Instagram, Pinterest and Tumblr are all hugely popular social companies that aren’t making much money right now (with the exception of Tumblr, and that might be debatable.) They’ve raised huge amounts of venture capital or have been acquired by companies for such large price tags that they’ll have to make money soon. But the core value proposition for these three services, one that’s certainly reflected in the attitudes of the founders, is that that they are beautiful, creative online spaces. So how do you put ads there without ruining the atmosphere you’ve created and that users have come to expect?

Mad Men advertising executives explore the brand new world of video ads in the 1960′s.

Obviously, many forms of advertising have been around for hundreds of years, but only in the past 15 or so have we seen a change in how search and contexual ads have had an impact on the business. This search-driven model existed before Google, but from the time the company launched AdWords in 2000, the concept of text-driven and contextualized ads based on search really began to take off. This data-driven approach has affected much of online advertising since then, and Google has developed a billion dollar business around the practice.

And along with search, display ads have also been a signficant part of the puzzle. In the early years of online advertising, it seemed that banner ads and other forms of display would be able to mimic more old-school advertising methods, since they weren’t all that different from the then-profitable ads in print. But the format is no longer dominant — in fiscal year 2012, search ads brought in 46 percent of revenue from advertising, compared to the 21 percent of revenue coming from display ads, according to an IAB report.

Why advertising should get to know us

Most recently, the rise of social media and smartphones that track everything in our daily lives from location to spending habits to real-world friends have made keyword search or banner ads start to feel fairly impersonal. Now Facebook can serve you ads for cars if they think you’re likely to buy a car soon, or Twitter can show you promoted tweets based on the messages you post. These companies haven’t totally cracked personalized ad-targeting yet, but they’re working on it. As those companies know, advertising needs to feel useful and relevant if it’s going to work — all without seeming creepy or invading of a person’s privacy, and useful to a person on both desktop and mobile.

That’s a tough balance to hit, and it certainly doesn’t seem that those companies have totally succeeded yet. If the Mad Men era Madison Avenue experts figured out how to tap into a person’s core desires to re-create advertising in the 1950s and 1960s, we’re still waiting for someone to do the same with in the current digital era, by adding a layer of emotion and desire to the social media and consumer data that’s out there.

The idea of the moment, which we’ve written about extensively here at paidContent, is native advertising: creating “sponsored content” from brands that fits in with the look and feel of the site but is labeled as an ad and supports that particular brand. Tons of sites, from Buzzfeed to The Atlantic to the New York Times (to GigaOM itself) do sponsored stories. It’s how Tumblr’s ads are rolling out for companies like Denny’s. And in particular, for sites like Instagram, it seems like potentially the only way to preserve the aesthetics of the site while letting brands in the door.

Young founders look to their history books

When the Yahoo/Tumblr deal closed, Yahoo CEO Marissa Mayer talked about her intentions for ads on Tumblr and how CEO David Karp (who had previously decried advertising of any kind) imagined them on his site:

“David talks wistfully about the ads that he saw as a child, that would make him want to go see a movie or own a particular type of car,” Mayer said. “He says the current state of internet advertising doesn’t aspire to be as good as the content itself. We think that should change … we’re aligned in those ideals. When you hear us talk about native ads, where the ads are every bit as good as the content, and maybe even make the content better — that’s what we are aiming for. We want the ads themselves to create that aspirational feel that, for example, television ads or movie ads do.”

And speaking at the Commonwealth Club on Thursday in San Francisco, Instagram CEO Kevin Systrom was equally nostalgic about old-school advertising and how it might work for his own company:

“We made a promise that Instagram would be a self-sustaining business, and that promise still holds true today. The deal makes no sense if you think this thing will never make money. We’ve always had plans, and it’s just about when, and it’s just about how,” he said. “Think about the magazine Vogue, for instance, and how half that magazine is advertising, but that advertising is really compelling.”

Instagram co-founders Kevin Systrom and Mike Krieger talk with Google Ventures’s Kevin Rose at the Castro Theater in San Francisco on May 30, 2013.

