Eric Feng joins Flipboard as CTO, reporting to CEO Mike McCue. Feng was the founder of Erly, which let users create webpages for specific events. Before that, he was CTO at Hulu and a partner at venture capital firm Kleiner Perkins, which has been one of Flipboard’s largest investors.

Eugene Wei, who’d been VP of product at Erly and prior to that worked at Hulu and Amazon, and Eden Li, who’d been a software engineer at both Erly and Hulu, are heading to Flipboard along with Feng.

In addition to Feng, Wei and Li, Flipboard spokeswoman Christel van der Boom said the company also hired five other people in engineering and product this week, and is “looking to add more people as well.”

Flipboard, which is a little over two years old, had 20 million users as of September 2012. It has apps for iPad, iPhone, Android phones and tablets, Kindle Fire and Nook.

The decision by the New Yorker and Wired to unplug their stories from Flipboard, a tool that lets readers “flip” pages magazine-style on their tablets, suggests that while Flipboard has proven itself very capable of delivering readers, its ability to deliver revenue is much murkier.

In a telephone interview, CEO Mike McCue played down the significance of the magazines’ pull-out, calling them “outliers” and suggesting they miscalculated. ”I find it ironic that Wired is taking a step backward while the New York Times is taking steps forward.”

The Flipboard quitters: examples or outliers?

The announcement by the New Yorker and Wired, reported by Ad Age this week, caused a mini-stir in publishing circles. A Wired exec also complained about a dearth of advertising for the platform. The two Conde Nast publications indicated they will now keep their content on their own websites and apps and use Flipboard only to display headlines.

The move comes at a time when some publishers are questioning the value of Flipboard, even as the social reader is claiming  more than 8 million users. Unnamed executives told Mashable that the advertising proposition wasn’t adding up and that they feared Flipboard was cannibalizing their readers on other platforms.

Flipboard, which compiles stories based on social media recommendations, lets publishers add full screen ads that resemble those found in a magazine. The aggregator, which says it has thousands of partner publishers and a waiting list of another thousand, takes a cut of the revenue from those ad sales. It has been running four to eight ad campaigns a month, some of which appeared in the Flipboard editions of Wired and the New Yorker.

Build it and advertisers (might) come

Flipboard is steadfast that its platform — stacks of curated content corralled by social media — is the future of news and, based on its popularity, many readers seem to agree.

But despite offering a magazine-like showcase for brands, Flipboard has yet to create a meaningful advertising ecosystem. The company suggests this is because the ad industry is not yet configured for a platform that, in its view, straddles both digital and off-line formats. In an earlier interview, a Flipboard spokesperson said many brands have a “little trial budget” for tablet ads and that they will increase such budgets as they come to understand the platform’s potential.

In an effort to bring advertisers up to speed, Flipboard has invested in a six-person New York team led by Christine Cook, the former Chief Revenue Officer of News Corp’s tablet newspaper, The Daily. Cook’s team is tasked with helping salespeople with lead generation and spreading the word about tablets’ potential.

“They’re working with top agencies and advertisers to educate them about what’s out there,” said McCue.

A spokesperson added, “We support their sales teams with our team in New York. We can help them sell into current advertisers, but many times we bring new advertisers since we often get calls directly from brands interested in Flipboard.”

As for publishers, McCue suggests they are “addicted to ad revenue from banner ads” but that those ads are in a permanent downward price spiral. He says they are better off with Flipboard-style ad campaigns that offer 10 to 15 times the payout of banner ads,  which is “closer to print economics.”

Who gets to keep the money?

So here’s the mystery. If Flipboard is so lucrative (McCue says it is generating millions in ad revenue), why are Wired and the New Yorker taking their ball and going home? Wired’s Howard Mittman told AdAge that advertiser interest isn’t sufficient and that the magazine prefers to engage readers without an intermediary.

Not all publishers are so downbeat. Christine Osekoski of Fast Company says her publication has its first advertiser partner in place for September and that Flipboard will be a very lucrative new revenue stream for Fast Company. She adds that any risk of cannibalization is offset by the chance to introduce Fast Company to new readers.

