Tomorrow, all eyes will be on the launch of News Corp’s iPad newspaper The Daily, but huddled away in a downtown loft in New York City’s meatpacking district a team from betaworks and the New York Times are busy putting together their answer to what an iPad news app should be. The collaboration will be called News.me, and it won’t look anything like The Daily. I know because I’ve been playing with an early version of the app, which I will describe in detail below along with the first-ever published screenshots of the app (click to enlarge).

News.me is a social news reading app that presents the news that the people you follow on Twitter are reading, and filters it based on how many times those stories are shared and clicked on overall. It pulls in data from not only Twitter but also bit.ly, the betaworks company that shortens billions of shared links every month. In contrast, The Daily will produce its own articles and videos with a staff of 100 journalists. It is not clear how many social features will be included in The Daily, but the emphasis seems to be more on the original content. We’ll find out more tomorrow (I’ll be covering the launch).

News.me is still a work in progress, and new features are being added every few days. but its basic skeleton is in place. It is more along the lines of Flipboard but with a few new twists. You sign in with your Twitter account, and you can see a stream of news stories and videos being viewed by the people you follow in their Twitter streams. Instead of just seeing the links, the underlying text and images are displayed inline. Not only can you see your own Twitter news stream, but you can also see the Twitter news streams of any other News.me users who you also follow on Twitter. These people should already be familiar to you, but instead of seeing what they are Tweeting out, you get to see the news that is being recommended to them by the people they follow.

When you first launch News.me, you see the welcome screen below with a few tutorial hints: Tap on the people along the top dock to see what stories are appearing in their Twitter streams, tap on a story headline or excerpt to read it full screen, or you can stretch a story open inside the stream with a reverse-pinch. This reverse-pinch is one of my favorite parts of the experience. You flick to scroll through the stream, and when you find something you like, you can open it up and read it without loading a new page.

Any article can be saved for later, shared via Twitter, Facebook, or email, saved to Instapaper, or viewed in the Safari browser. If you favorite any Tweet with a link on Twitter.com or any Twitter client, that story will also be saved in News.me. By default, your stream is filtered for you so that you only see the stories that hit a certain threshold of activity based on general bit.ly clickthrough data for that story. There is also a Big News button that shows the most important news overall as determined by Bit.ly.

The app displays full articles, some of which are licensed from other news organizations. For this reason, the app won’t be free. Instead, it may try to take advantage of whatever subscription options Apple announces tomorrow. I think charging a subscription for what is essentially Web content will be a tough sell.

But News.me is pushing the edge of what a social news stream looks like, which I am all for. However, it could do a better job in a few areas. Here are a few feature suggestions I hope they consider before News.me launches to the public.

1. Merge the streams: It’s cool to be able to click on 20 different avatars of people you know from Twitter and see the social news stream through their eyes, but if you are anything like me, the people you follow pretty much all tend to be interested in the same things. The result is that Everyone’s News.me stream is very similar with the same tech news stories popping up in each one. There is an option to mute a story once you’ve read it so that it does not appear again even in other people’s streams. But a better solution is to show a unified stream with a little avatar icon for everyone who is implicitly recommending that story.

2. Show more signals: In addition to showing everyone in whose stream a particular story appears, News.me could also highlight when someone you follow explicitly recommends something by retweeting it or sharing it themselves. Anything that allows readers to tell at a glance which stories are more important than others would be a step forward.

3. Filter by topic: Right now there is only one “Big News” button based on bit.ly data, but that button could be broken up into categories like politics, international, tech, sports, and finance. Show me the best news stories in each category.

Update 2/2/11: After this post ran, the New York Times contacted me, distancing itself from News.me and asking me to change the headline because it “makes it sound like a Times product.” Well isn’t it? Maybe I got that idea from the New York Times itself, which describes News.me as a “personalized news service . . . that is being developed in collaboration with The New York Times.” The email:

I just saw your article about news.me and would like to ask you to clarify in it that news.me is a betaworks product. As you may know, the prototype was developed here in our R&D labs, and betaworks then purchased it from us with plans to bring it to market. Would you please correct your headline, which makes it sound like a Times product?

The spokesperson clarifies in another email:

It was a protoype designed in our R&D labs. We learned that the product concept fit well with bit.ly and betaworks, and we were able to craft a deal in which the prototype was purchased in exchange for equity in bit.ly. Additionally, as part of the deal, a team of developers from R&D worked at bit.ly to help bring the product to market.

News.me is also licensing content from the NYT, and as she points out, the prototype was designed at the NYT and the team came from the NYT. If it looks like a fish . . . well, I think I’ll just keep the headline. But technically, it’s a betaworks product.

The Times Company has a content license whereby certain New York Times content will be available for subscribers of news.me.