The key to this model seems to be the low costs for production and distribution on the Internet. But personally I think there is a little more to it than that...
The basis is simple. Give away some, or most, of what you offer with a view to making a profit on the higher end or premium stuff. In one way or another his is the model for LinkedIn.com, The Aberdeen Group, DimDim.com, ProjectOffice.net and many others.
But can a similar thing work offline? I think so...but not quite the same.
I have a colleague in Canada who consults in engineering. His strategy has always been to put a guy on their site for free for the first month. Then at the end of the month if they didn't want to keep him there he would move on.
According to him he has rarely (he says never actually) had to take the consultant back after that first month.
I have similar experiences with subscription based services, which I really like. Th concept is that the client pays a flat fee every month, some months she uses a lot more than she pays for, other months she uses less. Not exactly free, but definitely lower cost.
"Free" is a good concept to include in the reports you write. Going that extra mile to deliver something a bit extra, a bit different, and a bit more value for the same cost.