John Scott, founder of Sevenseek, recently launched an aggressive attack against directories that charge annual fees.  He:

I submit to a lot of directories, from Yahoo! and Umdum to DMOZ and rlrouse.
I don’t submit to BOTW, and haven’t for a while now, because of the annual listing charge.
But now it seems a lot of web directory owners are going the annual listing route. I have held off saying this for a while now, because I consider most of these web directory owners friends. But it needs to be said:
Yearly renewal fees are beyond stupid. The spirit of annual renewal fees – well, it feels like greed to me.
And the “review fee” is bogus, a lie. If a website is listed in your directory, you should be reviewing it on a monthly basis anyway.
Now, let’s do the math. Say a directory charges $69.95 per year. That’s $349.75 for five years, and $699.50 for 10 years.
Now, for arguments sake, compare that to Umdum’s $40.00 one time fee. I can say without a shred of doubt that Umdum sends me more traffic and more link juice than 90% of annual-renewal directories out there, and at a discount of $659.50 over 10 years.
But more than that, it is a matter of principle for me. If I pay for a review, it should be a review. If it’s accepted, it’s accepted. But with these BOTW type directories, these clowns actually remove your link if you don’t pay the fee.
Even Yahoo! doesn’t remove links, but these people do, making it obvious that they are not in the directory business, but in the link-leasing business.
Why remove the listing if you aren’t in it for the money. I have two full time and one part time editor ADDING sites, searching for and adding sites on the basis of heir merits. So the idea of removing a site just seems absurd.
I mean, was it removed because it did not add value to your directory? If so why the hell did you approve the listing in the first place?

Sure John, everybody likes to pay less money, go ahead and get some brownie points by beating the populist drum.

But you of all people well know that the directory model does not scale well.  The larger a directory grows, the more expensive it gets to maintain.  For instance, as you correctly stated:

If a website is listed in your directory, you should be reviewing it on a monthly basis anyway.

This means that when your directory grows twice as large, the editorial costs are twice as high.  When your directory grows three times as large, the editorial costs triple.  (But actually, the situation is probably worse than that but that’s something for another day).

Also, as you well know, the larger a site gets, the more difficult it is go keep it well indexed and ranking in Google.

Making sure that your directory continues to rank well as it grows in size also adds significantly to the cost of maintaining a directory.

So, I’d throw it back at you and say that whoever is NOT charging annual fees is not planning for the future.  How do they plan to maintain their directory when it is 10x the current size – charge 10x their current fee?  Or perhaps reduce editorial standards to 1/10th of what they are now?

Ultimately, annual fees are the best business model for any directory that plans on being around for the long term.  My prediction is that 5 or 10 years from now, BOTW (and Aviva) will still be running strong, while over 90% of the directories that charge a one-off fee will be abandoned and long forgotten.