We’ve been trying to get a sense of how the biggest freemium game developers are grappling with major changes to Apple’s policies this week. Apple started rejecting apps that have offer walls where users can download other developers’ apps in exchange for virtual currency late last week (see right). The company is arguing that they violate the developer agreement by allowing apps to cheat the chart ranking, even though Apple has tolerated such offer walls for at least the last year.

This is a fundamental shift that will change how thousands of apps acquire new users or monetize and it is a setback for the emerging space of free-to-play games. Most of the larger developers we’ve reached out to are being relatively quiet and Apple is not being very forthcoming with third-party developers about exact policy changes are and what is acceptable and what is not. The hope is that the platform will be more talkative now that the quarterly earnings call is over.

But this is what we’re seeing so far:

1) Apple Appears to be Continuously Tinkering, Not Issuing a One-Off Change: As we noted yesterday, the apps that got an unusual boost through the weekend — well-known consumer Internet brands like Facebook and Skype that aren’t games — are falling back down on the charts again. Six of the current top 10 titles are games, while the rest are photography or entertainment. Most of them are brand-new apps, unlike a few days ago when we had older, more classic titles at the top.

According to conversations we’ve had with the bigger pay-per-install networks, it appears that the ranking algorithm is returning to what it was before last week and is again favoring downloads. But it’s very clear that some type of change happened last week that boosted highly-ranked apps in specific categories. Facebook jumped to #1 even though the company hadn’t issued an update; the app hasn’t held that high a ranking since at least July 2009. The app has fallen back to its normal position at #16 today. Google Earth was another beneficiary from the change. It is #1 in the Travel category and had jumped to #46 overall on Sunday from its typical ranking between #80 and 100. It’s also tumbled back down to a normal position at #74.

2) Some Developers Are Holding Off on Updates: Some developers are going to postpone updates and see how the market shakes out in the next few weeks. Playforge, which makes the Top 10 grossing app Zombie Farm, had planned to bring an iPad app to the platform sometime this month but told us it will probably delay the release. The company pushed an update to its iPhone app on April 14, before the rejections started happening. So Playforge has some breathing room to wait for information before it issues another iPhone app update.

3) Other Developers Are Removing Offer Walls: Get Set Games, whose popular Mega Jump title was caught in the crossfire and had a bug fix-related update rejected by Apple, told us they’re expecting to be back in the store in a few days. They’ve removed the offer wall.

Several of the TeamLava games also seem to no longer contain offer walls. The company handles all of its content on the server-side so it doesn’t need to go through the app store approval process to release updates. The company likely just took them out. They haven’t replied to requests for comment yet.

4) Other Advertising Networks Are Opportunistically Moving In: Competing ad networks, most notably including Apple’s iAd, are looking to take advantage of game developers scrambling to find alternate means of distribution.

Stuart Dredge at The Guardian’s Apps Blog pulled up this intriguing e-mail, said to be written by an iAd salesperson to a mobile developer:

“I am sure you have been reading about how the ecosystem of how you get ranked is seemingly changing, and it seems as though there is more of a focus of engagement and quality which is something I would like to discuss with you. Driving these quality users and new unique users to your platform will certainly help with driving ranking, but also help on actually having people use the application for what it is intended.”

MoPub, a monetization company founded by former AdMob employees which is backed by Accel Partners, is also trying to use the crackdown as an opportunity to sign up new clients.

“Publishers who have become accustomed to revenue from incentivized downloads are now in the tough position of coming up with a new monetization strategy – and fast,” wrote co-founder Jim Payne in a blog post. “If you are in the situation where you are wondering what to do in your game or app for monetization now that incentivized downloads are gone, give us a shout.”

Playforge’s Thomas Chung said shifting to regular mobile advertising might not be that bad, since the users regular ad networks provide may be much more lucrative than what pay-per-install delivers. Critics of pay-per-install have long argued that players just download apps, get the reward, and then delete the apps later — providing little value to the developer.

“It’s not quite as simple as you think. An incentivized install on Tapjoy may be $0.60 and the effective cost-per-install on a regular advertising network might be $1.50,” he said. “You have to compare the relative value of the users you’re getting.”

Tapjoy, the biggest pay-per-install network, tried to address this issue earlier this year by introducing cost-per-action advertising, where developers only pay if the users actually do something in the app like level up.

5) Advantages May Be Baked in For Early Movers: Companies that used pay-per-install early on and now have a large base of daily active users are at a big advantage compared to newer developers. If they want to launch a new game, they can just market it to their existing customers while newer developers will have a hard time getting users in the door.

Even though the mobile gaming ecosystem is much less mature compared to social gaming on the Facebook platform, the effect may be somewhat similar to what happened when Facebook inadvertently protected Zynga’s leading position in the market when it clamped down on virality last year.

Already, DeNA-owned Gameview Studios told us on Monday that they had dialed down their spending on incentivized installs. They already have 10 million downloads for their iOS hit Tap Fish and won’t necessarily need to buy downloads in the future when they release new titles.

Storm8 is another company with a large existing base of users. They aggressively cross-promote their games and have a layer that can send notifications from one game into another if a user has both. Even though their offer walls appear to be out, players are still prompted to download the company’s other titles in exchange for virtual currency immediately when they open the game (see below). It’s not clear if this is still OK under Apple’s new rules.

6) Profit Margins May Be Thinner in the Near-Term: Like we said yesterday, freemium games that monetize through in-app payments are a relatively new business model to the iOS platform. Developers that make free games often make money by giving users the choice of either paying directly or getting virtual currency for free if they download another app. These companies get a cut for every download they drive.

In turn, they also use pay-per-install networks to get users. They spend less than what they estimate the lifetime value of the player will be and keep the spread between the two figures.

“As you would expect, we’re all in a pretty big panic,” wrote Alex Weston Lin, who runs business development at a smaller pay-per-install network called G6Pay that has driven about 1 million downloads this spring, on question-and-answer site Quora. “Our biggest publishers are scared because one of their biggest revenue streams is about to diminish over night.”

Allowing users to get rewards for downloads might boost the conversion rate in an app from 5 percent to 30 percent, he said. According to conversations we’ve had with companies that use offer walls, they might earn about 30 percent of their revenue through them with the rest coming from pure in-app purchases or advertising.

At Appcelerate in November of last year, ngmoco:) founder Neil Young shared some figures explaining how the revenues break down for the company’s mobile apps. You can see that install sales represent between 2.5 and 10 cents per daily active user.

If pay-per-install is banned for good, developers will just have to experiment to see what boosts conversion or what other distribution channels make sense. After Facebook started clamping down on cheap virality in October 2009, developers like Zynga eventually found ways to raise average revenue per user despite a stagnant number of daily active users. Mobile is more promising however, with tablet and smartphone penetration accelerating.

7) The reaction in the developer community is still divided: Some developers, like bootstrapped Camera+ maker tap tap tap, applauded the move. They argue that the rankings should authentically reflect quality and that no developer should be allowed to game them or buy rank.

Other developers say that pay-per-install provides them a modicum of predictability — and an assurance that their work will at least be seen — when they launch titles they’ve spent months on.

“Some people say screw the cheaters,” Chung said. “But there are plenty of companies out there like Gameloft and EA, who have the marketing muscle, and are going to spend hundreds of thousands of dollars anyway to get a top rank.”

Chung added that banning PPI doesn’t address the real issue, which is that Apple hasn’t solved the discoverability problem. With 350,000 apps vying for visibility on a 3.5-inch screen, there still isn’t a great answer.