A free plan is often a replacement for advertising spending. It gets you users who wouldn't otherwise consider using your product, and you hope that they would tell their friends about it, and some of those friends would eventually pay.

Here is an extreme example: If I remember it correctly, MySQL's conversion rate was quoted as about 1 in 1000. If they didn't distribute the entire product for free, they would have much less market penetration, but certainly earned much more. Had they chosen that route, they wouldn't be able to sell the company for a cool billion.

Nothing in life is free. If you want a lot of users, and don't have the advertising budget for it, you give some or all of your product away for free.