I created a simple website alert-if-down service (
http://pingdipong.com), and it's just started paying for its own hosting. I wouldn't call it profitable. It's not paying anybodies wage. It's not covering the cost of advertising. It's been an interesting and turbulent couple of months. I went into it thinking there was only big name players in the market (pingdom, etc), that it would be an easy market to break into and found out much later that there are a host of similar products out there. And it's really, really hard to sell simple / boring stuff to people.
It's utterly true that the development is only a small fraction of the process. People told me before, but I didn't listen. It's also true that the funnel between getting a clickthrough and getting a payment narrows frighteningly quickly. It seems to cost me a fortune to get a paying customer.
I wanted to make something useful that wasn't built on VC money, and although it's possible, I'm not sure that there's much success to be had for small players in the web development arena. It's heartening to hear other peoples stories though. Another reason to keep trying. :-)
I'm slowly coming to the conclusion that website development is coming to the end of its homebrew phase (much like games and desktop software previously), and it's becoming almost impossible for tiny teams to make anything useful. There still seems to be some space in the mobile market, but that appears to be being swallowed by larger development teams with VC money.
And yes, I'm obviously making this post with the intention of also plugging my own service. I hope I've added something extra to the conversation though.