It might not be a bad startup promotion. To offer say 10,000 free domains and free hosting alongside. Thats a $70K budget requirement but would gain the host potentially 70K in clients. Most startups though don't have $700 to spare and any established company I assume couldn't be bother dealing with the sort of clients who will snap up the free offers.
Yes, i agree with Ultima VPS. Most established company couldn't bother dealing with freebie seekers.
I really do not understand why they want hosting and domain for free. I would rather pay to secure an insurance to my service instead of getting it for Free. Anything go wrong with the hosting will not be their responsiblity but mine if i get it for free. I don't like that.
The only way freebie services can be paid are either donations or advert clicks. But nobody is going to pay you $20 per impression and you can not expect each user to click your ads more than one time. And do not forget about all the support you have to offer for that many consumers.
It depends, if an interested party is impulsive I guess it would work. But if someone is more on thinking for long term benefits, that might not be a catch for them. But still, that is nice offer when you're just starting.