Microsoft giving away IE for free probably had more to do with Netacape's downfall than the rewrite alone.
Netscape could have developed different ways of getting money, like ads on the start page or default search engine. But such schemes could only have worked if they had retained a large market share, which they jeopardized with the rewrite.
Netscape was free because Mosaic was free, and Mosaic was free because of the National Science Foundation. (As for getting your initial browser, IIRC you could send away for copy of Mosaic on 2 floppies for the cost of shipping and media, but that could take weeks)
They had a reputation for giving away betas and pre-release copies on their FTP servers.