You nailed it.
The most viable business models seems to be when a product is free to obtain and the revenue comes from advertising, in-product additions and/or selling services which are connected to a server.
Looking at the top grossing games on the Oz App Store, I wonder if the trick is not simply "don't be a small player": http://i.imgur.com/9S1yx.png?1
Could a small team handle the traffic and meintenance needed for a freemium game?
Or rather you're so difficult to sell too that it's not worth the effort. Perhaps there are a load of people out there who will pay for the things you won't, even if they're relatively small in number they're potentially much more lucrative?
Giving the client software away for free and charging for access to official servers has been done for years successfully by Eve online and other games.