The Wattpad Cult: why Toronto’s buzziest tech start-up is a self-publishing app beloved by teen girls

Wattpad occupies three floors of a handsome Greek Revival building on the touristy stretch of Wellington East. The office, if you can call it that, is an amusement park of dot-com clichés, strewn with beanbag chairs and elephantine 3-D puzzle-piece ottomans. The staffers laze in vinyl hammocks, slurp snow cones and play Ping-Pong in the main boardroom (they keep paddles at their desks). Framed posters decree upbeat mantras: “You demonstrate a positive attitude. Your optimism and perseverance lead others to overcome tough challenges.” Whether you find them invigorating or trite will depend on your tolerance for perky cheer.

The company is responsible for an app that connects self-publishers with readers. Wattpad’s founders, a pair of computer engineers named Allen Lau and Ivan Yuen, peddle their product as YouTube for books: amateur writers upload their serialized fiction, and a network of 32 million unique users spend nine billion minutes a month reading and anatomizing the content on their phones and iPads. When you tap the tangerine Wattpad logo on your smartphone, a selection of stories appears, organized by genre—chick lit, romance, thriller, werewolf, and so on. The app uses a Netflix-style algorithm that tracks your personal tastes. At the top of the screen is a banner of stories that have gone viral. Recently, those featured titles included The ­Wedding Gift, a serialized romance novel that posts new chapters on Thursdays; Numinous, a kids’ fantasy book about a magical tabby cat; and The Rock Star’s Daughter, an angsty YA phenomenon with four million reads. Users can follow authors, add books to their libraries and comment on their favourites. ­Wattpad’s prolific YA output has made it a household name among young girls and their parents; the bulk of readers are in their teens, with a median age of about 20, and some stories rack up more than a billion reads.

It’s a good time to be a Toronto tech company. Last ­December, the Ontario government teamed up with Cisco Canada, a branch of the San Jose networking conglomerate, to invest up to $4 ­billion in the province’s tech sector over the next 10 years ($220 million from Queen’s Park, the rest from Cisco), funnelling money into venture capital, incubators and R&D facilities. Cisco picked Ontario for its competitive tax rates, university strength and supportive government. A few weeks later, the federal government launched the $300-million Northleaf Venture Catalyst Fund, to invest in tech companies across Canada—the federal and Ontario governments each committed up to $50 million, with the rest coming from private-sector investors like the Canada Pension Plan and the Big Five banks. The tech incubator Extreme Venture Partners has invested in 22 mobile tech start-ups, some of which have been snatched up by Google and Apple.

Financiers have clued in to the potential of the smartphone app industry. Between 2003 and 2012, the number of individuals who own mobile phones grew from 1 billion to 3.4 billion. Of the seven hours of screen time the average Canadian spends per day, 2.5 hours are on a smartphone. These devices are electronic extensions of ourselves, where we broadcast and absorb knowledge and experience. Many people spend more time with their phones than they do with their families.

The fastest-growing segment of the new mobile economy is the app sector, which rakes in $205 billion per year and is predicted to blow up to $576 billion a year by 2020. It’s the ­millennial answer to the dot-com boom, filling the city’s tech entrepreneurs with renewed optimism: there are meet-ups for aspiring code ninjas at Pauper’s Pub and Steam Whistle Brewery, and incubator programs at Ryerson and U of T for burgeoning start-ups where top tech czars provide tips on business management and monetization.

Wattpad is reaping huge benefits from the city’s tech renaissance. This time last year, the company had about 50 employees. Now they’ve hit 100. The office on Wellington is their fourth in as many years. Wattpad’s staff is a ragtag assortment of recruits from places like RIM, Kobo and Rogers; stir-crazy Bay Street refugees; and young brainiacs fresh out of Rotman, Schulich and Waterloo.

Thirty years ago, when products were tangible and users were buyers, a company with 30 million consumers would make a fortune. Wattpad has massive growth and a mushrooming user base, but it’s not making any money yet. Amazingly, that doesn’t seem to bother its creators.

Allen Lau, Wattpad’s 46-year-old CEO, looks nothing like the ­swaggering Elon Musks of the world—he’s shy and whisper-voiced, with wire-rimmed glasses, a lawn-mower haircut and an impish snaggletooth. When I met him, he wore a polo shirt in Wattpad orange and pressed khakis hiked high around his waist. He smiled constantly, guilelessly, as if he couldn’t believe his luck. Lau is a relic of the tech­nological stone age: he grew up in Hong Kong and taught himself to code when he was 12, designing jigsaw puzzles on his Apple II. In 1987, at age 19, he moved to Toronto with his parents and enrolled in his first year at U of T, where he studied electrical engineering. Lau had the prescience to focus on mobile technology and wrote his master’s thesis on how to convert analog phones to digital—he even experimented with an early form of text messaging.

After graduating in 1992, he took a job with IBM as a developer, but he knew on the first day that it wasn’t for him. “It was too big, too corporate,” he says. He left IBM after 10 months to join Delrina, the software company known for inventing WinFax, a program that enabled computers to send and receive faxes. Though California’s high-tech boom was well underway, that innovative spirit hadn’t yet permeated Toronto. Here, the bulk of the tech industry was still held up in giant ­corporations—IBM, Nortel, Microsoft. The Internet hadn’t hit critical mass yet, which meant the backers who were financing small start-ups were more likely to support business-to-business technologies than consumer products. Matt Golden, a Wattpad backer whose firm Golden Venture Partners specializes in early-stage mobile investments, suggests Toronto’s storied priggish conservatism also played a part. “Our ecosystem was extremely immature, without a lot of mentorship,” he recalls. “There was that Canadian mentality of being okay with second place.”

