Open Source Means You Have to Be Better
How can a company give away its flagship product and still make money? Ask Red Hat, because it's doing a great job at doing just that. Really. Go here to download it. You can modify it and re-distribute it, or distribute it with only token modifications. You can even sell it, if you can find paying customers.
Red Hat's entire product line is available for free. So how do they make money? By selling support. As far as I know, Red Hat is the only "pure" Open Source company in existence. They don't sell hardware. They don't offer dumbed-down free versions, then put their best efforts into their paid products.
Digium puts a slightly different twist on the Red Hat model. Digium is both a hardware and software company that makes IP telephony hardware, and sponsors the very popular Asterisk iPBX server.
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