Amy would know better than I do, but she says Freckle has at least three larger competitors. It is also something like 2.5 years old (i.e. it achieved success way after I though that market was saturated).
Here are some of the companies making much than us:
Harvest (look at the size of their team; and for web apps, they are old!)
Mite (the last time they posted about revenue, it was more than double ours, presumably that trend has continued)
Freshbooks (they do more than just time tracking, but they are a chief "competitor" if you want to call it that… and they make bank)
I strongly suspect that RescueTime and Intervals have greater revenue than us as well.
…and probably many more… these are just the "cool" ones which I know about. I'm sure there are many tools for specific industries or who are otherwise entrenched who make ridiculous amounts of money.
It is the easiest thing in the world to dismiss something by saying "nobody would pay for that" or "they must be unusual if they're making money" or "it must be because they're famous." None of these things are true. But they sure are easy to believe and even easier to say, discouraging yourself and others.
