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Would this make Xamarin free ?

That is a great question, I doubt it.

That said, Visual Studio is not a cash cow for Microsoft and making it totally free might be a key move in starting to win back dev mindshare.

That said, Visual Studio Express is free in multiple versions,inlcuding ones for the web and Windows phone... http://www.visualstudio.com/en-us/products/visual-studio-exp...