That could have taken many forms. They might have invested in a much stronger brand, aiming to make Prusa (needs a better name tbh) synonymous with 3D printing, and developing a product line which covers a wider range of needs, from entry-level highly-usable stuff up to hackable mid-tier things and possibly high-end workshop printers as well, all of which should have had a shared brand identity. China can't really compete on reputation, so that's where to focus. Moreover, they could have invested more in services surrounding the product, such as the aforementioned cloud printing services, perhaps a thingiverse-equivalent with a models marketplace and a small margin off of that, etc. Auto-detect when your filament is running low and have a subscription service to ship you a new one -- maybe the cloud printer notices when you don't have enough in stock for a model you want and suggests you order more.
Just making a new model every 2 or 3 years and hoping China wouldn't notice was a very stupid strategy, and the free or non-free nature of their firmware has nothing to do with that.
This is such a common failure mode in open source companies -- they think that the code is 90% of the battle for the market. It's not, it's more like 5% at best and because it's open source the rest of the market can make use of it. This can be very powerful if you're smart about it, but "write the code and the rest will work out" is not that.
