The Core

Here is a SciFi writer who gives his ebooks away for free and still manages to make $70-80k/year.

The NPR article:
http://www.npr.org/blogs/alltechconsidered/2010/10/25/130811846/doctorow

His website:
http://craphound.com/

I've done something very similar but my product was free software, it did okay.  Yeah, to make it work you have to work every single angle, you have to have ads, you have to have a paid option, I had a store too where I sold related products.  I did okay, but it was a lot of work for the money.  There were lots of fans of the project, but fandom doesn't pay the bills.

That said, I would do it again if I had the right idea and it was something I enjoyed.

Honestly, I think that is the problem with a lot of these blogger types, they have the user base, but they are so afraid to monetize them because they think it will offend them.  Yet, if you look at any large institution that gives away their service they always hit the user over the head with opportunities to pay for something, a donation subscription, or a related product.

And there are thousands of PLR (Private Label Rights) ebooks you can find on nearly every topic so you don't even need to write it yourself.

You can also always go one step further by offering out with master resell rights and get others to promote your book for you with cobranding (if available with your ebook compiler). This will help widen the audiance depending on the business model. Something I have specked out and is ready to go when I need it, got the relevant tools, plan etc for but not actioned due to time contstraints and businesses I have run with.

I think it is a great model if applied to the right project.

Indeed... using Doctorow as an example of "what can be done with free ebooks" isn't entirely applicable to a comparative no-name. I'm sure it can still be done to bring in a sideline income, if you have the time, but I *reeeealllly* doubt anyone who isn't already an internet cool kid is going to make that much money at it.

First, Doctorow can really write.

Second, it is hard for a new or midlist author to break out of the pack, especially if your publisher is not spending advertising dollars on you. So to break out, Doctorow decided to gain some traction by giving away ebook versions of his books - use WOM on the Internet to rise above the pack.  It's worked.  A lot of readers will buy their favorite books in dead tree editions but first you got to get them to try your writing.  Reader bait.

Michael Martinez had something similar happen when a free ebook of his ended up on a file sharing service with like 100K downloads. Suddenly people were searching for him by name looking for more books on Tolkien right when the movie frenzy was hitting. 

Baen Books has done something similar with the Baen Free Library.  Baen is a very traditional science fiction publisher, but they have found that by giving away some titles for free, it has increased sales of both paid ebooks and print.  They usually do this by making the first book in a series free at the Library it gets people hooked and they buy the rest.  Or they use it to reintroduce authors from 20 years ago to a whole new generation of readers that have grown up with downloads.