I agree. There certainly is a market, until you try to ask for money. People are cheap, and the free services offered by their ISP and the likes of Microsoft, Google, Yahoo, etc. have really put a damper on trying to sell this type of service.
The typical response is "why would I pay for it when Gmail is free?". Then you have the issue with people wanting a certain domain name, only to find out it's taken. There are the gTLD's now that open up a whole new world for domain names, I suppose.
I think the next approach is trying to roll other services into a a "personal cloud" service. Basically a hosted OwnCloud instance, with e-mail service, contact and calendar sync, etc on your own domain name and built to be as easy as possible to use. The margins will be really thin, because as always, the big players already give this kind of stuff away and the general population doesn't care about privacy.
I could see it priced on a per-domain basis. You get the domain for "free" and can create as many e-mail accounts as you like (or have a reasonable limit of like 25 or something) and a shared chunk of storage space. So you're only really paying for the storage space. Example plans could be like:
- Personal Plan, 50GB for $3/month receive a free domain name if you pay annually. $3x12=$36. subtract cost of domain (~$10) and you just made $26 for a whole year.
- Family Plan, 500GB for $9/month receive a free domain name if you pay annually. $9x12=$108. subtract cost of domain (~$10) and you just made $98 for a whole year.
As I said, small margins. Servers, storage, and bandwidth are cheap, but not free. You'll need to oversell that storage space in order to turn a profit. Even many people would have a hard time paying for the above plans because as I already mentioned the big guys already give these types of services away for free.
I should point out, these kinds of services already exist for businesses... but with much higher prices, and usually per mailbox ($5-$15 a mailbox). But thats because business /are/ willing to pay for them.