I don't think that's quite the case.
They went free because they saw a lot of profitable apps using the free + In-App-Purchase model.
The problem is they didn't think through what their own IAP model should be. They just focused on not being exploitative (the part that makes many of those free apps so profitable), when they should have been thinking about how much they needed to charge to be profitable, given the single IAP they had to work with.
They also might have gimped the free version a bit more to encourage people to buy the IAP.
It's requires a bit of a game design ingenuity to make it work so that you can't just buy your way to victory, especially in multiplayer setting, but is doable.
I think it would be more accurate to say that they saw several well publicized stories about where that model worked. They certainly didn't read any analysis highlighting that strategy and how it worked for all that tried it that way.
It's how you start thinking if you grow up with everybody giving away their $product for free on the one side and the opensource/libre software hippies who give you a hard time if you try to make a living with software products on the other side.
Now if the results were just some homeless developers that wouldn't be a big problem. But it's far worse because the customer base has been miseducated and now awaits almost everything for free or for $.99.
/rant