Apple’s controversial cash cow: Free apps that sell extras

FORTUNE — The floodgates officially opened on Thursday Oct. 15, 2009. That’s when Apple (AAPL) sent a letter to iPhone developers telling them they could adopt a new business model: Give away their apps and make their money selling extras — new characters, faster cars, better weapons, stronger magic, more gold, etc.

The model was so successful that it led to a class action suit by the parents of kids who’d racked up huge bills behind their backs — like the 5-year-old in Britain who recently spent $2,500 on a game he thought was free. (Apple settled the lawsuit, changed its password rules, added a warning and refunded the $2,500.)

But in-app purchases are here to stay for the reason best illustrated by the pie chart above, released Thursday by Distimo. It shows that in-app purchases in February accounted for a record of 76% of total iPhone App Store revenue in the U.S.

Moreover, it turns out Americans are relatively restrained compared with Asians. In Japan, the average revenue per download of the top grossing 250 games ($3.12) is more than three times higher than in the U.S. ($0.99). See the bar chart below:

Distimo’s report is available for download as a pdf here.


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