Wattpad hatches solution to its chicken-and-egg problem

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THE CHALLENGE

How do you build a user base on both sides of a two-sided digital platform? That was the challenge facing Allen Lau and Ivan Yuen when they co-founded Toronto-based Wattpad in 2006. They knew that they wanted to build a mobile platform to let people read on the go. They also knew that readers would be attracted to content, but that it would be difficult to motivate writers to share their works without readers.

Mr. Lau, Wattpad's CEO describes it as a classic chicken-and-egg problem. The company had to "get the engines cranking for both sides of the market," but how should they go about it?

THE BACKGROUND

Mr. Lau was the chief technology office and co-founder of of a previous startup, Tira Wireless, and Mr. Yuen was the company's first employee. As engineers, they both loved to read – so much so, that after hours, in their respective basements, they would tinker away on mobile reading apps.

In 2006, upon discovering their shared hobby, they joined forces and started Wattpad, a mobile reading platform. The company officially launched in early 2007.

This was the era before widespread adoption of smartphones, and there were lots of popular models on the market. Their platform formatted reading material for all kinds of phones, and Mr. Lau recalls that, although there were competitors, "we were one of the best solutions you could find."

However, they also found that "developing the platform was one thing, but getting users to come to it was much more difficult." Their previous experience at Tira Wireless had been in a business-to-business market. How could they make the transition to a consumer market, and attract both readers and writers to Wattpad?

THE SOLUTION

The co-founders knew that they needed to jump-start one side of the market, so they decided to start with readers. Unfortunately, commissioning writers to post compelling stories would allow only a very small scale start, so they looked elsewhere. Eventually they learned about Project Gutenberg, a non-profit initiative to provide free digitized versions of books that are already in the public domain, such as Jane Austen`s Pride and Prejudice, and imported more than 20,000 public domain titles on to their platform. This influx of books gave them a start, but not an edge in their quest for readers, because people could get these books from lots of websites.

What gave them the edge was their great mobile technology. Mr. Lau saysthat they could format all books for many types of mobile phones so that users could "read classic books on the go."

After a few months, they had several thousand happy users and the audience kept growing. However, attracting writers was proving to be more difficult. Mr. Lau recalls that at the end of the first year, "we didn't have any writers who were still alive."

In 2008, they decided on a two-pronged strategy to gain writers. First, they eliminated barriers, by making it really simple for people to upload their stories. Second, they provided something most writers don't have: a way to interact with their readers. Not only did Wattpad provide an audience of tens of thousands of readers (in 2008), it also let readers post comments about stories. Writers get notified when a comment is posted and they can reply. Reading and writing are solitary pursuits, and the social media aspect of Wattpad proved to be very popular, and in fact, encouraged some readers to become writers and post their own stories.

The number of potential Wattpad users is unlimited and many entrepreneurs might have tried to attract a wide spectrum of readers and writers. Mr. Lau and Mr. Yuen realized that it was preferable to focus on specific genres to get a mass of interesting content in a few genres, rather than a sprinkling of content all over the place, which would allow them to expand from a solid, committed base.

Vampire stories and teenage romance stories were popular and so they began there and provided ways to categorize stories. Mr. Lau explains that "having a vampire category attracts new vampire stories because it tells writers of those stories that they have a home." Even more importantly, categorizing stories led to an expansion of the genres covered through cross-pollination.

For example, a romantic science fiction story can be labelled as both "romance" and "science fiction" and attract readers interested in both genres. Cross-pollination also allowed Wattpad to expand into different languages, as bilingual people initially used the system in English and then started to post stories in other languages.

The social media aspects of Wattpad have also proven to be important to the growth in both readers and writers, who have never before been able to have such a direct real-time connection. Many writers serialize their content, posting one part (or chapter) at a time. Readers who follow them get notified when a new part is posted. In addition, readers can post reading lists (like a music playlist) so that other readers who respect their taste can discover stories that might interest them. Increasingly, as the number of readers and writers has grown, the line between them is blurring.

Mr. Lau says that, consistent with our "remix culture," readers are becoming involved creatively by "accessorizing" stories – contributing photos, fan art and even trailer videos to them.

With such a high level of engagement, publishers are becoming interested in the potential of Wattpad. Two months ago, Wattpad and Random House started to serialize Truly, the first novel in a new series by best-selling author Ruthie Knox. The serialization is creating buzz for the novel that will not appear in bookstores until next August.

THE RESULT

Wattpad received $3-million in venture capital in 2011, and an additional $17.3-million in 2012, due to the company's phenomenal success in overcoming the chicken-and-egg challenge. Mr. Lau reports that Wattpad is now the world`s largest community for sharing stories: every day 80,000 to 120,000 uploads, covering more than 20 genres and 30 languages, are shared.

Each month, Wattpad has 20 million unique visitors who collectively spend 5 billion minutes on the site, which he says is more time than people spend in public libraries in the entire U.S. Clearly Mr. Lau and Mr. Yuen have figured out how to provide value for readers and writers to keep them coming back, and in huge numbers.

Becky Reuber is a professor of strategic management in the Rotman School of Management of the University of Toronto.

This is the latest in a regular series of case studies by a rotating group of business professors from across the country. They appear every Friday on the Report on Small Business website.

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