Focus on making 100 people happy, and then you'll be validated for opening up your app to more people.
I don't think it's that difficult getting 100 people (especially if you offer private beta invites to smaller niche sites that you're targeting). Plus it gives you a chance to understand what your customers want, which is crucial to early development in an application. You'll need to constantly get customer feedback and validation.
With the software I work on now, every sale we've ever made has been from word of mouth.
Also; I missed you at Gangplank on Wednesday - I hear you don't make it down there much?
Prize can often be trivial/small, but competitions that are fun and involve the userbase often get great response in my experience.