These mixed messages, in addition to the curious timing of the pullout by Wired and New Yorker, suggests that the issue here may not be Flipboard’s overall viability but instead the company’s formula for dividing revenue.

McCue would not disclose a percentage of the revenue share — he would only say the publishers get more than half and that the formula is the same for everyone. And, for Conde Nast, that may be the problem.

Wired and the New Yorker have been prime ambassadors for Flipboard as a result of their prestigious brands and top-shelf advertisers. But now the two magazines may have grown tired of carrying water for Flipboard and may have decided to make a point by pulling out on the day of the latter’s big New York Times announcement. The decision may also give Conde Nast leverage to negotiate better revenue deals for its other publications that are continuing their Flipboard partnerships. The company, unlike some publishers, is in a position to tell Flipboard it needs Conde Nast more than the other way around.

Flipboard’s Future

In the bigger picture, publishers will be hard-pressed to put the Flipboard genie back in the bottle. As my colleague Mathew Ingram explained in his analysis of the New York Times partnership, a growing number of readers prefer to get their news through aggregators and social media rather through a publisher’s website or app. If publishers walk away from Flipboard, they run the risk that readers won’t follow them back to their old platforms.

What all this means is that Flipboard’s future is not immediately in question — in short, the company’s issues appear to be rooted more in marketing rather than a bad business strategy. The issue appears to be the terms of Flipboard’s partnerships with publishers. It’s a pretty safe bet that by this time next year its one-size-fits-all policy will be replaced with something more granular.

And finally, there is the question of whether Flipboard will seek other revenue streams if publishers insist on taking a greater share of ad dollars . Flipboard said the company is already generating a small amount of non-advertising revenue. Given that McCue said last year that a premium ad-free version of Flipboard is off the table, this revenue may come from readers who sign up for paywall publications they discover on Flipboard.

(Image by Lightspring via Shutterstock)

The startup on Thursday upgraded its iPad app with a new Flipboard Accounts system that will let users read the same set of subscriptions on the iPhone app as they have on iPad.

CEO Mike McCue told our paidContent Advertising 2011 conference in October the iPhone app was coming soon and must support users reading content at different times and locations than the more lean-back, domestic tablet experience. (Video of his Q&A is available here.)

Flipping hemisphere

Meanwhile, Flipboard, whose English app was blocked by China in May, is planning a reboot including launching a Chinese version, according to an exec from the Sina (NSDQ: SINA) portal (via Technode), which has been working with Flipboard to enable sharing of articles to its Weibo microblog service.

Flipboard did not confirm international plans to paidContent. China, a country where online operators are prohibited from publishing certain content, could prove challenging – after all, Flipboard wants to be the place where users can read any content they choose, including that which passes through their social networks.

What’s more, the market is host to a glut of page-flipping news reader copycats, including Zaker, Xiaoguo, Tencent iCare, MagSina, Netease Reader and Bozong News.

The apps from MagSina and Netease (NSDQ: NTES), two of China’s largest mainstream portals, look and function so much like Flipboard they appear to have re-used Flipboard’s own interface design and possibly even underlying code.

Growing pipeline

Flipboard is growing fast and is busy. When we spoke with McCue in October, he said he had a pipeline of over 300 agreed-upon content feeds ready to add to Flipboard’s Content Guide.

The print-like tablet news reader segment, which was more or less created by Flipboard, is getting crowded in the west, too, with AOL (NYSE: AOL), Yahoo (NSDQ: YHOO) and, reportedly, Google (NSDQ: GOOG) now joining the likes of Zite and Pulse.

Thursday’s iPad upgrade also added Tumblr and 500px to the list of social services Flipboard users can get their content from, joining Facebook, Twitter, LinkedIn (NYSE: LNKD), Google Reader, Flickr and Instagram.

» Watch the video of McCue’s Q&A with paidContent UK Editor Robert Andrews, embedded below. Full coverage of the conference is available in our archives.

“When something scrolls, you can’t put a full-page ad there,” McCue said. “We want to create a paginated experience. That allows for full-page, print-style ads.

