Wouldn't that only work until a competitor with a sufficient product crops up with a cost+ price?
It still happens to me occasionally (but rarely), and it never ceases to amaze me that there are still people living under rocks thick enough to block out information like that.
Same with wikipedia, you'd think that the news is out by now. But there are still people that have never heard of it.
I suppose it's not a bad thing for you in the short term, but I'd caution against getting comfortable on the profit cushion, and reinvest in revenue sources that can't be taken away by the same opportunistic competitor.
Also, for consumers, $19.99 is pretty much a fixed limit. Above that, you loose people, but below, you don't necessarily gain more signups.
The interesting bit is that I was just as skeptical as you are (and probably even more so) and in the end decided that trying it was the easiest way to see if it was true or not.
The second time I was even more skeptical but then I figured 'in for a penny, in for a pound', just to be able to tell Richard that he was wrong the second time. But he wasn't.
It doesn't hurt to try though, and if it does work for you then it's free money, which is nothing to sneeze at.
Keep in mind that if your product costs you $2 to put out there per paying member and you manage to increase your sales price to $19.95 you've just gone from a 50% gross profit margin to 90%.
That way you can market to two demographics and cover the market. Extra bonus is that you can use essentially the same underlying tech.
Made gravy?
An anecdote:
My company produces a PDF reader for iOS+. There are, give or take, 20-30 competing products. One of them is iBooks, which is heavily marketed by Apple, a high quality product, and free. Most of the others are cheeper than us, but we're out-grossing and out-unit-selling many of them. There are at least a dozen products with non-zero day to day unit sales. One day before we went live in the App store I discovered that there were not one but two products with basically the same name as ours++.
We can't credit marketing for this either. To be frank, our marketing has been terrible. We've tried to build a better widget, but mostly I think it's that we have a slightly different widget.
From the perspective of a customer: I pay for Lighthouse and Github every month. Github offers issue tracking, and both Github and Lighthouse try to keep things pretty minimal, but I prefer Lighthouse. It just feels more like the bug tracker I would build if I decided to go down that road, and that's worth a few bucks to me every month.
+ Plug: http://ballisticpigeon.com/folio
++ We did our due diligence when we started writing the app... about a month in... before we started writing our user manual, but at about two weeks from launch we were in crunch mode and stopped checking anything. They were both released in this window.