About 60% of children 8 to 11 years old interviewed recently by the research firm KidSay said that they used phone apps, up from 40% a year ago. Getty Images

Joshua Gallo of Los Angeles loves breeding and caring for a virtual menagerie of big-eyed, brightly colored creatures in an iPad game called "Tiny Zoo." The online game is free to download. But almost every week its producers release a new batch of cute animals for sale, including the Cash Cow. Joshua, 8 years old, couldn't resist and ponied up $50, almost two months' allowance. Inside San Francisco headquarters of the game's developer, TinyCo, a printout tallied proceeds from a few days of Cash Cow sales. The total take: about $50,000, according to Chief Executive Suli Ali.

Mobile-game critters need money from their young keepers, and parents are paying. Are the marketers of expensive e-trinkets too eager to take advantage of child consumers? Spencer Ante has details on digits.

Happily for game makers and investors, parents routinely hand over their iPhones and iPads to keep their children entertained. Thanks to the so-called in-app purchasing mechanism, developers are often only one whine away from a sale. Parents need only enter their iTunes password or, as often happens, let their children do it for them.

These mobile games generated $2.7 billion in revenue last year, according to the game-research firm SuperData, opening a lucrative new chapter in the business of marketing to children. Apple Inc., Google Inc. and Amazon.com Inc., maker of the Kindle Fire tablet, operate app stores with growing catalogs that pay them 30% of each sale.

A slew of children's mobile game apps like Tiny Zoo and Pet Shop Story are free to play but also entice users to plunk down cold hard cash for extra features. WSJ's Anton Troianovski reports.

The Saturday Essay

Firms have long targeted children with toys, candy and entertainment. But the simple touch-screen interfaces of the iPad, iPhone and the like, paired with instant purchasing, have brought merchandise within constant reach of children. Wily sales techniques keep kids coming back for more.

The magic word for this marketing is "freemium." Developers, backed by hundreds of millions of dollars in venture-capital investments, offer free games followed by shopping lists of virtual goodies, often necessary to advance.

After playing "Tiny Zoo" for 60 seconds, for instance, a recent message popped up saying, "Looks like you need more Coins to buy Chickity Puff. Purchase 100,000 coins for $99.99." Children have seized the "Tiny Zoo" habit, collecting virtual animals the way that past generations hoarded baseball cards.

TinyCo's Mr. Ali and other developers of similar games say that they are trying to reach as broad an audience as possible and are not simply targeting kids. But as kids flock to mobile devices, they are discovering the appeal of these free-to-play games.

About 60% of children 8 to 11 years old interviewed recently by the research firm KidSay said that they used phone apps, up from 40% a year ago. One million U.S. children ages 6 to 12 made these kinds of in-game purchases in the past six months, said another research firm, Interpret LLC.

The problem, say parents, is the constant nagging from children when games urge them to buy. F. Martin Ramin for The Wall Street Journal

Weary parents, who could simply say no to their kids, sometimes don't know exactly how these games work. The Federal Trade Commission says it is considering new rules to improve disclosure about online purchasing. Meanwhile the industry, which has hooked a core audience, is plowing ahead.

"You've now got the ability to invade the kids' space much more aggressively than ever before," said Scot Osterweil, a designer of educational games and a research director of the comparative media-studies program at the Massachusetts Institute of Technology.

Ellen Wartella, a Northwestern University professor who has studied the history of children and media, compares the current boom to the early days of children's TV programming. In the late 1960s, an hour of kids' TV on average featured more than 15 minutes of advertising. Commercials became hard to distinguish from the shows. Cartoon characters hawked toys and sugared cereals. Regulators put new limits on advertising in the 1970s, recognizing that children have a limited capacity to evaluate the credibility of product pitches.

Weary parents, who could simply say no to their kids, sometimes don't know exactly how these games work. F. Martin Ramin for The Wall Street Journal

In the 1980s, toy makers hit upon a new way to boost sales, pioneered by the cartoon "Smurfs" TV show. The cartoons, which propelled NBC to the top of the charts on Saturday mornings, drove the sale of Smurfs merchandise, starting with 2-inch plastic figurines of 99 different Smurfs at $1.50 each, according to media scholar Norma Pecora.

