In a previous Weekend Reading, I talked about how surprised I was to be enjoying Queen of the Iron Sands by Scott Lynch. Sadly, that serial falls apart precipitously in chapter 3, right when the heroin arrives on Mars, but the first two chapters are fun reading.
For more reliable online reading check out Catherynne Valente's online fairy tale novel The Girl Who Circumnavigated Fairyland, a novel serialized weekly which is supplemental (but not directly connected to) her highly praised first novel Palimpsest. Fairyland was recently bought by a mainstream YA publisher based on its online popularity.
Hal Duncan has recently engaged in an intresting experiment, releasing samples of short stories along with requests for donations. Every donor gets emailed a copy of the completely short story, and if a certain threshold of total money is reached the story is put on the website for everyone. So far all three stories he has attempted this with have met their thresholds, and all three of the stories he has done this with are currently available for public download. Hal Duncan is the author of the novels Escape from Hell, Vellum and Ink, and he is an excellent writer.
A more remarkable case of public financing can be found on Kickstarter, where blogger Robin Sloan has raised nearly $15,000 (!) to fund the writing of his first novel. What's remarkable about this to me is that, unlike Duncan and Valente, Sloan has no traditional publishing credits, and raised this money simply on the popularity of his blog, some short stories he sold himself on Amazon, and his own pitch, which consists of text, a video, and a writing blog. For different amounts of money you can get different "pledge packs" ranging from ebooks of the novel, physical copies of the novel, "behind-the-scenes" updates of him writing, and more. $15,000 is more than a lot of first time novelists get as an advance.
For a regular source of great online short fiction, Tor.com has become a consistently reliable source. One killer recomendation? Errata by Jeff Vandermeer, which alone cements for me Vandermeer's position as one of the finest writers working right now. All short stories all also available for download in various formats, including ePub for easy ebook reader enjoyment. (With any luck, as ebook readers become more ubiquitous ePub versions of online fiction will become standard.)
And finally, free ebooks are available of Soviet Science Fiction masters the Strugatsky Brothers, so get 'em while they're hot!