Apple is expected to announce a number of new products and services at its event on Wednesday, but for media types one of the most important will be the company’s newest take on news aggregation: Apple News, a curated selection of headlines from media partners that almost everyone has described as “Flipboard-like.” So what does the real Flipboard think about this new competitor? Bring it on, says CEO Mike McCue.
In an exclusive interview with Fortune in advance of Apple’s announcement, the Flipboard co-founder said both he and his company respect the electronics giant, and they take Apple’s entrance (or re-entrance) into the news curation market seriously. But that doesn’t mean he is afraid of what the company might do.
“We started five years ago, and since then there have been many Flipboard killers, from big and small companies alike,” McCue said. “There was Google, with Current and then Newsstand, and Yahoo, AOL and Facebook. The size of the opportunity in this market is represented by the size and quality of these competitors. And we deeply respect and take seriously what Apple is trying to do.”
That said, however, McCue also noted that Apple (AAPL) is primarily a hardware company, focused on physical products. Despite all of its abilities in those areas, and the hundreds of billions of dollars it has on hand, its track record when it comes to services like Apple News is not stellar. Building a new media and advertising business essentially from scratch, in other words, is not a slam dunk.
Apple is hardware, not services
“There’s no question Apple has a unique advantage, in that they run iOS,” McCue said. “But remember their focus is to build and sell hardware, and everything serves that purpose. They are not an advertising company, and it’s very very hard to build an ecosystem geared around advertising and subscriptions unless you are totally focused on that — their interest is in selling more devices.”
The Flipboard co-founder said that in thinking about Apple and what his company’s response should be to this massive new competitor, he recalled how a company he used to work for — pioneering browser maker Netscape Communications — reacted to a somewhat similar competitive threat from Microsoft (MSFT), and how badly that ended. In a nutshell, Netscape focused on Microsoft instead of its users, and lost the market.
“One of the things I learned back in my days at Netscape was that, in the face of very serious competition, you need to remain focused on your users and customers, and if you do that, chances are you will be able to build a pretty good business,” McCue said. “At Netscape we took our eye off the ball and focused too much on Microsoft, and over-rotated in a way. That was a big mistake.”
McCue also said that when thinking about Apple as a competitor — a company with a market cap of $630 billion and more than $200 billion in cash on its books — he often thinks about Intuit, one of the pioneers of the accounting software market. Microsoft targeted them with a new product, called Microsoft Money, bundled for free with Windows. Many people expected Intuit to fold completely.
Keeping his eye on the ball
“They were giving away a product that Intuit was selling, with many of the same features, and it was free — and they were the world’s largest software company,” McCue said. “You would think it would be an apocalypse for them, but it wasn’t. They focused on users, doubled down on features, and Intuit continues to be number one.”
It’s more than a little ironic that Apple is the newest competitor to come out with a “Flipboard killer,” since the company’s creation in 2010 was driven primarily by the arrival of an ambitious new product known as the iPad. In many ways, Flipboard was the first app to really take advantage of the new device, with its high-quality images and the flipping interface that gave the app its name.
But McCue also noted that Apple isn’t exactly a new competitor in news curation or trying to serve publishers. For a long time, the company had a feature called Apple Newsstand, which was supposed to be a special location for publishers to put their apps so they could get traffic and users. But Newsstand turned into the equivalent of a media ghetto, where news apps sat forlorn and unloved.
Is it possible that Apple could become a significant competitor now, with Apple News? Certainly, McCue says. The company has already signed up more than 50 partners, with more in the wings, and it is offering them 100% of the advertising revenue from their content if they sell the ads — much like Facebook is offering its partners with its recently-launched Instant Articles project. But Flipboard is staying focused, he said.
Focused on publishers and users
“We are totally focused on pioneering, not following—in total partnership with our publishers, with total focus on distribution across platforms, in a way where there’s a business model that’s a clear win for publishers,” McCue said. “And the opportunity here is so huge this is not a mutually exclusive situation—no one is going to kill anyone. This is an opportunity to rethink the entire ecosystem around content, whether it’s discovery, distribution, monetization or packaging.”
Apple has signed up 50 publishers “from a subset of the content world,” McCue says. Flipboard has agreements with more than 350, including partnerships with major publishers like the New York Times, the Wall Street Journal, the Washington Post and the New Yorker—with full integration with the paywalls at those publications. It also has more than 8,000 other sources of news and content via RSS feeds that it curates inside the app.
McCue added that Apple is expected to have ad-blocking capabilities built into its new OS, which could pose a serious problem for publishers (unless they adopt Apple’s iAds platform, of course). This could make some media outlets wary of getting too involved with Apple News. “Ad blocking in iOS has the potential to be very publisher unfriendly,” McCue said. “There are real issues that need to be addressed with advertising, but removing all ads seems extreme.”
In fact, part of what Flipboard offers publishers is the potential to have full-sized, high-quality advertising, much like magazines used to offer, McCue says. “We don’t have any belly fat ads beside your content — we have nothing but the world’s best brands, in a well-lit, beautiful environment: Google, Apple, Gucci, Wells Fargo.” Flipboard also recently integrated Google’s Doubleclick, so publishers can seamlessly buy and sell ads on other platforms and Flipboard at the same time.
While Apple is expected to have editors or curators selecting content in its new app, McCue notes that Flipboard has hundreds of thousands of curators, because of the social elements that are built into the app. Any user can create a custom “magazine” focused on a specific topic or interest, and can “flip” articles they find on the web into it, and other users can then subscribe to that curated feed. McCue says Flipboard now has more than 20 million of these magazines.
No algorithm for cool
“There’s no algorithm for insightful, no algorithm for cool, no algorithm for beautiful,” McCue says. “Flipboard has always believed in social discovery. Apple is going to have curators, and we do that as well with curators and editors around the world, but that’s not social discovery. And there’s no way that that scales — you have to have the entire community doing it.”
In the end, McCue says, the simple fact that Apple is a huge company and will be building Apple News into its OS isn’t enough to guarantee success. “Spotify and Pandora and so on are doing really well despite streaming music being built into iOS and Android,” he says, “because they are world-class competitors. Google has had multiple products bundled, from Current to Newsstand to Google News. “There’s no question it’s helpful for distribution, but being bundled is not good enough.”
Flipboard recently raised a $50-million round to help build out its advertising model, McCue said. The company has now raised a total of $210 million, and recently passed 75 million monthly users, with more than 35 million active every week (the company doesn’t release daily active numbers). The Flipboard co-founder also wouldn’t comment on whether there is any truth to the rumors that Twitter was trying to acquire the company, except to say that Twitter and Flipboard are “very close partners.”
