Good point. I can see how a big user base would help you develop a better product in this industry.
Regarding 'cost of free users', I was thinking of support costs. Even though a user does not pay for the product, they still expect to get help when they run into trouble. And if they don't get help, that could wash away some of the goodwill they might otherwise feel.
You can get around some of the bandwidth costs by doing what AVG and others do, which is bounce 100% of downloads to download sites like CNET so that the downloads count towards bumping you up in their 'top downloads' lists -- which helps you get even more downloads moving forward.
Some companies do not offer phone support (especially not to Free users), so this limits free users support down to just tickets and forums (which can be user-moderated to a large degree). Some companies have had success bouncing free users who need support to 3rd party 'PC help' type companies who can work with the person over the phone - for a hefty fee of course, and part of that goes back to the originator as commission.
Regarding 'cost of free users', I was thinking of support costs. Even though a user does not pay for the product, they still expect to get help when they run into trouble. And if they don't get help, that could wash away some of the goodwill they might otherwise feel.
Also, bandwidth costs for downloads.