In addition to the open source model, there are a number of creative ways companies can generate revenue with a "free" software business model. There are a few resources out there to help with planning business strategy around open source or "free" software models. These two books are certainly recommended as a starting point if you are considering open source as a business strategy.
For example, Trialpay is an interesting case study of a network of vendors, some of them selling software or services and some of them other products, where a customer can get one product (eg, anti-virus software) for free if they sign up for another product in the Trialpay portfolio. In this CNBC article they describe an example of a customer downloading a McAfee software product on the McAfee website: The customer gets the choice of paying with a credit card etc, or "get it free with Trialpay." Clicking on that goes to several different ways in which the customer can get the McAfee product for free which are customized based on the perceived preferences of the customer.
Of course, there are various ways in which revenue can be generated by providing "free" software:
Back to the Trialpay example... Personally, I'm not sure how valuable this is... after all, going through the motions of selecting something else to buy or sign up for instead of the (relatively cheap) product I'd like to get seems like a lot of work... but apparently their free software busines model does appeal to a fair number of consumers out there.
The point of this is... there are more ways to think about your business model than just "how much should I charge for my software?" Providing some of your product for "free" can be a viable route. The options are about as limited as your creativity in thinking about your niche, your target customer, your partners, and how to create a win-win for all. This is apparently what Trialpay is trying to do.