Game developers and app creators of all stripes and all sizes are cottoning to the idea that free can pay.

You only have to browse the gaming news headlines to see how many industry titans, MMO behemoths, obscure Korean gamemakers and dozens upon dozens of mobile startups are releasing their games as “free-to-play” or ditching old price tags and subscriptions.

Valve just added a handful of free games to Steam before eradicating the price on its own Team Fortress 2. Blizzard sorta jumped on the bandwagon with a half-hearted stab at making World of Warcraft free. Microsoft is reportedly looking into it on Xbox 360 and every week we see new free-to-play apps hit iTunes and the Android market.

The idea works like this. You give gamers a full game, or at least a hefty portion of it, for nothing and let them play the game without upfront payment or subscription fees. Then, once they are suitably addicted and craving more, you spring the trap and tempt them to cough up real-world cash in exchange for virtual items and in-game advancements.

If you’re a player, maybe you could get a new hat or gun or car for a few dollars, or access premium areas and exclusive hang-outs that only paying customers get to see. In a slow and tedious simulation like FarmVille, you could pay a few bucks to suddenly make your tomatoes ripe and ready for picking. You can grab pointless aesthetic trinkets, or useful items to get ahead.

The idea originated in countries like Korea, China, Russia and Brazil where piracy was so prevalent that selling packaged goods with an upfront fee just became pointless and futile. Instead, companies pivoted on the traditional business model and tried a new approach. They gave away MMOs and multiplayer kart racers for nothing, and then offered up small and optional “microtransactions” on the side.

It absolutely exploded. Suddenly, gamers who used to knock off full-price games were spending 10 times that amount on virtual doodads, expediting upgrades and premium features. It hit big, it hit fast and it soon made its way to the West. By the mid ’00s, we saw games imported from Korea, and by the end of the decade we saw native releases like Electronic Arts’ free-to-play shooter Battlefield Heroes, and Zynga’s free-to-play Facebook phenomenon FarmVille.

The business model has since ripped through the games industry like a particularly nasty pox. Today, more than eight leading MMOs (from EverQuest II to City of Heroes) have free-to-play elements either implemented today or planned for down the line. On the iPhone App Store, eight out of 10 “top grossing” games are currently free-to-play apps. Zynga’s CityVille courts 80 million architects a month; EA has 17 million users on free-to-play games.

According to the industry, it’s one very successful business model. EA Games Label President Frank Gibeau told GamesIndustry.biz that free-to-play can be “as profitable as a console game.” Tap Joy’s Paul Bowen goes one step further. At a panel during January 2011’s Mobile Games Forum, Bowen boldly stated, “If you’re making a paid-for game, stop. Make a [free-to-play] game with virtual goods and you’ll make five times the money.”

For one developer, San Diego-based NimbleBit, that claim isn’t bold. It’s conservative. “Tiny Tower, at least at the start, is making 50 times the amount any of our paid apps have,” co-founder Ian Marsh told Wired.co.uk.

Tiny Tower is a recently released, and free, iPhone and iPad game that puts you in charge of a cute, pixel-art skyscraper. You move in residents, construct floors, hire workers, man the elevator and restock businesses, just like a microscopic version of SimTower.

The kicker is, of course, that you can pay (by buying “Bit Bux,” which cost about 10 cents each, but come in packs of 10, 100 or 1,000) to speed up the game. If a new floor is taking too long to build and furnish (a new floor will take around three real-world hours), you can expedite the process by paying about three Bit Bux. You can also purchase a more speedy lift and cough up real-world cash for aesthetic upgrades like new wallpaper and paint jobs.

Tiny Tower has been massively successful for the small company, and it’s only been available on iTunes for about a week. As developers have found out, you don’t actually need to turn many players into paying customers to see a strong profit. Tiny Tower picked up a million free downloads in four days, but only 2.6 percent of those players have coughed up and paid for in-game goods.

The point is, free-to-play lets gamers spend as little or, more importantly, as much as they like. “If you have a game that people really enjoy,” explains Marsh, “it is much more lucrative to let the player decide how much your game is worth rather than the other way around.”

‘Our games wouldn’t be very successful if each paying player only made a single purchase.’

A popular term in the free-to-play business is “whales,” which refers to big spenders who will pour hundreds or thousands of dollars into a game. NimbleBit doesn’t track individual players, but Marsh says he knows whales exist because “our [free-to-play] games wouldn’t be very successful if each paying player only made a single purchase.”

Those are the sort who might spend $29 on 1000 Tower Bux in Tiny Tower, or spend $96 on a “wagon of smurfberries” in Capcom’s Smurfs’ Village — both popular payment options, according to iTunes’ statistics.

Much to the dismay of some parents, that is. The Washington Post reported on an 8-year-old girl who spent a whopping $1,400 on the fruity currency to spend in her own Smurfs’ Village. Excessive in-app purchases have forced Apple to change rules on how payments are made on the iPhone and iPad.

That’s one of the evil sides of the free-to-play coin. As is the opinion that the games are inherently designed to siphon money from users and genetically engineered to encourage micropayments. For some, games like FarmVille are tedious slogs if you’re unwilling to pay, and games like Team Fortress 2 might favor players with big wallets who can buy the best guns from the store.

That is, after all, entirely up to the individual developer. It’s a delicate balancing act where making the game too much fun hurts profits, but making the game too tedious will turn away players.

NimbleBit, for example, goes to great pains to make its games accessible to paying and freeloading gamers alike. “I think we take a slightly different approach than most,” says Marsh. “We develop and beta test the game without the ability to use [payments] at all to guarantee that the game is definitely free and fun to play without it. The [payment system] really is added lastly as something extra and optional for players who are really enjoying the game.”

The new business model shows little sign of slowing down, and for the many developers brave enough to release a game for nothing, they’ve seen the success it can bring firsthand. Free-to-play is not the business model to end all payment systems. It doesn’t work for every type of game and not all developers could court the type of user base that’s willing to sustain an entire economy on virtual hats alone.

But for games, genres (time-wasting simulations, MMOs and competitive games) and marketplaces (the iPhone app store, Facebook and PC) that fit the idea, it’s a clear choice. NimbleBit’s Marsh says, “I have a hard time envisioning releasing anything in the future without a consumable component.”

For him, the equation is simple. “When you remove all barriers to entry, the true potential of a game is revealed and the number of people actively enjoying your game explodes.” The kicker for Marsh, and dozens of other massively successful free-to-play developers is, “monetize a fraction of these fans and you end up with more revenue than with the traditional upfront model.”