Has anyone tried a free app/game with Apple's iAds with an in-app-purchase to remove the ads? Just wondering if this works. A friend mentioned that some apps do this... is this a common and/or "user-friendly" monetization method? Assume the ads are "tastefully" on the home screen and not in the actual game itself.
I can say that I will prefer an ad-free version and I will pay after trialling the game.
Not just games, but other apps too, will often have small ads that take up some room on the top or bottom of the screen. For games, these are usually on titles/game over screens. As long as they do not restrict the game itself, they can be good.
Instead of an in-game purchase, it may be better to have the standard (well, commonly used) Lite and ad-free versions of the game. If you do this, you can also take some content away for the free users.
Either way you go, people do not want to pay for a game and still have ads.
why would anyone pay to remove an ad they see for only a few seconds during startup of the application? Or are you planning to have the browse through 10 minutes of advertising before they're able to start playing unless they pay up? Because in that case you won't get many users at all, they'll just uninstall and try something else.
The best method to solve this type of problem: try it and see! Just give it a shot, it might work and it might not but actually doing it is the only way to know. Then write a blog post when you are done so that others know for the future.
It's hard to say in general. For myself, I hate looking at ads and would happily pay once to remove them forever, assuming the application is otherwise something I'd be interested in. The apparent success (although I have no hard numbers) of games and other products on the app store that offer both free, ad-supported versions and paid, ad-free versions imply to me that the concept is viable in theory.
In practice, you probably need to make sure the balance of when and how long the ads are displayed (which impacts your expected impression and click-through count) is reasonable. You want users to see them as often as possible without making them too offensive. If they are seen rarely, users may not see value in paying to remove them, and you'll get fewer impressions and click-through instances.
You also don't want to sacrifice the quality of the application itself in order to leverage ads; what I mean is, you mention in a comment to another answer that:
The user would see the ads everytime the game ends and the homescreen is displayed. Since it's a casual game that's replayed often (in theory) the user would see the ads for a non-trivial amount of time.
This sounds to me like quitting/back-button'ing out of your app will take me back to the home screen when I re-launch it, and/or that I will be forced to spend at least long enough on the game-end screen for the ad to download and display for a second or so (in order to guarantee I have really seen it and encourage me to click).
When you remove the ads from this scenario, you are saying that the game doesn't save my state if I have to quit it (which I would expect a casual game on a mobile platform to do) and that you're going to hold me at the end-game screne for a potentially unpleasant period of time. If the game does save state between invocations, you're drastically reducing the time I'll spend at the home screen.
In short, I think conceptually this is a workable plan, but I feel like your specific implementation plan may not be as optimal for you or your customers as it could be.