Will Flipboard Revolutionize Online Advertising?

What’s the iPad’s best application? According to Apple, it’s Palo Alto-based startup Flipboard. With a simple flip of the finger, iPad owners can now sit back, relax and surf the Web as if it was a print magazine, all for free. According to founders Mike McCue, 43, and Evan Doll, 29, Flipboard has in effect “magazinified” Twitter and Facebook.

With Flipboard’s new so-called “social magazine,” the founders claim they want to revolutionize online advertising. Flipboard takes content already existing on the Web and reformats what some consider a simple outline of information, such as on Twitter and Facebook, into a “beautified” print-magazine-styled reading experience that many find more enjoyable, company spokeswoman Christel van der Boom said.

The magazine-styled format provides the space for more interesting and appealing ads that enhance the reading experience, van der Boom said. The company does not produce original content.

Launched nine months ago in July, Flipboard already has more than 1 million users, said van der Boom. “If Twitter is DOS, this is Windows,” tweeted one Flipboard user. 

Named the best Apple app in 2010, Flipboard boasts a valuation of $200 million. The company reached a milestone earlier this month when it sealed a deal with Oprah Winfrey to “beautify” OWN: Oprah Winfrey Network and Oprah.com. ABC News, Wired, Rolling Stone, ELLE and Bon Appetit have also signed up to “magazinify” their Web content.

“The positive response from publishers, in addition to readers, has been incredibly satisfying,” Doll said.

Even with all the interest in Flipboard’s iPad application, the company does not have any formal payments contracts with anyone yet, van der Boom said. Flipboard wants to make revenue from selling advertising with content providers who use its magazine-styled application, she said. But no one knows exactly how or whether content providers such as OWN will pay.

Online advertising is a $10 billion “train wreck,” and whoever finds the right Internet-advertising model could tap into billions of revenue, said media-industry analyst Barry Parr from Mediasavvy.com.

Flipboard has an edge, because it has come out with an interesting concept for delivering advertisable social-media content to iPad users, Parr said, while cautioning that the application is up against some stiff competition.

"Today Flipboard looks like one of the few viable solutions" to a multimillion-dollar online-advertising disaster, Parr said. But "a couple of years from now, any high-school kid" can create the same beautified-Web layout, he added.

“The publishers say you want to be able to use our content and you want to sell advertising against it,” Parr said, but “Flipboard may not be our best option,” because in a few years, the publisher will be able to find someone else to do it in house for cheaper, he said.

“Flipboard has to be able to make more money from the publishers content than the publishers can make themselves, because, otherwise, why does Flipboard exist in the relationship at all?” Parr asked. “And if they make just as much money, there’s nothing left over for Flipboard.”

To thrive, the company needs to build a business model based on dominant market share, Parr said. "The advantage they have right now with their software is going to diminish, and then it’s going to be about how many customers do you have?" he said.

Flipboard has Menlo Park-based venture firm as well as Index Ventures and individual investors, such as actor Ashton Kutcher, backing up the project.

“If you have an iPad, the Flipboard app is a must,” a quote from Kutcher on the company wall says. “I am so addicted to this thing I invested in it.”

Co-founder McCue, CEO, has successful experience in the startup field. McCue founded Tellme Networks, a voice-activated system that delivered Internet content to telephone users upon demand. He sold it to Microsoft in 2007 for a reported $800 million. Doll is a former Apple engineer.

The two met the summer of 2009 and talked about how important social media has become and how to improve what currently exists, said van der Boom. “They realized they were onto something,” she said.