It doesn't work for desktop software for example.
Either way I don't think the problem is one of individual users not paying for their apps. I think the major problem is that of huge companies who get business value from the code use it to make money and give back nothing in return.
This is why most successful desktop open source desktop software, actually live from another sources of funding, but it hardly created the same changes as with developer tools.
People bought the paid version of xchat for some reason. Don't assume the customer is that smart.