Free works, but for whom? Certainly a lot of companies are doing well by giving away everything, but how long will the acquihire exit strategy remain open? Furthermore, the user is getting absolutely screwed. There have been a lot of notable services that have popped up over the last few years and then some big company came in to pick up the talent and dumped the product and subsequently its users.
I've been fortunate to only get screwed twice, first with Gowalla and now with Google Reader. Although I used Google Reader for longer and much more frequently than Gowalla, in a way I feel less screwed (if at all) by Google. Google Reader is a very portable product by its natural connection to RSS. Google has also taken a few important steps towards making data portable for it's millions of users.
It took less than a minute to transfer to another service. I'm testing out Feedly for now, but I would rather host my own RSS reader and take control myself. If a consumer product provides adequate data portability the idea of hosting my content for me is something I feel perfectly comfortable doing.
My point is its less concerning that everything is free, but more how anti-competitive these services are with my data. If I can at any moment retain control and back up everything or move it over to a competing service, I'm okay with investing time in adopting a free service.
However, moving your data between services as they inevitably shutdown does seem like a short term fix. I think Marco's idea for a mirror of the reader API is a great long term solution[1]. For the average user, people would probably opt for a popular host. For people who want to host it themselves (probably a minority), they could do so with ease.
[1] http://www.marco.org/2013/03/14/baby-steps-replacing-google-...