As another point to this, I have been reading the Ralph Lalonde First Light omnibus as a free download from smashwords. I am about 1/2 way through the omnibus (he treats it as a single book now also), and am really enjoying the read.
As of today, I went and bought the next 5 books of his, the Spinward Fringe books. Pretty sure I will enjoy them based on the First Light so far, will load them up on my Sony for reading on the exercise bike (get about an hour a day of reading time while exercising, which is nice). I also know he is writing others in this series, if the Spinward Fringe series is as good as First Light, he has me hooked.
So, in this instance, the Freebie made sales. Not paperback, because I don't by paper, but sales for him. It also helped he distributed them DRM free in a variety of formats at a price point I find reasonable (first 2 bundled for $5, rest $5/ea).
--Carl
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