I understand your issue; we considered going into a similar type of market and found a similar problem. I think what you're running into is the way a lot of other companies have dealt with this problem: by getting customers in with cheap or free offerings with tight limitations, and then cashing in on the fact customers don't want to pay the figurative "switching cost" to use another service. Dropbox is one example - it doesn't take much to fill the 2GB limit in their free account, and then they can get you into their $10/mo. plan that is probably quite profitable for them considering the price of storage.
As a small company, as you said, it would be hard for you to do the same, and support yourself - especially if your B2C offering has some big name competitors. You'd have to convert a lot of customers from free to paid, and there's been plenty of discussion online on the miniscule percentage of consumers who actually do that with different web services.
I think danmaz74's comment is a good one, about trying to hit a niche and working that with an offering that is better-targeted than the generic ones larger companies might be offering. You could do so either by changing your actual product, or by marketing it specifically to a certain target audience (photo sharing just for x, or social networking just for y).
I think your point that you don't have a particular selling point is a problem - that might really be your best strategy. Create one, and work your butt off marketing it; unless you're trying to compete with Google Search, Facebook, or something with 90% of a market, you shouldn't be afraid to try and charge a higher fee for that unique featue. How much you need to make it feasible, only you can figure; but as so often cited, Apple is a good example of a company that enters a market late, disrupts it, and leaves (sometimes larger) competitors in the dust. Good luck on whatever you decide to do; I feel your pain on this.