Finding the Don Draper approach to social

Systrom and Karp might be inspired by old Vogue ads, but it doesn’t seem that Tumblr users are as enamored by Denny’s gifs, and it’s fair to say that I’d be far less offended by a slightly off-target ad on a news website than one posted in my Instagram feed. The founders have accomplished a remarkable feat of creating companies where users feel personally and emotionally attached to the experiences they have there — just ask someone like Om who’s made a digital friend with someone he’s only “met” through Instagram.

But by raising the bar for what we expect on their services, the founders might have made navigating advertising that much harder for themselves. We’re in a whole new world of digital media, just as Don Draper and his executives faced with the rise of the television. But just as those executives saw the change as a new opportunity to reach consumers in their living rooms, so too could Pinterest and Instagram see this as an opportunity: to make digital advertising personal.

If Reddit does manage to raise enough venture funding to give itself a half-billion-dollar valuation, it would mark an incredible reversal of fortune for the company. Not that long ago, Digg was the superstar online community, the one that drove massive amounts of traffic to any link that was shared on the network — the one whose cofounder appeared on the cover of Businessweek magazine behind the title “How this kid made $60 million in 18 months.” Reddit, by contrast, was a much smaller phenomenon, and was quietly acquired by the Condé Nast magazine empire in 2006. (Reddit was spun off as a separate entity in 2011, but Condé Nast retains control).

As Digg went through a number of redesigns that ultimately drove away many of its hardcore users, Reddit continued to grow steadily, thanks in large part to a hands-off approach by its parent — something Steve Newhouse (chairman of Advance Publications, which owns Condé Nast) described in a recent interview with the New York Times. Reddit also became known for its community-driven innovations, including the “Ask Me Anything” feature. (Reddit general manager Erik Martin will be part of a panel on new-media entities, along with Jonah Peretti from BuzzFeed and Chris Mohney from Tumblr, at our paidContent Live conference in New York on April 17).

Can Reddit grow without suffering Digg’s fate?

By the time Digg came apart last year and was sold off in pieces to the Washington Post and Betaworks (which has since re-engineered the service), Reddit was by far the dominant player. And the community — which added a CEO last year with the hiring of Yishan Wong, a former Facebook engineer — has continued to hit new heights over the past few months: it engineered an “Ask Me Anything” interview with Barack Obama, and traffic has continued to grow at a phenomenal rate. But the site is clearly looking for ways to improve its revenue as well — Wong announced a membership drive last year that was designed in part to avoid the need for more intrusive advertising.

As a number of observers have noted, much of the content that appears on BuzzFeed — and drives massive amounts of traffic to the site’s viral posts — originates at Reddit. That fact can’t have escaped the company’s attention (BuzzFeed is valued at about $200 million, based on its most recent financing round). So why not try to build on that by expanding the reach of the network and taking advantage of the user-generated content it produces, instead of letting others like BuzzFeed get all the benefit? Raising venture funding would give Reddit some funds to accomplish that, and give Condé Nast a payoff for the money it has invested in Reddit since the acquisition.

For Reddit, one of the big challenges of this approach is that trying to turn the community into more of a mainstream media entity risks damaging the somewhat anarchic personality that gives the network most of its unique character. In some cases, that personality veers into outright offensiveness — as it has with some of the “sub-Reddits” run by notorious Reddit troll Violentacrez. Wong has said that Reddit is committed to free speech even when it is offensive to some, but maintaining that commitment is going to be harder once VCs get their hooks into the company.

Digg suffered from a number of fatal flaws. One of them was embarking on a series of redesigns that appeared to be driven by financial motives rather than user demand. If Reddit can achieve a half-billion-dollar valuation and continue growing as a media entity without falling into that particular black hole, then its transformation into a social-media superstar will be complete.

Post and thumbnail images courtesy of Shutterstock/Africa Studio and Flickr user jphilipg

Japanese e-commerce giant Rakuten has confirmed it is leading a $100 million investment in Pinterest, together with existing backers Andreessen Horowitz, Bessemer Venture Partners and FirstMark Capital plus angels.

WSJ reports sources as saying the deal means a $1.5 billion valuation.

Rakuten CEO Hiroshi Mikitani (via announcement):

“While some may see e-commerce as a straightforward vending machine-like experience, we believe it is a living process where both retailers and consumers can communicate, discover, and curate to make the experience more entertaining.

