Though people often make fun of companies that lose money on every sale but make it up in volume, that's essentially what Linden Labs has managed to do by giving away free subscriptions and counting on customers to upgrade over the long run to paid subscriptions.
The secrets to success: (1) making basic membership free; (2) a greatly
simplified registration page, according to Second Life's VP of Marketing David Fleck.
The elephant in
the room that wasn't mentioned in the case write-up: (3) Hot Virtual Sex with Furry Humanoids. Lots of it.