“The web, as wonderful as it is, is not able to render content beautifully, the monetization model has been challenging, it’s not a good experience for readers. Print is flat; it doesn’t move – there’s a lot of good things about that.

“Don’t have infinite inventory,” McCue told advertisers in the audience. “There should be scarcity to the inventory. Sell to the people who are buying print ads from you.”

Over the past few months, the company has introduced ads through deals with publishers like Condé Nast. Flipboard runs content from links via companies’ RSS and Twitter feeds — not publishers’ websites. McCue, who professed a great love of print magazines, made the distinction between interactive ads and digital ones and why Flipboard tends to avoid typical online formats.

“Interactive ads have drawbacks — you don’t want to wait for the long download time if you’re reading feeds in real time,” he said. “When we came up with our ads, we thought, ‘Let’s do a blend — we’ll take an image of a print ad that will be repurposed for RSS feeds. Now, you can also go to a full HTML5 website ad, which opens within the app. And if you’re a digitized magazine replica sold in Apple’s iTunes Store, you can have interactive ads downloading in the background within the iTunes Store. But we believe we have the best of both worlds.”

So how effective have Flipboard’s ads been? The evidence is mostly anecdotal and internal, so far, McCue told Andrews.

“When I talk to people, so far, no one has complained about a terrible experience,” McCue said. “Just the opposite. People go out of their way to tell us they like it. We did a study where we found that people are having the same brand lift as print or 30 percent better.”

In terms of product rollouts, don’t expect Flipboard to be on a lot of different devices anytime soon. The company concentrates on one particular item at a time. And lately, it’s been consumed by creating an iPhone version (finally). He declined to offer a time frame in terms of when the iPhone app would be ready, saying only that he believes it will be soon.

“It’s all hands on board to create the iPhone app,” McCue said. One of the reasons it’s taken so long to build is that the company doesn’t just want a shrunken version of its iPad-only app. “People use our app in the morning and before bed; those are our heaviest times,” he said. “People use their iPhones while standing in line at *Starbucks*. So it’s a different experience and the product has to account for that.”

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Flipboard’s major update, currently being rolled out across the app store, now lets users incorporate their feeds from Google Reader and Flickr, features that Flipboard says were among the “most requested” from its users.

The Google Reader feature, which was in fact the most requested addition, effectively turns the Reader into a social network. Users can now not only read, flag and share their own stories with friends, but they can comment on them all. Similarly, the Flickr integration effectively puts most of the social functionality of the actual service on to Flipboard. The one exception, it seems, is the ability to upload photos.

Flipboard has also extended its Facebook and Twitter functionality, making it significantly easier to post updates to and across each network, both from within other feeds and directly, as well as see what other people are writing and doing. The Twitter connections, in particular, seem particularly immediate, a nice coincidence given Flipboard CEO Mike McCue recently joining Twitter’s board.

One tweak that Flipboard has made concerns how people view articles in their feeds. In the past these used to come up as previews with a “read on web” button; now Flipboard automatically loads either the web page, RSS feed or Flipboard Pages view of the story (whichever pertains to that specific piece of content). Flipboard Pages is a feature that the company is currently testing out with nine publishers to create a more “magazine-like” view of articles and advertisements when they are selected for reading.

All of these updates are very canny because they encourage people to stay in Flipboard for longer periods of time, and help eliminate the need to go elsewhere for their social media and content fixes.

The one big standout area that has yet to be touched in Flipboard’s minor and major updates is offline content — in other words, to be able to read content in Flipboard, you have to be online. This is an issue that apparently Flipboard is well aware of because it is also a frequent request from its users. The company, says a source, is working on it. We’ve asked for more detail from Flipboard itself and will update when and if we hear back. A Flipboard spokesperson says that a user can still flip through a Flipboard offline, even if the app can’t go out and fetch the story for the reader. “It is a tough problem to solve since we don’t cache all the stories in your magazine,” she added. “That said, we do support Instapaper, so if you see stories in your Flipboard that you want to read later, you can save them for off-line reading using the Instapaper option.”

Flipboard currently has around 1 million users, which works out to about one out of every eight or nine iPad owners.