We’ve seen a dramatic rise in both the number and (arguably) quality of free-to-play titles over the past year.  Looking at the timeline from Nexon’s Maple Story, right on through to Turbine’s recent decision to move Dungeons & Dragons over to the free-to-play model, you’ll notice in the overall scheme of things this is a rapidly accelerating push.

Up until now, we’ve all just looked at the Asian model, the numbers of players, and aside from the ARPPU or ARPU numbers here and there, there really hasn’t been much hard data to justify what we’ve all believed for a long time: Free-to-play/Microtransaction supported games CAN actually turn a profit.  This data is either shrouded in secrecy, or perhaps even worse, often presented in grey terms, i.e. ARPPU (average revenue per paying user), which is always going to look far more impressive than the ARPU (average revenue per user).  Enter Paul Hyman’s outstanding collection of words and data recently published over at Gamasutra.

Hyman doesn’t just catch Three Rings Design’s CEO Daniel James’ words, but also nabs opinions from Raph Koster, or Metaplace, and Jeremy Liew from Lightspeed Venture Partners, a major source of VC spending cash for free-to-play developers.  Below are selected highlights from each person’s perspective.

Daniel James – CEO, Three Rings Design

James truly puts his money where his mouth is, and feels no shame in putting Three Rings’ numbers right out in the open where all can see.  In 2005, Three Rings Design launched a free-to-play version of their successful Puzzle Pirates in tandem with the original subscription version.

This “reluctance to clearly report revenues is a deliberate attempt to obfuscate the numbers.  There seems to be a perception,” he explains, “that there is a business advantage to not being transparent. But I disagree.”

In a recent blog post, he continues, “People often ask me, with a wary look such as you’d give a lunatic, ‘Why do you dish out your numbers like this?’ It’s a good question. There are possible downsides, but they are limited; if a competitor looks at my numbers and then goes on to execute better than us, I don’t think that has much to do with our numbers. They executed better, that’s the hard bit. Well done to them.”

The nitty gritty:  James reveals that the free-to-play Puzzle Pirates MMO generates approximately $50 per month from each paying user (ARPPU), resulting in $230,000 a month.  Add in the revenue generated from the subscription based version, around $70,000, and you’ve got a very healthy take of approximately $300,000.

While these numbers are truly impressive, James goes on to warn to not look at the bottom line, but rather the ARPU.

“The pivot number — the number to focus on — is not the $50 ARPPU but the $1-2 ARPU,” he says. “That’s the number that a new paying customer is worth to you. If that number were, say, 20 cents, you’d probably have a difficult time building a business.”

“But if that number were, say, $3 then you have a good business that enables you to go to a flash distribution site and say, ‘Hey, put my game up on your site and I’ll give you a dollar for every new user you send me.’ They’d surely be interested in that.”

Raph Koster – President and Founder, Metaplace

Admittedly, Metaplace, a new social web portal is brand spanking new, only a month old, but that doesn’t stop Founder and President Koster from weighing in.

“Free-to-play is all about upping your ROI,” he explains. “All the costs of boxes and distribution that are associated with a subscription model go away. The cost of development is significantly lower. Even your marketing budget changes radically; our product’s reputation will spread primarily via word of mouth. And because it lowers the barrier to entry for people to come in and try things, it gives you a huge shot at acquiring large numbers of customers.”

Speaking to the closed door policy of data, Koster comments, “It’s been kind of a habit inside the industry to keep your budgets and revenues a secret, which I personally think is kind of silly. Especially since, now that much of this is happening on the web, you can go to comScore and see how many people are actually playing a site. So it’s getting harder and harder to hide your numbers.”

While most of Metaplace’s revenues are derived from virtual goods microtransaction sales, Koster also pitches an interesting idea on additional revenue generation within a free-to-play environment.  Metaplace makes “events” available for sale.

“In Metaplace, everyone gets a world of their own,” he explains. “Because you’re not paying for it, it’s not a very big world and there’s a concurrency cap, so you can’t squeeze more than 10 people into it at once.”

“But, if you want to hold a party or host something special, for example, you can pay us $10 and, for the next 24 hours, your concurrency cap goes up to, say, 100 people. That’s just an example of one way to monetize your product without restricting it to selling virtual goods.”

Jeremy Liew – Managing Director, Lightspeed Ventures

Liew’s own personal research on APRU’s falls right in line with James’ comments and theory.  In a recent blog post, Liew reveals the ARPU at a number of popular sites average around $1.25 per month.  Disney’s Club Penguin rakes in $1.62, Habbo – $1.30, and Runescape around $0.84.

Again, inline with James’ thinking, Liew reports that the average ARPPU is somewhere in the $10-$50 range, typically coming from 5-10% of the total number of active players on any given month.

And there we have it.  Both James and Koster agree that veiling data in a shroud of mystery doesn’t help anyone.  Sure, Three Rings Design’s Puzzle Pirates is certainly a case example of a free-to-play success, but note that Koster is more than willing to let the data out the door, once Metaplace has established a long enough track record to present.  The way I see it, more data, either good or bad, can only help and support current and future developers make the call whether they want to go free-to-play, select a subscription based model, or take the path of a hybrid of the two.  And of course, if and when they decide to go free-to-play, they’ll most certainly need a microtransactions payment expert.