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Growth Genies, vampires and fan fiction give Wattpad a lead against Amazon

Author Anna Todd, who found success through the Toronto-based social media writing website Wattpad, poses for a photo to promote her book "After" in Toronto on October 29, 2014. The 25-year-old Texas resident started the book as a One Direction fan fiction and the three novels posted on the site have been read over a billion times.

Michelle Siu/The Globe and Mail

Wattpad Technology Inc. has become the world's biggest online story-sharing community, with 40 million people a month reading and writing stories about lamp-dwelling genies, vampire wives and dreamy trysts with boy bands.

Now the Toronto startup, backed by investors including OMERS Ventures, is looking for ways to boost revenue as Amazon.com Inc. fires up a similar service.

"Forty million is a pretty sizable active user base," Brian Blau, a San Francisco-based social media analyst at Gartner Inc., said by phone. "It's getting to be big enough, if the company has investors they're going to be pushing them to figure out how to monetize."

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Wattpad has been side-stepping publishers since 2006, offering readers free content and writers a way to connect with audiences, 85 per cent of whom are on smartphones or tablets. Seattle-based Amazon is now testing its application WriteOn while other companies offer self-publishing, such as Apple Inc. with its iBooks Authors platform.

The latecomers have some catching up to do with Wattpad, which raised $46-million last year from investors including OMERS Ventures – a unit of the Ontario Municipal Employees Retirement System pension fund – and Toronto-based Northleaf Capital Partners.

Entrepreneurs Allen Lau, 46, and Ivan Yuen, 38, founded the company as a place for fans to write stories about bands and characters they love – before the iPhone and Amazon's Kindle e– reader existed. Now amateur writers are regularly getting millions of hits and critically acclaimed authors like Margaret Atwood have joined the site.

Anna Todd, a 25-year-old from Austin, Texas, started writing fan fiction about the boy band One Direction on Wattpad less than two years ago. Her romance novels have been read more than a billion times online, the hard copies are New York Times Best Sellers and Paramount Pictures Corp. has optioned the movie rights.

"If you want to understand where the industry is heading, there is no better company to study than Wattpad," Thad McIlroy, a consultant who's worked in the publishing industry for almost 40 years, said in a Feb. 19 interview.

Instead of major publishing houses deciding who gets printed, it's readers themselves who choose, McIlroy said. "The most radical thing is the passionate interaction between the writer and reader that's not intermediated by a bunch of pompous fools who say, 'We know better than any of you.'"

The rise of crowd-writing is the latest evolution in a publishing world that has been rocked by the switch to digital reading. Global e-book revenue grew to about $11-billion in 2014 from $2-billion in 2009 and is poised to reach about $19-billion by 2018, according to PricewaterhouseCoopers. Amazon controls 60 per cent of that market, according to Forrester Research Inc.

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Meanwhile, digital authors are attracting crowdfunding, online readers have become editors and stories are being turned into games by companies such as Google Inc.'s Niantic Labs.

"As any investor in the technology field, when somebody the size of Amazon turns its sights towards your market, you're paying attention," Jim Orlando, who manages OMERS Ventures' investment in Wattpad, said Monday by phone.

An Amazon spokesman declined to comment on its plans for WriteOn.

Rowena Wiseman, a 35-year-old Wattpader from Melbourne who writes young adult novels about dystopian futures and graffiti artists, says the positive feedback from readers on the site has inspired her to keep creating.

"It's kind of like writing with a team of supporters," Wiseman said by phone.

Unlike other parts of the web, the app has a reputation for a cooperative and sympathetic community. Authors control who can comment on their stories and Wattpad has written software to identify and delete offensive comments.

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The supernatural features heavily on the site with reams of stories on vampires and werewolves as well as Vikings and medieval heroes. One of the latest trends is genies, said Nazia Khan, Wattpad's communications manager. About 10 per cent of the site's users are writers who've uploaded more than 100 million pieces of writing, she said.

Wattpad, which has no immediate plans to become a public company, began experimenting with ways to generate revenue about a year ago, said Lau, who is chief executive officer.

"It's a two-step process: you grow the user base first, and then once you have a very sizable user base there are many innovative ways you can monetize," Lau said in a Feb. 10 interview at Bloomberg's Toronto office.

Their best prospect for pulling in revenue so far has been a native advertising model where Wattpad pays popular writers on its site to create fan fiction surrounding a certain brand.

Wattpad ran a campaign for Mondelez International Inc.'s Sour Patch Kids candies earlier this month, challenging writers to compose a "sour then sweet love story." The depth of engagement involved in writing and reading entire stories is something advertisers find very valuable, said co-founder Yuen, Wattpad's chief technology officer.

That model won't be enough on its own, said Blau. "Imagine if you're the person at this company and you've got to go find new writers every month."

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The company, whose 105 employees work out of a lowrise brick building in the shadow of Toronto's skyscrapers, could look to YouTube Inc. for a more sustainable model. Advertisers could match ads to popular stories. Wattpad is already running some display ads on its site.

Author Agent "There's ads on the right side that do play, which I find a little bit jarring if I'm reading something, but I understand they've got to be able to make money," said Wiseman, whose novel "Silver" has more than 400,000 reads on the service.

Lau declined to comment on revenue except to say it's growing and he's happy with the financial direction of the company. With so much content being created on Wattpad, there could be more ways to generate money than just ads, he said.

"We can also make money from licensing and we have been working on that as well," Lau said.

Wattpad acted as Todd's agent while she negotiated her publishing deal and sold the movie rights to her "After" series, Yuen said.

"We'll likely do more of that over the coming months," he said.

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Wattpad's users span the globe. Half of the stories are written in a language other than English. In the Philippines, which make 10 per cent of its app users, stories have been turned into TV shows. Lau said he expects recurring revenue from TV and movie deals to be a part of the company's business.

The company doesn't need to raise money this year but may do so in the future, Lau said.

"Perhaps we have raised the last round already, perhaps one more round, perhaps two more rounds," Lau said.

As for going public, Wattpad's goal now is to focus on growth before making a decision, he said. He wants to reach 1 billion users in 10 years.

"Based on numbers like 5 billion people who can read and write and 5 billion Internet-connected devices, getting to a billion users is absolutely achievable," Lau said. "Reading and writing has been ingrained into human culture for thousands of years. That will not go away."

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