You realize both things can pay those salaries right? Paying customers subsidizing non-paying customers is rather common. Also you know free apps have in-app purchases right?
Not every free app has in-app purchases. My city, Seattle, has an app called Find-it, Fix-it where I can report potholes or abandoned cars. One Bus Away is an app that shows bus arrival times. I have grocery apps that show me what's on sale and give me digital coupons. None of these apps have in-app purchases.