The most prominent business model for MMORPGs is the monthly subscription model. You pay once to buy the game and after the first month you pay monthly to access the servers on which the game runs.
The monthly sub model is prominent, because it was and is so profitable. Absurdly profitable, to be specific. In the last decade, common people wrongly figured that running a server costs a hell of a lot of money (their internet access certainly did!). Consequently, they thought that $15 was a fair deal. All MMORPGs, even the presumably 'failed' ones, thus, made a lot of money.
But the profit lured competitors. At first not enough to force a drop in the monthly sub, but enough to keep it from ever raising, in spite of inflation.
As the competition grew ever more numerous, it turned out that the sub model has a problem with very small fees. The reason is that the biggest obstacle is not the actual money, but the psychology of subscribing to something. People don't really subscribe to services that cost 50 cent a month, because these services seem less valuable than the psychological resistance to subscribe to anything. In fact, they seem so little valuable exactly because they cost so little.
One alternative would have been to make yearly subscriptions, but players didn't know how long they would play and, consequently, subscription periods of longer than a month never made it into reality.
At the same time, the costs of playing a MMORPG were actually incredibly low from a consumer point of view. Of course, they wouldn't pay more than necessary, but a cheaper competition wasn't really a strong incentive to buy. In fact, people knew perfectly well that paying $15 a month for something that one does for at least 20 hours a month is just incredibly cheap. I know that I've never spent less money in my life than during 'addiction-like MMORPG periods'.
New games couldn't have higher prices, because they had a hard time anyway competing against existing games. Old games couldn't justify to increase prices, either. And the almost completely price-inelastic demand prevented companies from offering lower prices. A lower price just wasn't a strong incentive to get into an new MMORPG, because the prices were already so low. Players just played the MMORPG they liked best and never even thought about changing to a worse MMORPG, just because it is cheaper.
Thus, we had stagnating fees at about $15 a month and no way out for years.
A perfect example for how traditional economics fail in reality.
Free To Play
Eventually somebody got the idea to make a game f2p. This game could be downloaded and be played just like that. No psychological barriers whatsoever. But this wasn't enough to make money, obviously. So, f2p games started to be f2p only initially and required money later on. There have been a lot of discussions about what should be free in a f2p game and what not. The bottom line is that being too harsh with pay-requirements doesn't pay off at all. But just hoping that players pay for really useless in-game stuff, doesn't really pay, either.
F2P games achieved something that I have asked for for a very long time: market segmentation. It's a pity that there is no $100-a-month full-grown virtual world out there. I would like to p(l)ay it! And it's also a pity that there is no $1-a-month MMO-lite out there. Some players might find that an MMO-lite (lobby-based minigames, or just raiding) is actually what they want.
F2P achieves market segmentation, but unfortunately not with a multitude of different games, but within one single game. More on that later.
For the consumer, f2p has the advantage that they don't feel like paying when they do not play. Something that isn't feasible with the subscription model. A pay-once-per-3-days model would remember players too often that they are paying. Nobody likes to pay that often. And the small amounts they would pay, would make the game seem rather cheap, too. Why should you pay so often for something worth so little? I know, that's irrational; but that's what psychology often is. Monthly payments have turned out to be a good compromise, not just for MMORPGs.
For the industry, f2p has even more advantages. It is a known fact that MMORPGs can become an addiction-like activity for some players. These players potentially pay much, much more than just $15 a month. And at the same time, the company can boast with incredible numbers of registered players due to high accessibility. Most importantly, in theory, every player pays exactly what the game is worth for him, never less. A dream for any CEO.
Recently a lot of MMORPGs changed their business model from a monthly sub to f2p. The reasons seem obvious. The players who are already paying $15 a month, obviously are willing to pay $15 a month. And as rational agents, they will continue to spend $15 a month if that is what the f2p model requires them to do.
