Do we need paid upgrades in the Mac App Store?

I run an alternative to the App Store (Cydia) that happens to support paid upgrades. As far as I can tell, they are an important mechanism that allows developers to obtain a hardcore audience and then support them into the long-haul.

This article seems to believe that you can continue to expand your market forever, as there "are always more fish in the sea", but in fact some (many) products really do have limited appeal: you need to not lose the people you have.

And honestly, that's actually what "free upgrades" means: it is the developer telling the people who already like his products that they are no longer considered his customer; that he is no longer attempting to make the product better for them.

Instead, he has chosen to target the incremental increase in users that he can obtain by using the existing users only as a marketing channel, and then gearing the product towards continuing to sell new people who don't have your product yet.

While this might work for some products, you /are/ going to get diminishing returns: the sales graphs for products like this are always exactly the same, with a long and reasonably flat but definitely and certainly declining tail.