Are other companies doing this too, and does it really make sense? Isn't there a significant marketing benefit to generous free tiers?
But companies with 20 servers might actually turn into 2000 server companies once they close their seed round or series A, and you risk throwing out those lottery tickets.
It might follow a power-law distribution like with venture capital in general - one blow-out success to cover the ten lesser investments.
If you are huge and able to run an SMB play or if you can attach to an accelerator and do this for qualified leads, sure.
I recently hid the free tier on OnlineOrNot's marketing website as an experiment, since then my sign-up rate has decreased, but those signing up are more likely to use a business email, and actually start monitoring their APIs and create a status page.
Having a free tier has been great for word of mouth, but the quality of "customer" it brings is so low on average that I'm wondering if its worth it.
I'm not sure if there's a marketing benefit, but free tiers seem to have very low ROI. It attracts lots of tire kickers, the kind of people whose full time job is to evaluate cheaper tools, even if they do 10x less than the ones that cost a little more. It's the kind of thing you do when you need the numbers (e.g. Facebook or a MMO), where the users are also the product. Or if you've completely tapped out other channels.
However, if you haven't proven yourself enough to make the sale, they're a good tool. But generally, the people who are facing the problem the most are already spending a good sum on their own hacky solution, and happy to pay even for a small chance to make things better.