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Recently, Electronic Arts announced that it is acquiring Playfish, the company behind hit social games such as Who Has the Biggest Brain (mine is apparently 2568 cubic centimeters — which, it seems, makes me pretty smart amongst my friends but only slightly smarter than a door knob on a world-wide basis), Word Challenge, and Pet Society.  That deal is potentially worth as much as $400 million, if you include earn outs and retention bonuses.

Then comes the news that Playdom just raised $43 million on a whopping $260 million valuation.  Playdom is the dominant game developer on MySpace (you remember MySpace, don’t you?), but is a late-comer to Facebook.

And, of course, there’s Zynga, the company responsible for countless wasted hours at offices around the world with Texas HoldEm Poker during Facebook’s early days and, more recently, with Farmville (thank god for the ability to block notifications on Facebook, btw).  Rumors continue to circulate that Zynga has its eyes on a possible IPO next year — and even a $1 billion valuation has been thrown about (cue Dr. Evil with pinky at his lips).

All of these companies are killing it with a free-to-play model, largely based on micro-transactions.  A few cents here, a few cents there… when you have millions upon millions of people playing, those pennies add up.  Tim Chang, a principal at the venture capital firm, Norwest Venture Partners, estimates that the three companies’ combined annual revenue run rate stands at about $350 million right now and the industry as a whole may be at $1 billion.  That’s a lot of  farming seeds and pet supplies.

Now, I’m a guy who can’t bring himself to buy virtual goods to advance in a video game (hey, I’m not cheap… financially responsible is how I see it), but I have seen enough to know there are plenty of people that will spend plenty of money.  In a past life, I helped to bring the GOLF.com Pro Challenge, a golf video game, onto Facebook.  Operating that game, I saw first hand just how much people would spend to play.  We even had some players forking out $100  for a virtual golf club.  I may not buy virtual goods, but I’m definitely a believer in virtual goods and micro-transactions as a revenue model.  Apple also recently made it possible for developers to sell virtual goods within free apps.  Many see this as potentially the beginning of a very lucrative market for iPhone games that are free-to-play but, which, generate revenues from virtual goods.

All of this adds up to this being a fun time to be in the video games business.  And a fun time for playing video games.  I’m looking forward to seeing more, better games I can play for free or almost free, like the multitude of $0.99 iPhone games (hey, stop calling me cheap!).

But what about you?  C’mon… how much money have you spent playing “free” games?