As competition rises, Instapaper shuns outside dollars

ReadItLater just raised $2.5 million to bulk up its content shifting operation while online document site Scribd, a start-up with $26 million in funding, just launched a new reading app that has similar features. Meanwhile Apple (s aapl) is preparing to go live with iOS 5 that also allows users to read web content later.

If you’re Marco Arment founder of Instapaper, known for popularizing the time-shifting reading genre that is now suddenly quite popular, what do you do? Nothing, really.

He told me that even with the new competition and funding news by ReadItLater, he feels no more compelled to take on venture capital. We had an interesting talk earlier this year where he laid out his reasoning for building a more traditional business that only spends what it takes in and doesn’t look for outside funding. Arment said he won’t close the door on funding, but it’s not something he wants or needs at this time, even with the added company.

“Instapaper is in the very fortunate position of not needing venture capital to achieve its foreseeable goals, and business is doing better than ever. I’ve always hired help the old-fashioned way — by paying people with part of the money I make — and it’s working great so far. I love keeping the company lean, simple, and efficient. But most competitors, new and old, have chosen to seek funding, either out of necessity or to achieve different goals,” he said.

Arment’s lean philosophy has forced him to narrow his ambitions and focus his attention on developing for iOS. He has released an API that allows other developers to bring the service to additional platforms. But he’s content to stay on iOS, which he says differentiates him from ReadItLater.

He said while ReadItLater does have an iOS app, it has been more focused historically on Firefox and Android (s goog) and now appears to want to conquer all platforms. That, he says, provides an opportunity to specialize on iOS.

But what about Apple, whose Reading List feature in iOS 5 allows people to read stories later? He said he doesn’t have any indication that it will result in any losses to Instapaper’s users. He wrote earlier that his biggest challenge is just educating people about the value of his app, something he thinks Apple will help accelerate.

Arment said the VC pitches still keep coming in at the same pace and he still keeps turning them down. He might change his mind if he undertakes a big expansion that requires new funding. But for now, he’ll leave that to others.

“Profitability with a small company and no outside investment is a great place to be, but not everyone’s businesses can sustain that, and it forces constraints. I can’t, for instance, make great apps for every new platform that comes out, so I’ve chosen to focus on the platforms I care about most. To me, these constraints are a net positive: this is the type of business I want to have.”

We’ll see if Arment’s tune changes over time. But my guess is it won’t, not soon at least. He’s proven an old school business model can work and though it will be more tested now that bigger players, many with VC funding, are expanding on his turf, it doesn’t mean the party’s over. I think by choosing the right platform and then pushing the pace of features and updates in order to create a more premium experience, I think Instapaper can continue to thrive and find room to grow.

We’ll have to see how hard Apple pushes its Reading List feature, which is likely the biggest threat to Instapaper. But if the start-up can survive, it will be a great lesson in how to navigate among competitors and platform holders and still find a way to succeed. And if that doesn’t work, well, the VC dollars are just a phone call away.