- The "Professional" version
- Selling to a big company
Once a free product has sufficient following, users start sending in feature requests. A whole bunch of these will then be added to the next version, the professional version, which isn't free any more. The free version is still available, but it won't have the new features.
The excellent CodeSmith followed this route, although I can't find mention of the free version (2.6) on the site any more. The also excellent TimeSnapper is currently free, but a professional deluxe version is planned.
Selling to A Big Company™
Web applications that collect user data are good candidates for this at the moment. If sufficient users add sufficient data, then the data (as well as the users themselves) become valuable to a larger company.
For example, BlogLines has some very useful, and clean, data about weblogs, and a whole load of users. Ask bought BlogLines for a significant amount. Yahoo have bought Flickr and Del.icio.us. Of course, a large web application use considerable bandwidth, server power and time to keep running smoothly, so some sites cover their costs with...
A handy one this, in that not much work is needed to set it up. Money should start dribbling in from the outset, unlike the previous two methods that have a long period of costs before any revenue materialises.