agree. It's better to build goodwill and retain me as a customer with the $0 app and you collect the referral fee, than to skim off both ends.
You need massive volume (like advertising) to make this model work--it's just not there.
Making the app paid lets me keep the service running for the few people who think it's valuable enough to pay for.
This is a better solution I think than shutting down the service all together.
I'm definitely considering an ad-supported or free version, but wanted to start with a paid version first.