- building software is getting easier and cheaper [1],

- one can reach a larger segment of small businesses and easily win them over with affordable pricing [2],

- mapping your cost model (based on cpu, bandwidth and storage) to a different pricing model (users, records) is a difficult problem to get right [3].

As software developers, why should we frown-upon or try to avoid cost-based pricing for hosted web apps ?

[1] Enabled by services like Google App Engine..

http://code.google.com/appengine/docs/billing.html

[2] Being low-cost is one of the best options available for start-ups..

Start by writing software for smaller companies, because it's easier to sell to them. ...if you want to win through better technology, aim at smaller customers.

They're the more strategically valuable part of the market anyway. In technology, the low end always eats the high end. It's easier to make an inexpensive product more powerful than to make a powerful product cheaper. So the products that start as cheap, simple options tend to gradually grow more powerful till, like water rising in a room, they squash the "high-end" products against the ceiling.

From : http://www.paulgraham.com/start.html

[3] My thoughts about this mismatch, blogged in "Why freemium pricing model for CRM / Online databases needs to change"..

http://rrajkumar.wordpress.com/2010/10/13/why-freemium-pricing-model-for-crm-online-databases-needs-to-change/