The technical community has mostly accepted that file sharing is a reality that requires rethinking business models, and that DRM is an act of desperation to put old strategies on life support by restricting playback device manufacturers.
But for proprietary versus free software, many remain outright hostile.
Business models for privacy-respecting user-centric free software are possible: https://en.wikipedia.org/wiki/Business_models_for_open-sourc...
They might not be amazingly profitable. However, the reality is, the programmer is heading the way of the musician and the artist.
Just like the typical plumber or electrician, most programming is not "new products". Even today, most programming is probably Java (formerly Cobol) internal to a business or other large organization.
There will always be a need for programmers, for much the same reason we will always need plumbers: even with standardized parts and methods, you still need someone to actually customize it to the specific task and implement it locally.
This is where Free Software comes in: we need a commons from which those implementations can be built from. Unfortunately, we still have a lot of sociopathic businesses in the market that think it would be really profitable if they make the threads on all their pipe fittings in the reverse direction at non-standard sizes with the hope of cornering the entire pipe market. In practice, of course, all they've accomplished is forcing every plumber to keep a huge set of adapters in their toolkit and waste a lot of time matching them on every job.
I agree with you that "free" as a business model needs to go in one direction or the other. Truly free, as in my Fedora install (ignoring some binaries) or pay for privacy.
The problem with pay lies in the search for more revenue. Cable television used to be ad free. There wasn't a need to advertise since they were already getting subscription money - now look at it. The temptation to add easy profit is too great for many businesses (which is why we now have targeted ads within an OS we already quasi-paid for).
Meanwhile Red Hat isn't doing too bad with their blend of paid and free.
None of what I'm saying is particularly well written or fleshed out after a long day, but this is also something I think about a lot.
What about non targeted advertisement?
By free I mean free as in beer, not free as in freedom. The problem is that if everything has to be free, there can never be any money in the actual maintenance and development of the product. User-centric and privacy-respecting business models are impossible if the product is free.
It's necessary but not sufficient because Windows isn't free (well 10 is quasi-free for some people), but it still does these things. So being non-free is no guarantee. But I believe it's a necessary condition since without some revenue stream independent from surveillance and other "indirect monetization" streams there is absolutely no hope of delivering a professional consumer-grade experience that could compete in the general market.