Booster packs. Gems. Coins. Smurfberries.

These are all example of in-app purchases that can be typically found in free iOS game apps. The price of these items varies, but generally the idea is that there is a tiered pricing plan to offer different quantities of these items.

The idea is that the items will provide a speed bonus, extra advantage, or unlock content that wouldn’t be available if you were to play the game without paying. This model is colloquially referred to as “freemium.”

Which brings me to my question: Is freemium a good business model to have in the App Store?

For the purposes of this article, I’ll be looking at gaming apps only, since they are most common for in-app purchases.

One problem with in-app purchases, especially those targeted toward children, is that the item being purchased is so far removed from reality that buying it with real money doesn’t feel that way. All you have to do is look back to how parents had said “What the Smurf?” when they discovered what their children had done in the Smurfs’ Village app.

Chris Anderson, Editor in Chief at Wired Magazine, has looked extensively at this topic. His book, “Free: The Future of a Radical Price,” argues that a basic rule for economics states that price falls to a marginal cost in a competitive market (read: “apps for free in the App Store”). Customers seek out free content, especially on the Web.

However, Lincoln Murphy of Sixteen Ventures, describes freemium as fundamentally flawed. Just because in-app purchases are available doesn’t guarantee that customers (if they can even be called that, since they never “bought” the app) will actually make any purchases. I can certainly attest to the that. I played Tiny Tower for months without spending a dime on buying more Tower Bux. I’m also currently in the middle of Kingdoms of Camelot, another freemium game that offers gems for upgrades.

With so many developers releasing free versions of games, developers of paid games would be forced to match the competition by reducing the price of their apps. There’s also the resolve of the customer to keep in mind. If they buy a full app for $0.99, they’re done. But getting a free app and then periodically buying in-app purchases could cost much more. This equates to a casino-type scenario, where the house is meant to always win. But in my opinion, it’s the customer who should always win.

Granted, one view of the customer always winning would go back to Anderson’s point that Web content would be driven to a cost of nothing. But there could be another option as well. I think the best solution for developers would be to release “lite” versions of paid apps, such as what many have already done. Give the game a try, and buy it if you decide it’s for you, or look elsewhere if you don’t like it.

This has certainly worked well for games with shareware versions. And if the developer really did want to release just a free app, say as a way to get their name out there, more power to them.

Freemium is present in the App Store, and it’s probably not going anywhere anytime soon. If anything, it may become the norm. But the fact of the matter is that it is based on a business model that isn’t as reliable or straightforward as paid apps. When you toss in the fact that child-oriented games include this feature as well, “free” goes even farther from the truth.

So where’s the middle ground? My money would go on lite apps, though I guess the whole point of it all is to not spend any money.