I was recently asked this question after a friend received a Plaxo update from me.
They’ve got a VIP service that charges, but only a small percentage would actually sign up (in my empirical estimation). Lots in industry wonder about this.
I think it’s an initial user base accumulation strategy. Once they hit a larger mass, there’s more they can do (subtle changes to privacy policies over time to unsuspecting users enabling lots of data mining applications).
They are now charging for “send to phone” for contacts, so non-smart phone users can have an easier way to update cell phone contacts.
Certainly, they need a large cash pool to ride out this longer term, incremental strategy.