I wish there were more prominent examples (like 37signals) of small software companies that subscribe to this model. The VC funding, ad driven model has many, many examples and I think we can all benefit from a more diverse landscape of perspectives. I'd definitely be interested in hearing other examples people know about.
There are literally tens of thousands of small software companies that never stopped charging. Downloadable software got really, really viable with the Internet if you execute well. A lot of them aren't necessarily prominent because they've got their own little slice marked off and don't want to clue people in that there is money there.
Some examples off the top of my head:
SourceGear (source control)
HelpSpot (help desk software)
FogCreek (a few products, mostly dev-oriented)
Antair (Blackberry stuff)
I don't have revenue numbers for them and wouldn't tell you if I did, but they all have 6+ employees, which means they are all almost certainly $1 million+ in yearly sales. (A few are substantially more.)
As Eric Sink said once: you don't really have to make a lot of money for the principals of a 3 or 5 man software shop to do VERY well for themselves.
The indie software scene is pretty good in the Mac world. No, I'm not talking about the iPhone here. The iPhone hype will soon die out and we'll see more useful applications and fewer fart buttons. I'm talking about desktop software here.
I don't know how well indie developers in the Windows world are doing, but I'm sure they're making respectable amounts of money, too.
(There isn't enough commercial software for Linux to say anything about the Linux software scene.)
