you give away a core product for free and then generate revenue by
selling premium products to a small percentage of free users.
I guess this model is well known, thanks to the companies such as
Skype that have championed this business model. But it was interesting
to see that someone has named it so well.
For more details, please check out Wikipedia article and also a blog
site at http://www.freemium.org. This site features an e-book that
explains this term in more details.