2) Talk to those people about their problems. Find out what really scares them, pisses them off, or simply takes too much time.

3) Build something to fix that problem. Keep talking to real people who have the problem you're fixing as you build it.

This is the methodology I've heard quoted by a dozen successful entrepreneurs, from Jason Cohen to Naomi Dunford. It's also extremely close to Tim Ferriss' recommended approach in Four Hour Work Week.

I make money in slightly different ways to this - at present - but as far as I can tell, it works. If you follow all the steps.

(Note: building something for WoW players fails at step #1. The market simply doesn't support spending a lot of money regularly.)

Although once you start evaluating, you'll rapidly find there are plenty of markets that fit the bill. Golf. Soccer fans. Airplane enthusiasts (RC, amateur pilot and planespotter alike). PC building enthusiasts. Almost any business. Martial artists. Re-enactors and RenFaire enthusiasts. Almost all the alternative medicine areas. And that's just off the top of my head without mentioning any of the markets I'm actually considering entering one of these days.

Even if you don't have a better product, you can still make sales by being more visible, being the first product people find/try when they begin searching. If they like the product, they might buy without even knowing there was a free competitor. It's a less noble strategy than having the best product, but more profitable than having a perfect product no-one ever finds. (Ideally you should have a great product and high visibility, of course.)

I ran across a rather good quote on this subject the other day - "Don't worry too much about being different. Just be good. Good is different enough."

Exactly. Just look at Google & Facebook. Both were late comers to their respective businesses (search engines & social networks). Both now have oodles of money.

They'll build the same products. Over and over and over again. Not bad, per se, but a massive opportunity for someone with development skill and a different set of interests.

Ask the non-hackers in your life what little pieces of software they occasionally have a big enough desire for -- big enough they'd pick $30 at the time. Then tell me. :)

Nonsense! Just look at bottled water. The definition of selling something that everyone (not just hackers) can get for free.

Without this market conditioning, I don't think many people would have been interested. So they are selling something valuable to a lot of people: water that won't make you sick, which is much different than the alternative.