That's a smart observation, but reseller hosting still represents a major chunk of the whole industry. In my opinion, it all comes down to how good a marketer you are.

If you know how to reach local businesses in a smart and cost-efficient way, then you will sell your services well. On top of that, resellers who go exclusively after their local markets usually price their services higher in order to earn more.

Chances are local businesses are not technically savvy, so they won't go on research rampage. Most of them care more about where you are geographically (same town, community, etc) than the number of POP3 email boxes you'll offer them. I have seen companies pay as much as $25-75/month for 25 MB of space and 500 MB transfer allotment to this day.