How does Flipboard make money?

As publishers watch their revenues tank in the wake of Web content, how is Flipboard making money?

Flipboard is booming. The company closed out a Series C round of $100 million altogether in December at an $800 million valuation, and it also announced that its users had topped 100 million. On Wednesday, the company announced its acquisition of fellow personalized news app Zite for $60 million from CNN, which bought the news app for $20 million in 2011.

But the publishing industry isn’t what it used to be these days. Making the switch to digital has been a tough bag for many publishers as they’ve seen their revenues dwindle in the face of free/anytime/anywhere Internet content.

So if publishers are making pennies on their own Web content, how in the world is Flipboard, which derives its revenue by taking a cut of publishers’ ad revenue, making money? While the company has declined to state exactly how much it takes, CEO Mike McCue has said that it’s “very small.”

Why would publishers want to partner with a company that’s going to take a cut of what little earnings they’re barely scraping up as it is? A large part of it is reach and brand awareness. With 100 million readers and adding 250,000 more each day, Flipboard can bring publishers’ content to a whole new swath of readers.

Flipboard also takes a unique approach to advertising that differs from the typical Web-based approach. Because Flipboard is modeled on print magazines, with “pages” that users can flip through with a swipe, ads aren’t designed to compete with content. They appear as full-page ads rather than links sneakily designed to look just like the content, thereby duping you into tapping on them.

Thus, in effect, Flipboard is offering a print-like medium to publishers, which not only doesn’t compete with the content, but comes with the added bonus of being more suitable for brand advertising (as opposed to the direct response advertising so commonly seen on the Web).

Flipboard has partnered with several large-scale publishers who are running full-page brand ads on the app, including National Geographic, The Atlantic, Esquire, CNET, Elle, ESPN, Financial Times, Forbes, Marie Clair, National Geographic, Time magazine, The New York Times, Vanity Fair, and more. The app has run ad campaigns from brands like Chanel, Cisco, Four Seasons, Gucci, Levi’s, Louis Vuitton, Hugo Boss, Lexus, Red Bull, Starbucks, Toyota, and Volvo, among others.

And those brands are reaching the right demographics: Flipboard readers tend to be more affluent and highly educated, so they have the discretionary income to spend on a Louis Vuitton bag. Those readers are “flipping” seven billion pages a month. So it comes as no surprise that 49% of Flipboard’s advertisers renew.

For publishers, the good news is that that added “reach” and “brand awareness” leads to more subscribers. A full 10% of Flipboard readers end up subscribing to their favorite magazines.

Flipboard is sweetening the deal for brands by adding e-commerce features to the app. Last November, Flipboard launched its new shopping category, featuring 12 magazines curated by the Flipboard team. The magazines are akin to print shopping catalogs. Earlier in 2013, Flipboard gave users the ability to curate content to create their own magazines for other readers. Now, Flipboard is expanding this feature to allow brands and individual users to curate items and products into shopping guides, a la Pinterest.

Flipboard has raised over $160 million to date from Goldman Sachs, Index Ventures, Kleiner Perkins, and more.