My experience running a project/company like you describe:
1) Not the geeks, but the big multinational companies with disposable developer time end up using your open-source solution. Exactly the types of users I don't feel sorry for and would rather extract money from.
2) The "payback" in the form of bug reports and patches is negligible, because nobody likes to do work if they're not being compensated (either through money, or, more commonly in the open-source world, fame)
3) The users of the hosted version don't want to pay anything because "it's open-source, after all".
4) People that do not have the necessary technical capabilities to host your software, but also don't like to pay, harass you on GitHub and other support channels because "your software doesn't work", and it "throws error messages".
The key advantage is that some people (journalists, bloggers) tend to present you in a more positive light if you describe yourself as an "open-source solution" rather than yet another commercial app.