With a paid model, the developer captures the sale and gets paid at the end of the billing cycle. With the ad-based model, the developer's revenue is dependent on ad impressions or clickthroughs, which means the developer's content must be compelling/interesting enough to keep the user's interest long enough for the app to pay for itself. But there are many other complementary products, and Pinch Media has shown that free app usage drops by 50% within 10 days[1]. Even though paid app usage is equally steep, the developer has already captured the revenue up-front.

So the takeaway from this is to make a well-timed paid release first, _THEN_ make it ad-driven after sales have tapered off to capture any remaining holdouts. Which, it would appear, seems to be the trend on the App Store. Apps that used to cost $0.99 are now routinely being made free.

[1] http://www.slideshare.net/pinchmedia/iphone-appstore-secrets...