I once heard this theory: that companies release a free product in another area (subsidized by their core business) in order to interfere with the monopoly of another company. For instance Google makes their money in search ads and has a free office suite and operating system. Microsoft makes their money from their office suite and OS, and undercuts google with Bing. Bing/Google Docs never really have to be #1, they just has to take enough market share that the other company can't ignore it when it comes to pricing.