I agree that when price of zero is bad in sense that it raises the users expectations to infinity (if you think of value/price) and this is bad for the echo system. On the other hand "free" allows everyone in the world with Internet access to use the service which is a very positive thing overal. IMO, the best model (in terms of impact, not in terms of business model necessarily) is a hybrid where you offer premium services (like github, linkedin, dropbox, etc.). I'm not sure why Google shies away from it but my guess is customer service.
I actually agree with the point of your comment: GitHub, to take one of your examples, seems to be a profitable business model. My reaction in this context, however, is that I do not feel like Google is trying to figure out a business model of any kind for most of its products.
To try to draw the difference, in the case of where Google offers free things, it seems to not have any relation at all to the things where it makes money: I don't think that by offering Google Code Search they got more people using Gmail or Google Search (things they monetize).
The best idea I've seen so far is that by doing large numbers of totally random fun/free things "for the world", users will always see them as "not evil", even though their core business model (aggregate information on users and use it to drive targeted advertisements) is the same as that of companies like DoubleClick (generally considered "evil").
(Which I found to be a hilariously awesome notion: that Google's random projects /are/ "freemium" in a sense, but where the upsell is more just a general notion of trying to dampen an overall negative connotation. As Google shuts down side projects, and concentrates on more controversial things like Google+, it will be interesting to see if they manage to maintain their "people don't think we are evil" status.)
(To try to be very clear: I do not consider advertising to be intrinsically evil, and am even sometimes involved in that space: do not take that previous comments to be indicative of a reaction I personally am having to their business models. Lots of people hated DoubleClick, lots of people seem to hate most ad companies, and yet people generally like Google: I think trying to analyze why is very interesting.)
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Now, that aside, I think that there is still a bug (but find this to me more on the philosophical side): you can also view the freemium business model as a "tax" (subsidizing a general service by taking a cut of another area), and whether that tax makes sense or not becomes tricky. In the case of GitHub, their pricing for people who want private repositories is brutal, and those people are subsidizing the ecosystem of free projects that are using GitHub to host their code.
This, however, is not actually "sustainable": people on HN constantly complain about the cost of using GitHub for private repositories, and lament that there isn't something at GitHub's level competing with them that they can switch to, which won't cost them hundreds of dollars a month for what amounts to "almost no disk space or usage" (as GitHub bills per repository).
The problem here is that if you have a large free service that you are using to bootstrap your paid service, the paid service is in danger of being attacked, and being attacked hard: if nothing else, people who are offering the paid service competing with you aren't distracted by the free service (I am brutally aware of this bug, as my actual business has this problem; it is a little better for me, though: my market position is more similar to if GitHub also was the company that primarily developed git itself).
So, last week, BitBucket announced git support, and has what many people here consider to be reasonable pricing. I am now very curious how long it will take before people currently paying GitHub take strong enough notice (maybe requiring upgrades to BitBucket, delaying the process further), and start to switch.
When this happens, GitHub is no longer going to be able to extract the tax it currently extracts, and is going to be in the interesting position of having a large number of free users it is trying to support: people who now consider social version control to be something that is intrinsically free, and which large amounts of the open source ecosystem now rely on.
If that happens, it will be quite interesting to see how it goes down, and who gets effected in the market and ecosystem implosion that results.
I used it as an example as I know HN users complain about it quite often: here are some references. Call it what you will, but a lot of people seem to disagree with per-repository pricing for small low-usage repositories, just because they are private.
"For Git projects, the per-repo pricing of Github is insane. They don't even have a public pricing plan for the number of repos I'd need for my personal (and private) coding." -- http://news.ycombinator.com/item?id=2740757
It's brutal when you think that if you made one giant repo they'd do it for almost nothing, but because you picked this other layout it could cost you $20-$50/month.
I want prices to be based on resource usage for the most part. If I've got a huge repo and I'm always using it, that would cost more. If I've got fifty tiny and essentially static projects then they'd be almost free to host. Give me non-arbitrary pricing and I'll be there.
I (have a private Github account. Let me echo something, "... when you think that if you made one giant repo they'd do it for almost nothing".
In other words, if my project was "open" Github would cost nothing. That's burtal.
Frankly I don't mind paying for repo services. I used Assembla for years. But then I moved away from svn. My problem is the price compared to all the free accounts. I (and all the other paying customers) are subsiding the open repos.
Now that's ok. I do gain from that, since I have several repos (projects) I follow and use. So it pays for itself in the long run. Sort of like public broadcasting. It's the same business model; I donate money every year to both PBS and NPR for the pleasure of tuning in. And I know the guy sitting in the car next to me blasting "Car Talk" probably didn't pay a dime.
That's great (seriously: it is); however, I think it is then important to realize (for others) that GitHub's business model is closer to that of PBS than CBS: they are, in the long run, relying on the fact that they are doing the world a public good, and when competitors with enticing "fair" price points enter this space more powerfully, it will be interesting to see if they manage to "keep up the donation drives" enough to continue subsidizing the world's open source. (edit:) ...especially, to continue the additional point I have been bringing up in this thread, when this competitors are able to "outrun" GitHub, because they aren't carrying around that baggage: they can focus, intently, right where the profit is, allowing them to rip as much of it away from GitHub as they can.