As successful as this marketing proved to be for the Smurfs—they reached $600 million in annual retail sales during the early 1980s—it still required a trip to the store. Smartphones eliminate that step. Parents might control passwords and maintain authority over purchases, but the technology allows instant purchase and delivery.

"You don't have to walk all the way to Toys 'R' Us," said Bart Decrem, head of Disney's mobile-games division, which bridges the company's toy and entertainment businesses with cellphones and tablets.

Game developers make the most of the new platform by leveraging the desire of children to play and master games. Games typically engage players with achievements they can attain free before setting up roadblocks or so-called choke points. Game players, for example, may have to wait a day before a virtual animal "hatches," or they can pay to keep playing now.

These techniques help explain why 10-year-old Jillian Stokes of Moran, Kan., persuaded her mother to spend $7.99 on "gems" in a Kindle Fire game called "Pet Shop Story." And why she soon started working on mom for more.

First, one of Jillian's virtual pets, the Angora Cat, got a virtual illness. It cost 10 gems to cure the cat, but Jillian only had six in her account. Jillian's mother, Elizabeth, let the girl buy 50 gems. Ms. Stokes, a mother of three, said that was it. At least until Jillian discovered she needed just one more animal, a 149-gem Border Collie, to complete one of her "missions" in the game.

"The animals feel real in my heart," Jillian said. "I like animals so much. I just like caring for them."

The creator of "Pet Shop Story," Storm8 Inc. of Redwood Shores, Calif., declined to comment. The mobile-game maker said a year ago that, thanks to a promotion, its games had raked in $1 million in sales on a single day.

At TinyCo's headquarters, the "Tiny Zoo" team churns out batches of cute new animals every week, often tied to holidays like Halloween, Easter or even Cinco de Mayo. Players need to buy a certain number of animals before the immobile creatures will begin to hop, sway or wave their arms. "Birthdays are very good," said Matt Fairchild, who manages the company's relationship with fans. "A kid will be given this money by parents to spend on items within the game."

The game Tiny Zoo Friends, shown here, prompts players to make a big purchase of 'Zoo Bucks.

TinyCo artist Candice Ciesla was recently working on a griffin and a hydra for the new "Tiny Monsters" game. She said that she could do as many as eight sketches a day and that she viewed children ages 4 to 12, along with their mothers, as her target audience.

Mr. Ali, the chief executive, estimated that children made up less than 2% of revenue, though he acknowledged that he did not have the data to know how many kids were playing his games on their parents' devices.

Nick Abrahamson of Grosse Ile, Mich., said there is a new and constant plea at his house: "Put your code in, Daddy. Please, Daddy, please!"

Mr. Abrahamson said that his 5-year-old daughter and 7-year-old son do not yet understand money, and he usually can talk them out of digital purchases. But when friends are over, Mr. Abrahamson said that he sometimes caves and enters his iPad password.

"Pocket Potions" is a popular game in the Abrahamson household. Players buy and collect ingredients to make elixirs, like the "Love Potion," for their virtual shop.

Inside Breaktime Studios of San Francisco, which developed the game, executives thought "Pocket Potions" was not appealing enough to younger children, said Michael O'Connor, the company's former art director and now an independent game designer. So they came up with "Sweet Shop," where players mix ingredients to make candy collections. As in "Pocket Potions," players can buy "gems," a virtual currency, to get better access to ingredients, as well as decorations for their shop. Sets of gems sell for as much as $99.99 each.

"The idea was to take an engine we already had and make a more kid-friendly game version out of it," Mr. O'Connor said. "I don't think anyone could have foreseen how much the kids' market exploded in the last year."

Breaktime Chief Executive Matthew Davie said "Sweet Shop" was intended to reach as broad an age group as possible.

Fast growth has caught the attention of the entertainment giants, including Disney, which recently released an iPad app based on the "Cars" movie franchise that targets boys ages 4 to 8. The app is free to download but offers additional features for as much as $2.99.

Last year, venture capitalists poured nearly $1.2 billion into Internet-based entertainment companies, up from $407 million in 2010, according to Dow Jones VentureSource. Among those investments was the $18 million that Facebook investor Andreessen Horowitz pumped into TinyCo.

Some parents say they're OK with letting their children spend their allowance. But many complain the games entice children to spend more, creating family friction, while others take issue with the ability of a child to spend $99 on a single purchase.