“We see tremendous synergies between Pinterest’s vision and Rakuten’s model for e-commerce. Rakuten looks forward to introducing Pinterest to the Japanese market as well as other markets around the world.”

In other words, Rakuten is excited about how enthusiastically Pinterest users clip and share items they might want to buy.

Pinterest CEO Ben Silberman:

“Our goal is to help people discover things they love, by connecting people through their shared interests. Bringing Rakuten on board gives us an amazing opportunity to move a step closer to this goal.”

Pinterest’s visual presentation of those products is not the only potential boon to e-tailers (it wouldn’t take a rocket scientist to present product listings in this way); the tie-in with social sharing could effectively enable social commerce.

There is a wide number of retailers for which Pinterest could perform this role:

• Rakuten has built up its heft through acquiring the online retailers Buy.com in the U.S., Priceminister in France, Ikeda in Brazil, Tradoria in Germany and, recently, Play.com in the UK.
• It also recently bought the Kobo e-reader and e-book store business.
• And it has made investments in Russia’s Ozon.ru and the AHA Life luxury shopping site.

Pinterest has boosted web referrals for sites in certain categories like women’s lifestyle publishing, so some publishers, as well as retailers, had become excited about the possibilities.

It’s unclear what the e-commerce investment means for the media’s current Pinterest penchant, but some pundits think content and commerce is a marriage made in heaven.

The Next Web had reported on Wednesday its expectation that Pinterest would announce a funding round at a $1 billion valuation on Friday, which is also Facebook’s IPO day.

Pinterest had previously taken a total $37.5 million from angels, Bessemer, Ron Conway, FirstMark, Andreeson Horrowtiz and others, through an angel and two proper rounds.

• Fotolia is taking a $150 million investment from Kohlberg Kravis Roberts & Co.
• That announcement Wednesday appears prompted by rival Shutterstock having lodged an IPO filing to raise $115 million on Monday.

Fotolia previously took between $50 and $100 million from TA Associates, TechCrunch reported in 2009. The FT reports KKR’s investment buys it half of the firm.

“This is a market that will consolidate,” KKR’s European media investment head Philipp Freise tells the paper, adding KKR may use Fotalia as a vehicle for further acquisition.

Shutterstock, in its IPO filing, cites BCC Research as projecting the stock photography market to be worth $5.1 billion by 2013.

It made a $21.8 million profit on $120.2 million revenue from more than 550,000 active customers – that user count is 71 percent up from 2010, and Shutterstock served 58 million paid downloads.

Founded by French-born Russian Tscheltzoff, Fotolia, with a largely European executive team, is especially strong in Europe, where it last year acquired France-based Wilogo, a microstock upload sales site for logo designers.

Disclosure: paidContent uses images from Shutterstock, including the one on this page, taken by Douglas Freer.

Led by Andreesen Horowitz (a new investor), the round also included PayPal co-founder Max Levchin, Salesforce.com Chairman and CEO Marc Benioff and Yammer Chairman and CEO David O. Sacks. The company said it will use the new funding to accelerate growth in a bid to overtake incumbents in the mobile and Web analytics market.

The San Francisco-based startup also reported that it expects to reach 7 billion actions tracked in the month of May, more than doubling the number of monthly actions tracked since February. Mixpanel said revenue was up 50 percent.

Adobe’s Omniture, Chartbeat and Google Analytics are among the leaders in the data tracking space. But Mixpanel said its service gives publishers and developers the ability to monitor more granular behavior.

“There is a massive shift afoot in the analytics space because companies have moved away from page views as an important metric for their business. Today, what matters in an application is user experience, and that’s what we measure,” Suhail Doshi, CEO of Mixpanel, said in a statement.

Last month, Chartbeat announced that it raised an additional $9.5 million to give publishers better analytics around reader engagement.

The company said its recent surge of activity has been driven by new enterprise clients and more usage from current customers. Silicon Valley darlings of the moment, such as Viddy, Path and SocialCam, also recently signed on with Mixpanel, the company said.

A Y Combinator-backed startup, Mixpanel launched to capitalize on the growing market for real-time data analysis. Last year, it raised $1.25 million from Sequoia Capital, Levchin, Bebo co-founder Michael Birch and Square COO Keith Rabois. Along with the funding, Mixpanel said today that Peter Levine, Andreessen Horowitz’s general partner, has joined Mixpanel’s board of directors.

