I know lots of flash game developers and I make lots of games. And also the premiere analytics system (http://playtomic.com, formerly SWFStats) for those games. My best game grossed about $6k and netted about $4k, my most recent game went wrong and sold for a lousy $1250.
The economics can be pretty bad, a lot of people don't make much money but they also don't make quality games or read the market. There are success stories, Hero Interactive, Berzerk Studio, Nitrome, Armor Games, Long Animals etc.
You should check out http://www.flashgamelicense.com/ it's a site where developers sell the sponsorship rights for their games. The guys who run it are very helpful and there's a forum full of information and a chatroom where you can usually find me and a bunch of other people trolling away.
In a nutshell:
Mochi and CPMStar offer ads to go in the games. Mochi's CPM is usually pretty awful (I've served 6m+ ads for a lousy grand), CPMStar generally pays more but is more exclusive, it's harder to get them in your game.
GamerSafe (run by the FGL guys) and Mochi both have virtual goods/transactions platforms to charge for stuff in your game, I haven't used either yet.
Sponsorship is usually going to be the major source of revenue. Kongregate, Armor, Addicting etc pay for the branding rights in your game (the splash screens etc). This can go high into the 5 digits if you're talented enough - there are guys pulling 6 digits a year off this stuff, a couple that might be inching close to 7, and a lot that make between $0 and bugger all.
Andy Moore who was the community manager for Fantastic Contraption and then went on to make games himself has an awesome writeup about his game Steambirds:
1. In game ads. When I was at MochiMedia, the top game developers earned around $10k/month, so it is possible. That said, there were only a handful that were able to do that well. Most people made far less. Even games that you would consider very successful made around $200-$400/month. The money to developers is around a $0.25 CPM. That means to make $250 in a month you need 1MM game plays.
2. Virtual Goods. Since I left Mochi, they started their MochiCoins program where developers can sell virtual goods directly to game players. I don't know the official numbers, but I heard the successful guys were doing as much as $1k/day. Again, that's the top end and most people were far lower. The bar is much higher in creating a good game here as you're going to try and get a user to actually pay for it.
Can you make games already? Good game design is hard, and I wouldn't suggest taking the plunge and going full time if you intend to learn along the way.
If you do know how to make fun games, it's possible to make money with determination using an ad supported site and games. Small, free games are a good way to build up traffic to your site, and also a good way to learn what kind of games will find an audience.
Ultimately though, for a successful game with a decent amount of depth, you'll make so much more money charging players that it'll be crazy to keep them free. At least 10x more per visitor if you at some point ask for money.
Some background on who you are and why you're asking would be helpful in giving a more detailed answer!
I would be very interested in hearing a professional flash developer's response to this article. Larkin is asserting that the "MochiAds + FlashGameLicense" route is a well-marketed way for you to make money for MochiAds and FlashGameLicense, but not much for yourself. Instead, he proposes that the freemium model can produce much higher returns to the developer.
The current model for free flash games (licensing + ads) does make money for devs alright, I just think that devs charging players can do even better.
I think it goes like this, very generally:
1. Free game w/ licensing + ads
2. For-sale game (backed up with free version for distribution)
3. Persistantly free game w/ usual freemium hooks
You can make more as you go further down, but there's also a lot more work involved.
I liked the article "Have You Partnered With Thieves And Robbers" by Alok Kejriwal of Games2Win. There he describes how they managed to outsmart various portals pirating their games by showing ads only when the game runs outside of their domain, thereby compensating for loss of licensing fees, and using the pirate portals as a distribution mechanism.
Much like iPhone development, right now I think the stronger play might be contracting for companies who want Flash games made.
The success curve for this looks a lot less intimidating than the success curve for game development generally. (Which is even more painful than the success curve for "selling software on the Internet", which is already pretty brutal.)
All of Zynga's flash games are free, and players have the option to purchase virtual currency in the games. The vast majority of players probably don't pay a cent for the entire lifespan of their playing. I'd say Zynga is definitely making a living.
Right now I think a relevant question is what's the difference between the revenue you'd get from free flash games and that you'd get from similar games on Android/iOS.
With increasing numbers of users disabling Flash and some going with platforms that don't support Flash, the writing is on the wall. It's time to look to other platforms than Flash. Between Android and the Apple there are other areas experiencing major growth, easy to reach customers, and simple options for sales or ad driven income.
Flash games are already a big gamble of time and resources, with the odds of a decent return getting worse. Our shop bailed out over a year ago and don't regret it.
It think this is a gross generalizations. Youtube is still very popular. In order for the average joe to watch a video, flash must be enabled OR they have to be using an html5 compatible browser. That is the difference. Many users will not/can not go out and buy the newest toys.
Still focus on flash, as it is not going any where any time soon, but also diversify your funds. If you make a flash game try to also port it to html5 so that you can reach the Android/Apple iP(ad)hone market, and if you can't... don't sweat it.
Adobe's making massive moves to get Flash gaming on Android. At the moment they have 3 big competitions running with Kongregate, FlashGameLicense and MochiMedia to get games designed to work on Android.
The economics can be pretty bad, a lot of people don't make much money but they also don't make quality games or read the market. There are success stories, Hero Interactive, Berzerk Studio, Nitrome, Armor Games, Long Animals etc.
You should check out http://www.flashgamelicense.com/ it's a site where developers sell the sponsorship rights for their games. The guys who run it are very helpful and there's a forum full of information and a chatroom where you can usually find me and a bunch of other people trolling away.
In a nutshell: Mochi and CPMStar offer ads to go in the games. Mochi's CPM is usually pretty awful (I've served 6m+ ads for a lousy grand), CPMStar generally pays more but is more exclusive, it's harder to get them in your game.
GamerSafe (run by the FGL guys) and Mochi both have virtual goods/transactions platforms to charge for stuff in your game, I haven't used either yet.
Sponsorship is usually going to be the major source of revenue. Kongregate, Armor, Addicting etc pay for the branding rights in your game (the splash screens etc). This can go high into the 5 digits if you're talented enough - there are guys pulling 6 digits a year off this stuff, a couple that might be inching close to 7, and a lot that make between $0 and bugger all.
Andy Moore who was the community manager for Fantastic Contraption and then went on to make games himself has an awesome writeup about his game Steambirds:
http://www.andymoore.ca/2010/03/steambirds-by-the-numbers/
Chris Gregorio (xdragonx10) who makes the Medieval Rampage games amongst others has a great breakdown of his earnings and strategy here:
http://kaitol.com/income/