A much more pragmatic conclusion is that they think this feature is something that users want. And in Apple's case, as well as others, it probably is.
(I also feel like analyzing specific pricing decisions is missing the forest for the trees of "If you're not paying for it, you're the product." It mostly applies to whether an entire business model is free, e.g. Facebook. Several years back, Microsoft used to give out free memory-card-to-USB adapters for the original Xbox, intended for keyboards for MMORPGs, but also useful for jailbreakers. I requested one. Did I become the product?)
Each thousand dollar phone is making many times its manufacturing costs in profits. I expect that there is a large enough margin on phones sold to fully fund R&D not just for iPhones and iOS but the Apple Car, its OS and battery technology, and whatever other projects are in the works.
Apple makes their money selling premium ITC. They don't need to sell your personal details.
They innovate in the hardware space and physical design space, but all of their competitors will make copies of their hardware advantages after a few years. To keep on being competitive, their entire experience has to be superior. And what is harder to copy properly is the software experience.
Engineering cost wise, it's cheaper to just keep the software train rolling than to have older versions persisting that you have to continuously support. That is why they don't charge for it, because it's cheaper for them if you upgrade sooner and become part of the marginal few they can ignore if your a straggler. And 'free' has far higher adoption rates than even $1.00.