Coursera, founded last fall by Stanford professors Daphne Koller and Andrew Ng, expands today to include non-Stanford classes and also announces $16 million in Series A funding, in a round led by Kleiner Perkins.

Coursera is adding about 30 online courses from the University of Pennsylvania, Princeton, Stanford and the University of Michigan. (More courses and universities will be added in coming months.) The courses, which cover topics from computer science and medicine to business, history and literature, aren’t just class videos — the company is not “just shoving the video on the web and hoping for the best,” Koller said. Rather, Coursera aims to recreate an on-campus experience for virtual students. Its coursers include video lectures with interactive quizzes, homework, interactive assignments and collaborative online forums.

“A professor teaching 100,000 students is almost like a new medium, like moving from papyrus to prose,” Ng told me. “For example, how often do students want to see the instructor’s face? Do they want pre-typed text or should the instructor hand-write the text? We’re still figuring it out. Multiple top universities working on a single site provides the opportunity to leverage resources, and partner institutions can learn from each other about how one ought to teach in this new space.”

“We are seeing tremendous retention on the site; when homework is due, traffic spikes,” Koller said. “If you’re changing the lives of millions of people, there will be a way to make it financially sustainable.”

Bringing more “free” to the $12 billion textbook industry

A new tool from white-label digital college bookstore site Akademos tackles another problem in higher education: Expensive textbooks. The textbook business today is run by “very powerful book publishers who can afford to have massive sales forces that go out and work individually with professors to convince them to buy textbooks,” CEO John Squires, who was previously at Time Inc. overseeing the development of magazine JV Next Issue Media, told me. “It’s not unlike the pharmaceuticals industry.” And because textbooks are so expensive, he says, “kids basically choose not to buy. They borrow or steal or they go without.”

Akademos aims to get cheaper textbooks into students’ hands by making the textbook discovery process easier for professors. The company’s Textbook Adoption Tool, launching today, lets professors access and compare textbooks across 3,600 subjects and 2 million books.

Faculty using the platform can search for the course they teach, view textbooks by school adoption and bookmark textbooks for possible later adoption. They can also sort by affordability and peer reviews. And searches pull up not just textbooks from the largest publishers but also free Open Educational Resource texts and other types of books.

For now, the textbook adoption tool is simply a free resource (and a way to draw attention back to Akademos’ white-label business), though it may eventually include e-commerce links. “The textbook industry is a $12 billion industry and faculty don’t really have any way to fairly evaluate and track high-quality content,” Squires said. “We think having some influence over that is going to be a pretty fascinating opportunity for our business.”

Photo courtesy of Flickr user beautyfromashes

The $3 (£1.9) million round comes led by Antrack Capital and previous backer Anthemis Group but includes former Thomson Reuters CEO Tom Glocer, former Activebuddy CEO Stephen Klein, Restoration Partners’ Ken Olisa and angel investor Sherry Coutu.

Founder Azeem Azhar says he is taking the money to build a “commercial model”, an audience for its PeerPerks method of connecting brands to Twitter users and generally to build up its ranking algorithm.

Like Klout, PeerIndex assigns a score to Twitter users based on how and who they influence, and understands users in order to segment the product. It has struck media partnerships over the last year to showcase how it can elucidate “top tweeters” in various verticals.

Azhar was formerly Reuters’ innovation head and has himself been an investor.

The theory goes, some companies out there want to know who the top tweeters are in their field in order to reach influencers with their messaging.

PeerIndex‘s PeerPerks adjunct gives free trials from participating brands to Twitter users who choose to connect with the company.

It is aiming to raise up to $50 million by this summer to go to the UK, France, Germany and the Far East – more than the $32.5 million it had raised to date since 2008, the firm tells Reuters.

Roku already brought its HD box, which takes online video services to TVs via WiFi or Ethernet, to the UK and Ireland in January, via Amazon.co.uk at £99.99, while its cheaper, £49.99 SD box is “coming soon”.

Just like Netflix (NSDQ: NFLX), which expects to make losses while investing in international roll-out, Roku’s is likely to be costly, majoring on content acquisition and marketing. The box is a relative unknown outside the U.S..

