I recently replied to a post made on a 'Independent Game Dev' LinkedIn group I am member of. Essentially giving my opinion of what has been working for monetization (i.e., making a living making games.)
My opinion boiled down to this:
Make at least the full paid version first (even if you never release that start there.) You can think about monetization as you go! Maybe even put a placeholder in, but don't get hung up on the details because who knows what the market will be like when you finally get there. You can always plan on rolling out a free 'monetized' version at the same time or even after (e.g., Flip the Bird has a free version coming out for iOS soon. You heard it here first...). I think it is ok to separate the free and full versions. Let the user buy into the full game.
Make a game you want to play (and play them!) I have been playing Flip the Bird off and on for a year now. The latest iteration of updates has got me interested in it again. I want to grow this bird into something bigger, but my players are coming in slow and my efforts are being spent on the apps that are producing monetary results (not Flip), its not a bad game, the endless game play is fun, but we have so much more in store: levels, challenges, even the stalled tutorial development (you wound not believe how many folks do not see the "Tap to Flap" message flashing on launch, and even launch suffers from what I call angry-bird-itus... You tap to launch, not pull and release! We know this part sucks and we will address it in the free cycles because we want everyone of our apps to be great.) but I digress...
Monetize naturally. Always play the games you make, and look for natural breaks and placement to insert revenue generation on the free version (e.g., Doodle Army 2 has an ad in the lobby, that free and users who have paid for the access to the full set of in game weapons. 'pro pack'.) We are toying with adding a subscribe option to allow users to buy them away and tell us "make sure the servers stay up" with the power of their wallet. Your app might have load screens. Remind the user the game is not the full version and show them an add for a bit. Don't forget to cross promote your own apps if you have more than one too!
Once you are live make small changes (i.e., the balancing act.) As you murder the last great idea with the newest great idea, try to do so without losing your customers... Reminds me of the game Smuggle Truck sometimes as I try to make sure every change I make does not throw customers in such a way I can not recover them when they settle back down and realize I am not trying to screw them or don't care (I will look for a good example of this occurrence regarding monetization, but the only one that comes to mind is not monetization related, but related to using too much memory on Flip to allow the game to run on older devices. We figured out a way/hack to keep em supported, but wow what a lot of work... I can not wait for my users to upgrade!)
Use some form of analytics to keep track of user behavior. If your taking this seriously I don't see why you should object to exploring this in some form (staunch privacy advocates just started hissing at me.) And if you offer a free game track the user actions, that is part of the price of free. yes I just promoted the player's privacy be a monetized incentive. If you find it distasteful or invasive make your full game not have a lick of it and rely on more traditional methods of gathering feedback. The idea there is that you already have money from that person, so its all about making sure their gameplay is as pure as it can be. But it behooves you, the developer, to understand the players of your game. And I think a lot of players, paid users, would not mind letting you know how they play for the express purposes of making your game more interesting. Give it an 'opt in' option and state your intent to do no intentional evil with it but make a better game for those playing. But seriously think about it. I am personally tired of being dead wrong with some choices I have made. If I really knew how my players ticked better I would not have as chosen so poorly (it is varied in topic and degree to illustrate my bad choices, suffice to say it may be an interesting post for another time when looking at the reflection pool...)
I am sure there is more, I will end with this opinion:
Making games is a lot less fun when money starts to matter!
That is an excerpt from "The Tao of Fun and Profit", the working title of my next book.