The unfortunate truth is that big companies can play that game - this or that is free and commoditizing software in general - they can win elsewhere. A very good example is what Google is doing with browsers and all kinds of software just to win on AdWords/Sense.

The bad news is that small companies cannot do that easily - they typically rely on a single product/service that they need to charge people for, like any traditional business out there.

Same with app stores - they are pretty much forcing 3rd party devs to give away or sell for pennies. Sure, we get this occasional story of a successful mobile product, but the truth is for each success there are tens of thousands of apps making close to nothing.

This, for me, is NOT a good trend for software startups. The whole "free" movement make it exceedingly hard to sell software nowadays.