It is competing with Boxee, which began European availability a year ago; with the Apple (NSDQ: AAPL) TV box, which lags behind upstarts because it has no broadcaster content deals; and with game consoles, which increasingly offer similar services.

But each of the box candidates is vying with a growing plethora of others, including YouView, a UK IPTV VOD venture which will become powerful in time because it is jointly broadcasters themselves. Connected TVs are already shipping with similar content line-ups to all of the above, minus the box.

Connected TVs are so far not widely adopted. That gives Roku and its peers a possible window of opportunity. Naturally, Roku is courting pay-TV providr BSkyB (NYSE: BSY), which will this summer launch its channels over IPTV without satellite subscription and with flexible payment options. Such boxes could be carriers for that offering as well as others.

But all the competition makes such a large investment a risky one. The rewards may be large, if internet TV box services can crowbar themselves a space in to market that is dominated by broadcasters, pay-TV operators and television manufacturers.

“We want to make sure we win because there’s not going to be a lot of winners,” CEO Anthony Wood tells Reuters.

Investors, who see social media and micropayments rocketing the tech sector to new riches, are naturally excited, but many agree much of the value is merely potential until Facebook can solidify its direction…

“We’re just at the beginning of the Facebook era,” said Neil Rimer, a founding partner of Index Ventures, which, he revealed, has a small stake in the site.

“Facebook hasn’t really exposed a lot of the opportunities it has to monetise. It hasn’t decided which portions of its universe it wants to own versus a platform for all-comers. We’re small shareholders in Facebook, so we ask themselves this question regularly.”

Rimer was speaking at the FT Digital Media Conference, where Balderton Capital partner Dharmash Mistry concurred…

“If you look two years forward, you can see them generating $5 billion or $6 billion earnings, so a $100 billion valuation doesn’t seem that crazy. But sustainability is key.”

And Leonid Boguslavsky of the ru-Net Holdings investment firm said it can be worth ignoring naysayers…

“When we invested in Yandex, it had zero revenue and was not even the number one for search in Russian,” Boguslavsky said.

“We talked to two famous funds about our portfolio. They said Yandex is worth nothing. They were smart people with a lot of experience.” ru-Net pressed ahead, investing $10 million and helping Yandex corner the fast-growing Russian web market.

“Facebook is the same thing. It’s just to what extent you believe Facebook will grab the space. I believe Facebook will be large. But the question is, how far they could go?”

Such is the hubris of an investor able to take bets on a big pay day. But not everyone is so bullish. Forrester analyst Josh Bernoff, author of the book Groundswell about social technologies, grumbled that Facebook may piss off its biggest revenue givers, advertisers, by constantly tinkering its advertising technology in search of the holy grail…

“A few months later, they just blew away a whole bunch of what had been in marketers’ toolboxes and said ‘Now we’ve got something better for you!’. Don’t be surprised if, nine months from now, it’s ‘And now we’ve got a new and better way for you to interact!’.

“Just because Facebook has 800 million users, doesn’t mean it will be the dominant company five years from now.”

By that time, of course, investors will already have made their killing. Index’s Rimer told the FT Digital Media Conference he’s sticking with Facebook for now – but he also genuinely believes the hype about the site owning search as well as social…

“There were opportunities for us to sell (our stake) before the company goes public.

“Is it conceivable that Facebook could be more valuable than Google? My sense is that’s a distinct possibility long-term.

“So we’re still holding shares – we think that, with the amount of information people are contributing to Facebook on an hourly basis, Facebook itself could provide pretty incredible search results. You could imagine a world in which you couldn’t live without Facebook but you could live without Google.”

IM+, made by Stuttgart-based Shape, is taking the money from Finam, which has previously invested in the Badoo and Mamba liaisons/dating social networks.

With the deal, the pair are making a JV named FinamShape to exploit a web-based version at plus.im. It competes with services including the excellent imo.im.

Shape says IM+ has clocked 17.5 million users and serves up 800 million mobile ads each month.

The app handles multiple IM protocols and social networks and recently introduced its own social messenger, Beep, in to the app.

Finam says it wants to invest in “global players in the TMT sector worldwide”. Badoo does very well on mobile, and has solidified its business model of charging users to put themselves at the top of search lists.

IM+: Introducing Beep from SHAPE Services on Vimeo.

Release.