What is loss leader?

A loss leader is a product deliberately sold at or below cost to attract customers, on the expectation that they’ll buy profitable things alongside it. Supermarkets invented the tactic; in software it appears as the free tool, the $1 trial, or the suite vendor giving away your entire category as a bundled feature.

That last case is the strategic threat worth watching: a competitor who monetizes elsewhere can hold a price at zero forever, and you cannot win a price war against someone who isn’t trying to make money on the product. The counter is differentiation and depth — competing on what the loss leader, built to be given away, doesn’t do well.