Where you put the "pay wall" is a big decision. I think a lot of companies have learned that if you offer a largely functional product, people don't jump the penny gap ( http://redeye.firstround.com/2007/03/the_first_penny.html ) for a few slick premium touches.
FWIW, we have tens of thousands of free users at RescueTime who seem pretty enthusiastic. We've got a mess of paying customers, too-- but I've often pondered the idea of crippling the free version a bit more.
If you're looking at selling stuff to consumers, rather than businesses... I think you're in a scary world (unless you're an iphone app and you can offer the 1 click buy). No matter what you sell, there are always a dozen idiots who will give it away and throw adsense on there-- and consumers are well-trained at this point to find the free alternative.
FWIW, we have tens of thousands of free users at RescueTime who seem pretty enthusiastic. We've got a mess of paying customers, too-- but I've often pondered the idea of crippling the free version a bit more.
If you're looking at selling stuff to consumers, rather than businesses... I think you're in a scary world (unless you're an iphone app and you can offer the 1 click buy). No matter what you sell, there are always a dozen idiots who will give it away and throw adsense on there-- and consumers are well-trained at this point to find the free alternative.