Open source isn't wholly incompatible with this model, for sure - you can still have open source code that can be hosted by the developer for a fee. But the specific idea of throwing something up on the web and letting people use it if they want isn't as effective, because not having to worry about the software (including how it's hosted) is part of the draw of using third-party software in the first place.
I feel very strongly that decentralized computation and software freedom are powerful forces for good. Conflating hosting and software plays to an agenda of curtailing individuals' and businesses' ability to self-host and to have freedom. I think this agenda is driven by hosting providers' profit motive primarly, but it plays into agendas of unrelated parties who seek to curtail freedom for their own ends.
The creation and maintenance of software is a service-- it always has been. Creating and maintaining software has never been a "product" because it doesn't suffer from scarcity. The best world I can envision is one where the underlying infrastructure, authorship, maintenance, and administration are all able to be decoupled based on need.
I'm having a bit of cognitive dissonance trying to understand what an "open source service" is. If it's "open source", in terms of the OSI definition, your "million people" could just download and self-host it. To my mind, at least, if it can't be self-hosted it's not "open source".
If you're talking about selling access to servers running an instance of the application then you're talking about running a service bureau, not distributing software. The economics are completely different.