Games for the Sony (SNE) PSP, PS Vita and Nintendo (NTDOY) 3DS consoles have one distinct revenue generation advantage: They are hellishly expensive. Mario Kart 7 will set you back by nearly $40. In contrast, more than 90% of the most popular mobile game apps are free downloads. Yet App Annie, a leading mobile app data firm, now says that in the fourth quarter of 2012, the revenue generated by iOS and Google Play apps topped the revenue generated by Nintendo and Sony portable games.

App Annie has a strong grip on the mobile app market since its diagnostic tools are used by more than 80% of the top 100 app vendors. App Annie has tracked more than 13 billion app downloads since 2010 and is now starting to publish mobile game/video game cross-over reports in collaboration with IDC, a well-known consumer electronics research firm.

Their first collaborative effort focuses on comparing mobile game sales versus console game sales in the fourth quarter of 2012, the first quarter when the research firms believe the mobile game revenue overtook portable game console revenue. Ollie Lo, the vice president of marketing for App Annie, points out that the surge of in-app purchase sales is what pushed mobile game revenue into the lead over portable console games. One key trend in 4Q12 was the ongoing surge of Google Play revenue growth in Japan and South Korea, where various free fantasy and card battle games have created a roster of steady cash cows.

As the number of free apps has proliferated over the past two years, key vendors like Supercell and Kabam have figured out strategies to push loyal fans into paying steadily more for new features and powers, creating a pool of consumers who keep paying for games month after month instead of forking over a one-time fee. Globally, a stunning 90% of iOS game revenue now comes from apps that offer in-game purchases. The traditional console game industry has not been able to duplicate the in-app phenomenon despite the fact that many Nintendo and Sony portable games are now purchased digitally.

Of course, the phenomenon of free downloads combined with sneaky in-app purchase hooks is divisive. Many consumers say they would rather pay for a whole game upfront than be lured into bleeding out cash for months on end. Yet the majestic power of free market competition seems to have passed judgement on the matter: free downloads have effectively elbowed out nearly all paid apps from iPhone and iPad top-20 revenue charts. And now the free mobile game revolution has overtaken the high-priced Nintendo and Sony console game ecosystem that the Japanese giants spent 30 years painstakingly nurturing.