For the commercial side of things, freemium is definitely top dog. There are times where it suffers, especially in very social contexts (If you play this game for free, you get this equipment. If you pay, you get whatever you want!). However, the times it shines are fantastic.
The first example is from Pandora, the online radio service. They deliver a fantastic product, and generally are my first choice when it comes to music on the computer. But there are ads and limitations, which are understandable. However, you can pay about $30, and get the premium version of the site for a year - no ads, no listening limits, and more ability to skip songs. When I saw this, I jumped at the chance. Now I can put on pandora from my phone, and listen to it on an 8 hour drive with little to no interruption.
Now there is only a very small segment of the userbase that pays for their pandora subscription, but there are a lot of people who use it in general. If only 1% of a big number pays, you still end up with a big number. And here, the cost for the premium service can be far less than the benefit.
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