The 37 signals philosophy is to increase satisfaction through simplicity. Removing rarely used features can increase software simplicity which results in higher satisfaction for the majority of users.
In this case, allowing 20,000+ contacts does not reduce anything for the rest of their user base; it only positively impact some heavy (and presumably loyal) users of their system, which nets in total increased satisfaction.
If the goal is to maximize overall total satisfaction, Google should engineer their system to support maximally conceivable number of contacts.
> In this case, allowing 20,000+ contacts does not reduce anything for the rest of their user base; it only positively impact some heavy (and presumably loyal) users of their system, which nets in total increased satisfaction.
This is oversimplification. Knowing google, they would want to track different users' contacts and mutual contacts, and email frequencies habits etc. Contact size, is larger than O(N) complexity.
In this case, allowing 20,000+ contacts does not reduce anything for the rest of their user base; it only positively impact some heavy (and presumably loyal) users of their system, which nets in total increased satisfaction.
If the goal is to maximize overall total satisfaction, Google should engineer their system to support maximally conceivable number of contacts.