The players who don't think that playing is worth $15, aren't currently playing the game, anyway! So, all you need to do as a developer is make sure that the players who already pay $15 also need to pay $15 in the future.
But there are reasons you will make a profit. Firstly, there are players who would like to play the game, but $15 is too much. In fact, there might be players who would like to play, but only if their friend, who doesn't want to pay, plays. And not-paying players also spread the word of mouth. Thus, even players who do not pay at all can increase your profit, albeit indirectly.
Secondly, some players that originally payed only $15 a month, might be willing to pay more. Much more. In a competitive environment they might even want to pay absurd amounts. Now they can.
Finally the switch to f2p is cheap news. And news is good. This news is especially good, as the central message of the news is that players can check out your game without paying anything. Some players will check you out and start to pay. You don't even suffer much from the "cheap game" prejudice, because the game was once a "quality sub game". Therefore, it might actually always be advantegous to launch with a monthly sub and then switch to f2p.
Of course, not all players are this kind of rational agent. Some might dislike the f2p model for other reasons. Here are a few:
1) A direct connection between a player's wallet and his in-game status blurres the barriers between the virtual world and reality. In some way a player's available time has always blurred this barrier, of course. But, at least, players needed to invest the time in-game. They needed to 'work' in-game for the goodies they owned in-game. If they can buy the goodies with dollars, they don't.
This argument is not about fairness, but about immersion! If somebody runs around with a fiery sword, because he spent $5, the game just isn't really immersive. If he runs around with a fiery sword, because he killed 5000 fire giants then this doesn't really make the game more fair: the guy obviously has absurd amounts of free time. But it does make the game more immersive. It makes (more) sense on an in-game level that a fictional in-game character runs around with a fiery sword due to an in-game action.
In the end, the change of the business model is not just a change of the business model. It also changes the product in a way that some players, me included, don't like at all.
2) For the players, those who are already paying $15 are rarely better off when a game switches to f2p. As desribed above, it is in the management's best interest to require them to continue to pay at least $15 per month, if they want to continue playing the game on the same level. It is in the management's interest, because the management knows for certain that this experience is worth $15 for those players who already payed $15 in the past. In fact, one major part of the revenue from f2p games stems from players who pay much, much more than $15 a month. These players will most probably be players that have played the game already while it was running a monthly sub model, because those who only join after the f2p switch, obviously aren't willing to pay as much. So, I often furrow my brows when players applaud a switch to f2p.
3) The f2p business model creates bad incentives for the developers. Developers of a monthly sub game need to keep players interested in the game for as along as possible. That's not necessarily true for the developers of a f2p game. They can profit alot and instantaneously, if they can somehow make players pay. My personal theory of how the sparkle pony was created is that the WoW developers wanted to do something the management didn't really agree with. Thus, they made a deal: if the developers could make $25 million over-night, they would get their way. They threw all good taste overboard and made the most childish sparkling prestige mount ever. They got their way. Oh, by the way, Tobold: the sparkle pony was a limited edition.
Should you wonder, how that mount could have made such a profit, you need to understand this: The best way to make money is to make highly controversial items that a few people love, no matter whether many others dislike them. (That's universal. Have a look at this post about statistics of beauty.)
Some 1% of the WoW players like to pay $25 for a highly controversial sparkle pony. Some other 1% might like the black skull mount. Another 1% might like the white pony with tatoos of naked mermaids on the limb. Of course, this way the world becomes populated by many highly controversial mounts; not really an enjoyable experience for anyone. But for a time, the company makes a hell of a profit. Much more than if they had sold just one mount that is acceptable for everyone, but not loved by anyone. And some players will even argue that you should just shut up if you don't like their mount, completely ignoring the fact that your mount is not only part of your gaming experience, but also part of mine.
4) The f2p business model incentivises the management to abuse the player's psychology. One way are obscure payment schemes. Have a look at the Psychology of Video Games Blog. These schemes are not in the interest of the players at all.