ONE of the reasons for the success of 37signals products. Their core products, Basecamp, Highrise and Campfire all help people conduct business and make money.
If you help people make money you can also charge a higher cost for your web app. Its not reasonable to spend $49 a month sharing your videos, you wont find many people willing to shell out that kind of money on a recreational activity. But it is reasonable to spend $49 a month running your business. If you build a web app that makes people money they will pay more, a lot more, to use it.
Also if you’re helping people make money, there’s another side benefit. When you’re in charge of running a business you usually want the best equipment. For example, if you can afford it you would upgrade your typical office chair to an Aeron. Its somewhat similar when it comes to web apps. Entrepreneurs won’t settle for a standard plan when they can upgrade to a premium plan. Choosing a premium plan over lesser plans intrinsically shows you and your employees that you’re serious about business.
Its like choosing Windows professional edition over Windows Home edition. A lot of business’s could get away with using Home edition but they’ll purchase professional edition anyway. Business owners don’t want their employees seeing HOME edition when they boot up, they want their employees to see their running professional. There’s also an element of human nature, rather than doing more work its easier to show your dedication by purchasing better equipment.
Expect the same with your paid plans. If your application helps people conduct business your users will be more receptive to upgrade their plans to a higher cost premium plan. If you have an app that people are using recreationally it will be much harder for you to convert them to higher paying plans.
So if you want to build a web application that makes you money, then build a web application to help make others money.
great post as usual but here is what I’d like to add to your post…
people don’t pay you money unless you don’t ask them to.. simplistic as it may sound, many “web 2.0″ companies have forgotten about this very basic fact of business. you don’t go to a pool parlour and except to play an hour of pool for free, do you? yet somehow this concept gets lost online.. whats interesting is this.. people don’t mind playing for pool (of course its only a small percent if instead you’re giving it away), but somehow people have just stopped asking customers to pay..
my advice for any startup would be that please stop the crowd sourcing bs and seek real profits. if your business model is to chase after freeloaders, then even when you’re successful – freeloaders is all what you’ve got..