VSTS, Microsoft's hosted TFS solution, gives you unlimited private git repos for up to 5 users, 40 hours worth of hosted builds per month, complete project management, a private markdown based Wiki, and free orchestration of local build and deployment agents.
1. They already have such offering (VS Team Services).
2. Their competitors (GitLab, Bitbucket) already have that offering.
3. I don't think they're interested in GitHub for its revenue, but for its strategic value. GitHub has to protect its revenue model by disallowing free private repos, Microsoft can afford to be more flexible.
4. They've already made similar moves. They acquired Xamarin, which was expensive, and made it free.
I have ~50 private on my account... Embarrassingly bad half-completed side projects mostly.