VentureWire, December 13, 2010 - by Spencer E. Ante
In his last quarter as a graduate student in electrical engineering at Stanford University, Akshay Kothari skipped out of school this spring and failed a bunch of his courses.
Kothari wasn't lollygagging at the beach. He and fellow student Ankit Gupta used the time to finish up and roll out the Pulse News Reader, a $3.99 iPad application that quickly became the top paid offering in the iPad section of Apple Inc.'s App Store. The two developed the service as part of a class they did attend in the school's Institute of Design.
"It just sucked up my whole life," Kothari, 24 years old, said of the project.
Now, Kothari is just one of several entrepreneurs who are helping to create a category of news apps that people are increasingly using to consume news and information. In the news category of the App Store, news readers such as Pulse, Flipboard and SkyGrid occupy five of the top 10 positions. Both Pulse and Flipboard say they have at least 500,000 users, while SkyGrid said it is poised to pass one million users during the first quarter of 2011.
The rapid growth has attracted top-tier venture-capitalists such as Kleiner Perkins Caufield & Byers and the Mayfield Fund. In July, Flipboard Inc. said it raised $10.5 million from Kleiner Perkins, Index Ventures and several angel investors, including Twitter Inc. co-founder Jack Dorsey, Facebook Inc. co-founder Dustin Moskovitz and technology-savvy actor Ashton Kutcher.
The makers of these apps say news readers provide a way to keep newspaper and magazine content relevant in a mobile age and might even help provide a new source of revenue for the beleaguered industry by driving traffic back to their websites.
"We can help publishers on the presentation of content and help readers become more engaged," said Mike McCue, chief executive and co-founder of Flipboard.
But the future of news readers has already been darkened by disputes over intellectual property. The Pulse News Reader, from Alphonso Labs Inc., was pulled temporarily from the App Store after New York Times Co. sent a letter to Apple alleging the app violated the company's terms of service. Apple restored Pulse a day later, though the company didn't explain why. "Our app was reinstated the next day after the huge public support we got," said Kothari.
Kothari said he was able to stay in business after he explained to the New York Times and Apple that the app wasn't taking content from the New York Times's website. Rather, Pulse is using the RSS news feeds from the company, which are available to the public.
Now, after talking with the New York Times about Pulse, Kothari said the two sides are looking at ways they can work together. "Pulse has been responsive to any concerns we have had," said a spokeswoman from the New York Times.
News readers are built on the news feeds from publishers' websites. What is novel is how they present the information in easy-to-read formats built specifically for the smaller screens of mobile devices.
Typically, users select a news source or topic to follow, then new articles pop up like tiles in a grid of text and photos. Clicking on a tile brings up text-only versions of articles or the full articles as they are presented on the Web. News apps also let people easily share articles through Twitter and Facebook.
Jeff Jarvis, a former publishing executive who is now associate professor at the City University of New York Graduate School of Journalism, said news readers could turn into a powerful distribution platform if they can overcome intellectual-property challenges and find a way to earn money for news-reader companies and publishers.
"It is an opportunity to bring a new convenience and a new user interface," Jarvis said. "The public has shown they like it. We need to figure out a way for this to work."
To make Web content more accessible, some news-reader makers are partnering with media companies. Flipboard has struck partnerships with the Washington Post magazine, Bon Appetit, ABC News and other companies to make customizable templates that convert Web content into a magazine-like reading experience. Flipboard said it plans to release on Friday an iPad version of Sports Illustrated's swimsuit issue. Pulse has a deal with the Huffington Post.
SkyGrid Inc. CEO Kevin Pomplun said he is in talks now with publishers to showcase their content on his company's app. SkyGrid, backed by investors including Draper Fisher Jurvetson, RRE Ventures and BlackRock Inc., already works with publishers that ask the company to customize their content. Some publishers, for example, want to show full-function Web pages, while others prefer to feature the stripped-down versions designed for mobile phones.
News apps are starting to develop their own business models. Most developers say they will rely on a combination of advertising and premium content or services. "We want to stay away from banner ads," Kothari said. "We need to think about ways to monetize that don't degrade the user experience."
SkyGrid said it is working with a number of big advertisers such as Sony Corp. and Audi of America Inc., a unit of Audi AG The company runs full-screen ads when a user opens the app, and it also is selling ad sponsorships of various categories.
Flipboard's McCue said news apps are likely to ultimately deliver a better way to advertise than traditional banner ads. One reason is the larger screens on tablets allow for more appealing and engaging ads like the ones in fashion magazines.
Flipboard is currently working with ad agency OMD, a unit of Omnicom Group Ltd., to test various full-page ads with advertisers such as Pepsi, Infiniti and Showtime.
"The Web needs a face-lift," McCue said. "You will see an opportunity for the publishers to do more effective advertising."