I was recently interviewed for publication on the subject of giveaways... it was an interesting discussion so I thought I'd reproduce my responses here...
There are 3 basic giveaway strategies that I can see: short-term promotion, long-term product and industry shake-up.
Short-term promotion giveaways are what Ben and Jackie call "bite-size chunks." That's where you give away samples of a "for-sale" product in order to generate buzz, trial and referral. In a nutshell, it's sampling. So Tivo gives free recorders... Krispy Kreme gives out donuts... Typepad gives free 30-day trials... and consultants who blog (like me) give away free intellectual property. Obviously this strategy is only effective when the product or service is worth talking about, and if the promotion is executed well. Poor execution is a sure-fire way to hurt your brand.
The long-term product strategy is to make one product in your portfolio entirely free and make up your revenue elsewhere. This strategy is often quite useful in subscription or commodity industries like phone service (Skype). Give away what people take for granted and can get anywhere (and inexpensive for you to provide); find out what they value and charge for it. The strategy works because, hey, who doesn't want free stuff? And second, a customer who has more than one service from a company is much less likely to switch to a competitor. In the case of search engines like Google (giving away free storage) and Yahoo! (giving away free email and web sites), their primary revenue model is based on advertising. They get more from advertisers if they can offer more eyeballs; free stuff attracts eyeballs. Software companies use this strategy often; Adobe gives away the PDF Reader but charges for other features. Sun gives away Java. The list goes on.
The last form of giveaways is the industry shake-up. Look for an acceptable, ingrained industry revenue source that you can eliminate. A good example is NetFlix, which changed the movie-rental business by eliminating late fees. The 'giveaway' in this case is more of a benefit than a product; NetFlix is giving away time.
What can your business give away that will generate trial, buzz and purchases? What industry-accepted charges can you eliminate and turn into a competitive difference?