Some games does it right, you aren't aware of them that's it.
Dofus is free to play (freemium more precisely, you can play for free, but have to pay to access all features/zones) and perform really well. 500K paid subscribers for France alone, that's as most as XI during most of its lifetime, but with a single country that's twice less populated than Japan alone, with a game from a "small" company (Ankama is far from being SE) and without a big license such as FF.
And the subscribtion itself is cheap (48 euros for 12 months, which is less than the price of a "normal" game per year). The game targets a very young audience (12~18 years old), hence why freemium was the way to go. Same for the low membership fee, which parents aren't reluctant to pay for their child.
There isn't any cash shop. You only receive vanity rewards for subscribing (lot of P2P games do that like Rift). You can also pay for extra services such as World Transfer, Character Rename etc. (then again lot of P2P do that, even XI).
Note that the "sequel", Wakfu, is being published by Square Enix in North America. (No idea how it performs there, but the billing model is the same with an item shop however).