This post is an extension of the Guide to the Free Apps Phenomenon post. The free apps phenomenon is the situation where many apps that were created with the intention of making money are turned free. This post on the other hand will cover the various ways apps can remain free (no upfront cost).
In-app advertising means that that there is some sort of advertisement displayed when you use the app. Some of these advertisements can be downright annoying to quietly discrete. There are 2 kinds of in-app advertising:
1) Mobile Advertising Networks Ads
Mobile advertising networks are networks developers join in order to gain revenue from displaying other developers' banner ads on their own apps. Each mobile advertising network has their own business model but the most common model is going by a cost-per-click basis. Examples of such networks include iAd and AdMob.
2) Cross-game Ads
Often times developers will want to display other games or apps it has developed in order to increase user visibility. This is a good strategy if one game is very popular while the rest are not. By developing cross-game ads, developers hope that popularity of one game can be transferred to another. For example, Paper Toss 2.0 has banners of the same developer's other games displayed on the very bottom of the app.
Free But You Can Upgrade
There are a lot of apps out there that are free but give you the option to upgrade the app if you like what you are using. The 2 most common paid upgrades are from the Lite Version to the Full Version of the app, and from a free app with advertisements to one which is ad-free.
The word 'freemium' is a mash-up between the words 'free' and 'premium'. The Freemium business model represents a huge percentage of apps located in the top app categories, and for good reason. Because once people get hooked to a great game, they may go lengths just to improve their stats or buy custom accessories. There is some slight controversy over these apps because they are marketed to the public as free but allow for purchase of premium items such as virtual currency.