I have tended to think of 'free' as a cost of marketing but it can be more than that if free users are contributing to a central data asset. Contributions could come in the form of user-uploaded content like photos on Flickr, videos on Tube etc, that are part of the user experience/usefulness of the service. The data produced by users viewing, clicking, sharing etc is also a type of contribution because that data can be aggregated and analyzed to create something else. In these cases free users become more than potential customers, they become a valuable and necessary part of the service.

The point I was trying to make is that not all users are the same. Some users are always more valuable than others and can be orders of magnitude more valuable. In these cases, I think there might be some conflict between growing a huge user base and creating deeper offerings for a smaller number of hugely more valuable users.

Thanks for your comment. I read your post and it's an interesting question.
If there is strong network component, i.e. the overall service becomes
richer or more useful for every additional user that joins, having more
unpaid users could be more valuable (assuming the bills can be paid by some
other means).

I tend to think of 'free' as a cost of marketing but it can be more than
that if free users are contributing to a central data asset. Contributions
could come in the form of user-uploaded content like photos on Flickr,
videos on Tube etc, that are part of the user experience/usefulness of the
service. The data produced by users viewing, clicking, sharing etc is also a
type of contribution because that data can be aggregated and analyzed to
create something else. In these cases free users become more than potential
customers, they become a valuable and necessary part of the service.

The point I was trying to make is that not all users are the same. Some
users are always more valuable than others and can be orders of magnitude
more valuable. In these cases, I think there might be some conflict between
growing a huge user base and creating deeper offerings for a smaller number
of hugely more valuable users.

Phil