Releasing a demo version should encourage people to buy the game. If it doesn't, the game must really be pretty bad, and you don't deserve those sales anyway.
If the demo doesn't encourage people to buy the game, then it's a bad demo. The problem is most companies make demos off of their beta versions, and as such loose business for bugs not present in the main game.
Just because you do doesn't make it so for everyone.
And just because you don't doesn't make it so for everyone. Alot of online companies recently have been moving to online apps instead of static pages. Look at Picassa and Google docs. Parts of the internet is moving towards being a shared hard drive and they want to be able to handle it.
That being said, it will all be in the implementation on how it goes and how great or terrible their idea is.
Understanding is always the understanding of a smaller problem in relation to a bigger problem. -- P.D. Ouspensky