Rather than charge readers directly (like Scribd and Kindle Unlimited), Readfy subsidizes a free reading experience by selling adverts, and inserting the ads into ebooks. Banner ads occupy the upper edge of the screen while an ebook is open, and Readfy also inserts ads at chapter breaks. According to one source, the interstitial ads are currently images, but Readfy does plan to replace them them with auto-playing video ads.
Readfy's not the first to try to fund an ebook service through ads; Wowio launched one years ago (before shutting it down) and plans to launch a new service later this year. But Readfy is perhaps the most uniquely financed ebook service. The Düsseldorf-based startup raised 500,000 euros this spring in a crowd funding campaign which drew the support of 1,363 investors.
It's going to need to use those funds to walk a tightrope, balancing the need to not drive off readers with the need to show ads and charge for them. That is a far more difficult job than the one which faces Readfy's competitors.
Speaking of which, Readfy is facing fierce competition In addition to Kindle Owner's Lending Library, Scribd and the local competitor Skoobe, Readfy will soon have to contend with Amazon as a direct competitor. Many sources are saying that Amazon will launch the Kindle unlimited service in Germany around the time of the Frankfurt Book Fair, which is less than two weeks away.
Kindle Unlimited launched in the US in July 2014, and only last week started its international expansion with a UK launch. With a catalog of over 650,000 titles, KU could well be the juggernaut of this market, but its general lack of traditionally published titles gives its smaller competitors like Oyster and Scribd an advantage in the market. Both of those services have signed two major US trade publishers, HarperCollins and Simon & Schuster. This enables them to offer a catalog which Amazon cannot match (not without paying through the nose).
On the other hand both Scribd and Oyster have committed themselves to paying for each ebook after a certain percentage is read. This potentially turns their obligations into a bottomless pit, while most of Amazon's costs are limited to a pool of money ($2 million in August 2014).