Pulse Expects Profit This Year After Selling WSJ Subscriptions

Alphonso Labs Inc., maker of the Pulse news-reader app for smartphones and tablets, expects to reach profitability this year after a strategy shift aimed at generating sales from subscriptions to newspapers.

Starting today, users who download Pulse’s app from Apple (AAPL) Inc.’s App Store will be able to buy monthly subscriptions to news stories from the Wall Street Journal, which is owned by News Corp., Alphonso Labs Chief Executive Officer Akshay Kothari said in an interview. The company will offer paid subscriptions to other content later this year, he said.

Publishers and news-reader apps like Pulse seek to benefit from rising demand for magazines and newspapers in a digital format -- rather than on paper. Until now, Pulse’s owners relied on advertising sales, and the Journal subscriptions mark a first foray into content paid for by users, Kothari said.

“What we have tried to do with these publishers is align ourselves with their goals,” said Kothari, 25, who co-founded Alphonso Labs as a project for Stanford University. “Some want to increase page views, some want to increase the number of paid subscriptions.”

While readers can download periodicals directly from a publisher, the Pulse app is designed to make it easier for users to peruse an array of publications. In the case of the Journal, Pulse is also letting customers buy sections or select groups of stories -- rather than the full newspaper.

Pulse will charge monthly subscriptions of 99 cents for a handful of stories chosen by Journal editors, or $3.99 for technology or politics coverage. The fees are shared among Pulse, News Corp., and Apple, which takes a 30 percent cut on all subscriptions sold within iPhone and iPad apps.

Revenue from the partnership will probably make Alphonso Labs profitable this year for the first time, Kothari said. The 23-person startup moved this month from Palo Alto, California into a new headquarters in San Francisco’s SoMa district.

Pulse now has 15 million users and is one of the few default apps installed on Amazon.com Inc. (AMZN)’s Kindle Fire. Pulse has partnerships with more than 350 publishers, including Bloomberg Businessweek, which like Bloomberg News is owned by Bloomberg LP. The existing deals give users access to free or ad-supported content. Pulse was first offered on Apple’s iPad in 2010 and got an onstage mention from Apple co-founder Steve Jobs during a conference that year.

Pulse executives have been experimenting with so-called branded-content advertising, stories and videos that get slotted into the same flow as news content. One example is a two and 1/2-minute video promoting Toyota Motor Corp.’s Lexus line of cars.

Pulse competes with a growing field of news aggregation apps, including products from Google Inc. and smaller startups such as Flipboard Inc. and Zite Inc. Flipboard announced a partnership this week that gives the New York Times Co.’s subscribers access to a magazine-like version of its articles on tablets and smartphones.

Flipboard plans to support content in its app through advertising and has no plans to collect revenue from subscriptions, Chief Executive Officer Mike McCue said in an interview.

“We do not think that splitting revenue three ways makes much sense for the publisher,” said McCue, who co-founded Flipboard in 2010. “We believe the advertising revenue is going to be our focus.”

The Pulse partnership could help the Journal reach new readers who prefer to browse content on mobile devices and may have been unwilling to pay more than $25 a month for a full subscription to the paper, said Alisa Bowen, head of product at News Corp. (NWSA)’s Dow Jones & Co.

“There’s a perception that people who use these aggregators of different content don’t value premium sources, that all media brands are created equally,” Bowen said. “What we’re trying to prove with Pulse is that even in this broader environment, premium sources still matter.”

The companies would not reveal what portion of the subscription fees each would get after Apple took its cut.

Executives at the newspaper began talking with Pulse about app subscriptions about six months ago, Kothari said. The companies decided to offer low-cost versions of its subscriptions after seeing the success of game makers like Zynga Inc. in selling virtual goods within iPhone apps.

Apple began offering subscription billing within App Store programs last year. The company briefly said that publishers offering their own subscriptions must also sell them through Apple’s iTunes-based applications store, before reversing the controversial policy.

To contact the reporter on this story: Douglas MacMillan in San Francisco at dmacmillan3@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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