Fortune Article

Last year’s top iPad app could be a force in online content for years to come

For Mike McCue, 2010 was a very good year. In July, the CEO launched San Francisco-based Flipboard, a much-heralded social media magazine application for the iPad that captured the attention of users, publishers, and bloggers worldwide. Days later, his fledgling firm announced it had received $10.5 million in investments and had purchased Ellerdale, a company that semantically analyses real-time data streams (which, presumably would help them curate content). Then, shortly after the 2.0 version of the app launched in mid-December, Apple named Flipboard its iPad App of the year — just as millions of new users were unwrapping tablets under their Christmas trees. As a result, Flipboard has amassed more than a million users in the last six months, and is poised to explode in 2011.

Or is it? Operating at the intersection of social media and copyright, Flipboard walks a tenuous line of sharing and stealing — and to their credit, are negotiating it gracefully. Described simply, Flipboard is a browser that pulls news stories, blog posts, photos, videos and other content from Google Reader accounts, Facebook accounts, and Twitter streams and displays them in a magazine-like layout and interface. Users flip through stories and pages instead of just clicking or tapping. With Flipboard, says McCue “publishers finally have an opportunity to have their content presented in a far more beautiful way on the iPad.”

While that may seem lovely to readers used to terrible Typepad layouts, it could get tricky with publishers anxious to protect their intellection property. For example, one need only look to the stack of more than 200 lawsuits (and counting) currently filed by Righthaven, a copyright enforcement arm for publications such as the Las Vegas Review Journal and the Denver Post [See on Fortune.com: Las Vegas’s copyright crapshoot could maim social media].

Or, closer to the home button, recall last summer’s Apple WWDC, and another Apple-lauded app, Pulse New Reader. In Steve Jobs’ June 7 keynote, he highlighted the then-$4 newsreader application that uses RSS feeds to aggregate and display stories, including those from sources like the New York Times. The next day, however, Apple had to pull Pulse from the App Store at the request of the Times, which claimed that the service had violated the terms of use for the Times’ feeds. Pulse has since returned to the store, has an improved relationship with the newspaper, and made their app free, but the example shows how protective publishers are being with their content.

“We were very sensitive to how publishers feel about their content when we built Flipboard,” says McCue. Indeed, Flipboard seems to have a good relationship with the publishing community so far. For example, William R. Hearst works with the company as an advisor, and Bon Appetit, The Washington Post Magazine, and the San Francisco Chronicle have partnered on a pilot program with the app called Flipboard Pages. The program is helping publishers, advertisers and users to evaluate Flipboard as a bonafide publication platform, measuring how users interact with the content, as well as some accompanying ads.

“There’s an opportunity to have print-style advertising both in terms of the form factor and modernization level happen on the iPad,” says McCue. “That’s our theory — it’s still more conceptual than reality, and we have a lot of work to do to fully figure that out.”

Will Flipboard’s Ads Add Up?

Though McCue says Flipboard’s revenue model is a work in progress, he expects the plan to revolve around advertising. Flipboard Pages began last month, and all of the advertisements are coming either directly from the publishers themselves, or from OMD, a Chicago-based agency bringing the likes of GE (GE), Pepsi (PEP), and Levi’s to the virtual fold. Currently, no one is paying for ads on Flipboard, says McCue — the test is currently about looking at the metrics and measuring the reactions of end-users. “It’s a focused trial program to further understand how readers are going to engage and react to these kind of ads, how publishers feel about them in their content, and how advertisers are going to be able to make the best of this new type of advertising.” he says.

Eventually, when the Flipboard Pages program expands, bloggers will also have access to same tools, adding another complexity to this potentially disruptive technology. Currently, print publications buttress their investment in ink, paper, and distribution with quality writers, illustrators, photographers, and designers. Even without paper — in a world of electronic magazines — quality writing, artwork, and design still make a difference. But when the design is simplified to one format controlled by Flipboard, publishers will be forced to examine if their content is any better than a blog.

McCue argues that quality will continue to reign. “[Flipboard is a way] for professional publishers to differentiate their content and not just have it be one of the many links that you see in your Twitter feed, using all the same skill sets that make them professional journalists,” he says. “Meanwhile, bloggers have the ability to make their content look as good as they can possibly make it.”

In the meantime, look for Flipboard to continue to make it look better — but only on the iPad. Flipboard was originally built from the ground up to work on the Apple tablet, says McCue, and the company has many more refinements to make before they port it to other platforms. “We’re currently in the mode of staying focused on that one platform, and continuing to round out that experience,” says McCue. “Eventually, when we get to the right stage stage, we’ll begin to broaden, gradually, to other platforms.” And while an image of a Flipboard for Mac program floated around the internet, McCue says that was a hoax — there’s no such project in the works. What’s most likely is that Flipboard will turn the page to the iPhone next, he says, possibly as soon as 2011. Just in time for another big year.

Mike McCue: A CEO ahead of his time