Apple was sued last year by Garen Meguerian, a parent in Phoenixville, Pa., who alleged the company's in-app purchasing system allowed children to make unauthorized purchases, "garnering millions of dollars of ill-gotten gains."

Last August, Apple sought to dismiss the suit, claiming the parents, in effect, authorized the purchases by turning over their devices and iTunes passwords. In March, the federal judge in the Northern District of California denied most of Apple's motions to dismiss the case, allowing the suit to proceed.

Adults, of course, can control passwords or disable the in-app purchase function with a setting on their smartphones or tablets. The problem, say parents, is the constant nagging from children when games urge them to buy.

Deborah Linebarger, an associate professor studying children and media at the University of Iowa, was busy recently when her 8-year-old daughter persuaded her to spend money on an iPhone game in which players made milkshakes.

Ms. Linebarger paid $9.99 for full access to the game's tools, a purchase she said she regretted. "The accessibility is probably what scares me the most about it," she said. "You're not always at a toy store. You're not always at a grocery store. But with your phone, you can have it always on, all the time."

Some parents say Apple should ship its phones and tablets with the in-app purchasing feature turned off. Some also want smartphone makers to be more aggressive about spending caps.

The sale of virtual goods has gone mainstream so quickly that regulators are having a hard time keeping up. The Federal Trade Commission's authority over children's apps comes from laws that prohibit unfair and deceptive acts of commerce, as well as the Children's Online Privacy Protection Act, which requires operators of online services for children under 13 to get parental consent before collecting personal information.

Although the 14-year-old Coppa law doesn't directly address the sale of virtual goods, a February report on children's apps by the FTC said that poor disclosures about online purchasing raised "significant concerns," prompting the agency to consider new rules.

Early last year, after reports that children were spending more than $1,000 on Smurfberries and other virtual goods, the FTC began to investigate the "Smurfs' Village" mobile app made by Capcom Interactive. The agency met separately with Capcom and Apple officials, according to people briefed on the matter. Regulators said in those meetings that Apple was in a position to make a lot of money from in-app purchases, which they believed was exploiting children, and urged Apple to make it harder for children to make repeat purchases.

Apple updated its software in March 2011, adding an option for parents to completely shut off in-app purchases. Seven months later, Apple added another option for parents to require an iTunes password for each in-app purchase. Previously, if users didn't shut off in-app purchases entirely, multiple purchases were allowed for 15 minutes after entering a password. A spokesman for Capcom said the company has limited the number of transactions a user can make in a 15-minute session to five but declined further comment.

An Apple spokesman said the company was "proud to have industry-leading parental controls," including strict password requirements. Apple requires customers to be 13 or older to have an iTunes account. The company also has offered to refund money to parents of children who make unauthorized purchases.

Regulators are pressing the industry for more. At a Pasadena, Calif., conference on children's digital entertainment in April, start-ups and entertainment giants presented their latest mobile apps. An FTC lawyer on a panel parried a question about why the agency had not yet instituted methods for verifying parental consent on mobile devices. The lawyer, Ken Abbe, said the government didn't have a solution.

"You all are smart people, a lot smarter than my agency, technically speaking," Mr. Abbe said to the group. "Come up with something good, please."

Write to Anton Troianovski at anton.troianovski@wsj.com, Spencer E. Ante at spencer.ante@wsj.com and Jessica E. Vascellaro at jessica.vascellaro@wsj.com

The Price of Pixelated Play

A selection of virtual goods that can be purchased inside of online games popular with kids.

Game: Tiny Zoo Friends

Item: Lady Luck Fairy
What it does:
Pays out 2 "Zoo Bucks" every 18 hours

Item: Unicorn
What it does: If you buy four, the unicorns move around the screen.

Game: Pet Shop Story

Item: Border Collie
What it does:
You need to get it to accomplish a "mission."

Item: Winter Box
What it does:
Lets you get special pets and items

Game: Sweet Shop

Item: Star Table
What it does
: A way to display your sweets

Item: Lollypop Stand
What it does:
Can be set up on the floor of your sweet shop

Game: Tap Pet Hotel

Item: Nanny Tyler
What it does:
Takes care of your animals

The item: Arctic
The price:
What it does:
Lets you have the penguin

* Prices shown reflect the cost of buying the amount of virtual currency (e.g. "Zoo Bucks") necessary to pay for these items in the early stages of the games.