Failure is such a strong word...
Punch Quest is a well polished, retro-styled sidescroller-survival-adventure-punch'em'up. It has been featured by Apple and currently holds an average of 5 stars in iTunes with over 700 reviews, 97/100 on metacritic and has accumulated over 600,000 downloads. I own this game and have since I started hearing positive mentions on my Twitter stream, and the dev team have done a great job on creating it.
Having the critical acceptance and user downloads that exceed 600 million rules Punch Quest out of being a failure.
But why is it failing to make money?
In my opinion, the 'problem' with this game is the balance. I never felt the need to pay more to get more, it was a very complete and rewarding experience. It gives so much for a free game, it leaves little incentive to want to spend more to get more. While this is good for the consumer, it doesn't fill the pockets of the development team.
The F2P market is a lot more saturated now than what it was 6-9 months ago, with nearly every chart topping game(free or paid) including some sort of in-game currency for people to buy to spend on avatar updates, poweru-ps or game progress.
The majority of F2P games I see in the top grossing charts, are free games that are kinda like Farmville clones with different themes. the current popular ones are Jurassic Park, The Simpsons & The Hobbit theme clones. All basically the same kind of game where you build a town/city/themepark and you are required to wait a few hours to progress or cough up a few dollars for some in-game currency that can be used to progress instantly.
If it launched as a paid app, how would the reviews favour it? Would it still get the Apple feature? Would it get anywhere near 600,000 downloads? We'll never know... However with its current reach and media attention, I'm sure it will continue to rise on the paid charts and provide a decent return to Rocket-Cat Games along with helping their brand & future titles.