Here's a shot at giving constructive feedback rather than bitching about the cost which most people here are doing. Point taken, there's the other stuff I can think of:
1) Disclose cost earlier. Telling people to sign up for free and then asking them to pay you is not cool. It starts off the relationship on a bad note and will prevent people from signing up.
2) You have a great idea here. Startups need this. We do not have time to set up and configure nagios, or some other warning mechanism. You make a good start by attacking the problem no one else actually wants to take care of, and making it really easy to do so.
3) Either forget the hobbyist or make another (less expensive) level of service for him. Do not forget there is very little money to be made on hobbyists unless it is very easy for you to take them on. You do not want to take on these people asking for the same service for $1 unless you can make it much cheaper to provide service to them.
4) As some have noted: Put in a SLA, and tell us why your service will not fail. Otherwise if we are not warned we will not know if it's because your service is down.
5) Put up a tutorial or more info on what you offer. Can we have planned maintenances (ie, do not warn me about this for 4 hours)? Can we hit the snooze button? What are the methods you use for notifications? How many people/emails/phones will be notified per failure? The unanswered questions go on and on.
6) Do more stuff. What about other type of monitoring? Can we group servers into groups so we do not have to set up each individually? Can we monitor stuff that IS running but I send you a value periodically through the HTTP hit? I want to graph stuff, like HTTP hits per hour, or HTTPD errors per minute. I want a warning to be sent to me when I get more than X HTTPD errors per minute, for example.
EDIT: 7) Add a trial period, this just makes sense.
So for work I run Nagios. I would love to have a Nagios set up for my side projects because Nagios provides a world of benefits but if I invested my time in setting up Nagios then I would not have time to do actual development.
You are onto something good, you just need to shape it a bit.