$10 (or $9.95) is where the game really starts, less than that is really only to get people to subscribe for trial purposes for 3-10 days with an automatic up-sell to the full rate if they don't cancel.
That's a tried-and-true scheme and it is good for a very large portion of all online revenues on services.
The biggest problem - and you address that somewhat in your last paragraph - is that people that pay $1 feel just as entitled (or even more in some cases) to your premium support time, because, after all they are now a paying member, they intend to get their moneys' worth.
On a $1 charge you can afford support on roughly 1 in 50 customers, it had better be a very quick to resolve issue.
For a once-off purchase, I totally agree. For a subscription, there's a big difference there.
I know not everyone's like me but I tend to calculate the annual price for subscriptions I have. So even though I almost never use it now, paying $1.99 to the Problogger forum is no big deal. But $9.99? That'd be a $23.88 vs $119.88 - a pretty wide gap. There are lots of things I wouldn't spend $9.99 a month on something that I'd spend $4.99 a month on.. a flowcharting app might well be one of those things.
I'm sure most hackers in this discussion have heard of the famous article by Fred Wilson 3 years ago, but here it is anyway: http://redeye.firstround.com/2007/03/the_first_penny.html
As a publicity stunt, it makes sense. Although it would make much more sense for an already well known entity to stir things up a bit (just like Radiohead did with their album).
Actually, I'd venture to say that the distinction between the two is shrinking, and will continue to do so in the future.
Now computers are so ubiquitous and powerful that people pay for "virtual" things all the time. They pay to download that song off of iTunes. They pay to download that iPhone app. Hell, they pay for "land" in Second Life and "money" in Farmville.
I'm curious how the same individual might value a subscription to "trendy $100 jeans...as a service", both in utility and price? I think it's been tried with luxury handbags for about $50/month, but I'm too lazy to look up what happened to that business (and my battery is at 3% so I can't look right now).
$20'ish - el cheapo house brands at Target, Walmart, etc.
<$50'ish - Gap, Levi Strauss
<$100'ish - Lucky
<$200'ish - Diesel, Seven for All Mankind
~$500 - Prada, etc.
If you think about what Avelle provides (LHaaS), it's a way for women to accessorize themselves for a big night out in a way far outside of their typical budget. That super-trendy, $1000 Fendi bag won't lend itself well to everyday usage for most people. Those $200 jeans, on the other hand, cannot and will not be worn for that Big Event.
Imagine you're going to a cocktail party with a bunch of big-time politicos. If you're a woman, you might rent that Fendi bag from Avelle. No one in their right mind would say to themselves, 'hey, I'll go rent some trendy jeans for tonight's black tie event.'
A serious online competitor to those god-awful tux rental shops could be cool, though.
Seems to have been re-branded as Avelle.
There are several reasons for this:
Micropayment services tend to be wallet oriented, pre-paid and therefore there exists no direct relationship between the merchant and the customer. This relationship is a very important component for the merchant.
Micropayment services tend to suffer from a chicken-and-the-egg issue, if not enough sites use a common system then why would a consumer put their money in to that particular wallet.
To date, in spite of many 10's of millions of investment money sunk in micropayment systems there has never been a clear winner, the minimum charge seems to be stuck at roughly $.80 which is way too high to qualify as a micropayment, and a merchant would only see a very small fraction of that.
To really function a micropayment system would have to be able to seamlessly charge sub-cent amounts and put the majority of that in to the hands of the merchant within two weeks of incurring the charge.
+ It is economical as low as 3 cents an action.
+ It solved the "Customers hate to make micropurchasing decisions" by moving the payment from the end-user to a business which gets to automate the micropurchasing.
+ The micropurchases are actually billed macro-scale, so it works on top of our existing payment infrastructure without too many hassles.
+ You can deploy it anywhere in the world for trivial levels of integration work. (That won't maximize income by a long shot, but you'll start accruing earnings with a quick copy/paste.)
+ It is almost totally resistant to "steal the content and repost to avoid the pay wall"... well, when it doesn't pay for people to steal the content, but that is another discussion altogether...
You are probably right that adwords / adsense obviates the need for many micropayments, but to truly become a micropayment worthy system there would have to be a much larger degree of transparency.
Basically right now you have to assume the middle man isn't taking advantage of your not knowing how much is being paid for your inventory and that is a thing that people are not happy about in general.
The end user doesn't fork any dosh, and you don't get anything unless you're get a slice of a corporate adwords referreral program.
---------
Maybe if the Newscorp paywall takes hold (the egg in chicken'n'egg) then Newscorp could institute a micropayment service 3rd party people (us/we) could use.
Newscorp might like a 0.1% tariff on all micropayments, and if there is one person who could take on Visa/Mastercard it is Rupert Murdoch
On the other hand, in terms of discovering what users will pay for Creately, the experiment was a failure. By essentially structuring the system as "donate us money", you prime the users to think "Hmm, even $1 is being generous to them. I'm a big spender... I'll go as high as $3." That is, ahem, an insane price point for any service.
You have to convince someone to dig out their credit card to pay you money. There is essentially no differentiation between $3 and $9 at that point, since neither amount is an appreciable amount of money to working professionals. (Students are another case. Since they're going to complain long and loudly about being made to pay, and are going to do their level best to steal your service anyhow, I think you can quite rationally make the decision just not seek their custom. Alternatively, you can segment your plans such that one which is free but helps your marketing meets their needs.) There are tremendous advantages to the business, however, from moving from $3 to $9. (Revenues net of Paypal fees just increased by a factor of four.)
Note that $9 is still VERY VERY cheap. The fully loaded cost of a professional exceeds that for every ten minutes. Also, if you look at any SAAS business they'll tend to tell you the same thing: the most expensive plan, which is typically bought by employed professionals spending other people's money, brings in more revenue than any other plan. This has been mentioned by Wufoo in interviews, it was true of DropSend when they published their numbers, and I know it to be true of three other companies who have not given me explicit permission to make the fact known.
Additionally, as Creately noticed, the kind of people who are attracted by "This only costs a buck!" are the worst customers in the known universe. They cause hugely disproportionate loads on your support resources, and feel entitled to do so because they're Paying Good Money For This, Damn It. They tend to churn like crazy. They'll fail at the most trivial of tasks (like typing in their credit card details) and then blame you for it. (When you spend a buck on something, if something goes wrong it is the merchants fault, the lazy bum. When you spend hundreds on something, you darn well check to make sure it went through alright.)