I know this is a weasel thing to say, and I apologize in advance for that, but I don't see where we actually disagree.
Maintaining the size, quality, and ad conversion rate of your user base in a free/ad-funded business is where that business adds value, as opposed to fixing and improving a consumer-funded product. It's probably a lot more work than a consumer-funded product because, as you said, people are distracted by shiny new things and free sites have no "buyer's willful blindness to quality" so you must constantly manage your 'shininess' so they come back.
As for consumers making a value judgment, that does happen with ad-funded businesses; but the advertisers are your consumers and it's the advertisers making the value judgment about whether serving ads to your user base is a good way to spend their money.
Maintaining the size, quality, and ad conversion rate of your user base in a free/ad-funded business is where that business adds value, as opposed to fixing and improving a consumer-funded product. It's probably a lot more work than a consumer-funded product because, as you said, people are distracted by shiny new things and free sites have no "buyer's willful blindness to quality" so you must constantly manage your 'shininess' so they come back.
As for consumers making a value judgment, that does happen with ad-funded businesses; but the advertisers are your consumers and it's the advertisers making the value judgment about whether serving ads to your user base is a good way to spend their money.