Scott Adams has an excellent piece in the Wall Street Journal about the pros, cons, and confusion, of free content.
I've had mixed results with giving away content on the Internet. I was the first syndicated cartoonist to offer a comic on the Internet without charge (www.dilbert.com). That gave a huge boost to the newspaper sales and licensing. The ad income was good too. Giving away the "Dilbert" comic for free continues to work well, although it cannibalizes my reprint book sales to some extent, and a fast-growing percentage of readers bypass the online ads with widgets, unauthorized RSS feeds and other workarounds.
A few years ago I tried an experiment where I put the entire text of my book, "God's Debris," on the Internet for free, after sales of the hard copy and its sequel, "The Religion War" slowed. My hope was that the people who liked the free e-book would buy the sequel. According to my fan mail, people loved the free book. I know they loved it because they emailed to ask when the sequel would also be available for free. For readers of my non-Dilbert books, I inadvertently set the market value for my work at zero. Oops.
So I've been watching with great interest as the band "Radiohead" pursues its experiment with pay-what-you-want downloads on the Internet. In the near term, the goodwill has inspired lots of people to pay. But I suspect many of them are placing a bet that paying a few bucks now will inspire all of their favorite bands to offer similar deals. That's when the market value of music will approach zero.
One of the things you must think about when you compete on the web, is whether or not you will face competitors who aren't concerned about money. It's tough to build a business when your competition will do the same thing for free.