You can generate money only through free software, however. Here are three approaches I have found: 1) Consult on projects that use the free software and use some of the profits to support that free software, 2) Sell enterprise-grade support on the free software to big companies. This is much more than just help-desk and answer the phone. All commercial software comes with a big contract. You provide the same kind of contract just no license restrictions. Others can do the same and so you have to distinguish yourself by either having all or most of the experts on the software or just really good marketing. 3) Dual license using GPL3/AGPL for the free version and a commercial license and then aggressively go after people for GPL violations if they don't get the commercial license.
I don't like the relationships created by the third model --- your sales processes become aggressive and counter-service minded by definition. I don't see it scaling and really providing value.
The other two are really hard to impossible to get investors exited about and therefore you struggle to get the capital together you need to prime the customer pump.
There is a another general model with many corollaries where you basically "do something else" that uses the software as a critical part of the business and let the profits of that activity fund open-source development.
A lot of open-source these days is actually funded by this kind of activity (or from VC's hoping to profit from a promise of great wealth from this kind of activity).
