There are three reasons. You mentioned two of them - word of mouth, and potential conversion to paying in the future. But there's another one too, and that's ju

There are three reasons. You mentioned two of them - word of mouth, and potential conversion to paying in the future. But there's another one too, and that's just the total size of your userbase. Either for bragging rights (we're bigger than competitor X) or for future sale value (the more users you have, the more money you will likely make from a sale/acquisition of your service, even if a lot of them aren't paying for your service) - both are good reasons to offer a free, dumbed down version of your pay service.