Among the few innovators of the time was Delrina co-founder Mark Skapinker, a brash, bearded South African expat. In 1999, after he and his partners sold Delrina to the software security company Symantec for $415 million, Skapinker came up with Brightspark, the city’s first start-up incubator, and brought Lau with him. Brightspark nurtured budding geniuses, helping them cultivate ideas and training them in the art of courting backers. They also offered up to $400,000 in micro-funding to cover early-stage operational costs.

At Brightspark, Lau returned to his original tech passion: mobile software. By 2000, phones had shrunk, screens had grown and data had gone digital. One of the ideas Lau developed was Tira Wireless, a mobile publishing company that designed downloadable Java software. Lau saw the brisk rise of primitive cellphone games like Snake and anticipated a huge market for the stuff. He quit Brightspark and committed all his time to Tira—it was one of Toronto’s first software start-ups devoted to mobile entertainment. There, he developed products for companies such as Disney, Time Warner and Sony. Despite his timorous Peter Parker demeanour, Lau was a champion hacker, breaking through mobile hardware systems that had been locked by the manufacturers and figuring out how to create compatible games. In 2003, if you were thumbing your way through NHL PowerShot Hockey on a Motorola Razr, that was the work of Allen Lau.

Lau had been at Tira for five years when he decided to leave. “I was never a gamer,” he admits, “so I wasn’t really creating something I wanted to use.” An avid sci-fi fan, he began tinkering with a prototype for a mobile reading app in his basement, uploading Moby-Dick and other public domain titles to his Nokia phone to see if it was feasible. In fall 2006, Lau received an instant message from Ivan Yuen, a former Tira colleague who’d since moved to Vancouver. Yuen, who has a computer engineering degree from Waterloo, had been working on a similar idea and asked Lau to take a look. He’d gone above and beyond what Lau had created: not only had he designed the mobile app, but he’d developed a website where users could upload books to read on their phones. “I’m a huge reader and wanted to read wherever I went, but there was nowhere I could do that,” Yuen says. “I had built the world’s first cloud-based e-reader over a weekend.” He called his app mTextbox.

Yuen, now Wattpad’s chief technology officer, is 37, and as lean and lanky as a meerkat. He says he’d been watching the rapid development of mobile technology and the increased demand for what we now call a smartphone: in 2006, “CrackBerry” was dubbed word of the year by Webster’s, and RIM earned $2 billion.

Two days after that IM conversation, Lau flew to meet Yuen in Vancouver. “We saw the digitization of music and video, but we hadn’t seen it with books yet,” Yuen explains. They sealed their partnership that day.

First, they set about changing the company name. They wanted a short name with two syllables. All the big dot-coms—Google, Facebook, Yahoo, eBay, Twitter—were two-syllable titans. Lau and Yuen also had global aspirations, so they decided to avoid certain letters, like H, which is unpronounceable in French, and R, which is difficult for Japanese speakers. After throwing around dozens of ideas, they came up with Wattpad—“watt” for electricity, “pad” for book. Lexicon, a marketing firm in Sausalito, California, that specializes in brand naming, suggests that certain hard consonants evoke zippy, confident vitality. With its T, P and D triumvirate, Wattpad is as springy as a yo-yo. But the app wasn’t an overnight success story.

The first few months were discouraging. Growth on the site was sluggish; some days they only had 10 or 20 visitors. Lau says he knew each individual user by name and location. The Google ads they were using to pay for the domain name were generating $2 a month in revenue. One day in the spring of 2007, Lau and Yuen met for coffee at Tim Hortons. “I said, ‘Ivan, last month we made two bucks. It’s enough to buy this cup of coffee, and we have to share.’ I wanted to pull the plug,” Lau says. Yuen convinced him to keep going—they were seeing growth, just not as quickly as they’d hoped.

Everything changed in June 2007 when Apple released the iPhone. Suddenly, mobile reading could be a user-friendly experience. As the iPhone swept the market, Lau and Yuen realized they didn’t need to create dozens of versions of their app—they only needed one (though they later added an Android version to lure the Apple averse). Around the same time, a user with the handle Red Flame published the first original story on the site, a Victorian vampire novel called Blind Truths. She emailed everyone she knew, and quickly they saw hundreds of new users engaging with the site and posting comments. “It was the aha moment,” Lau says. “It turned out Wattpad wasn’t just about reading. We had to enhance the social side of the app, the comments, the groups, the model where readers can follow their favourite writers.” By June 2009, more than five million people had downloaded Wattpad to their phones. The mobile moment and the social media moment had converged in a spectacular supernova.

The company grew rapidly after that, accumulating ­hundreds of thousands of original stories and millions of users over the next six months. Lau called Bert Amato, his old boss at Delrina and a former Symantec VP who has seeded numerous successful companies. He, along with the former ICOM CEOs Alan Levine and Harvey Beck, gave Lau $600,000 as an early angel investment. By 2011, they were ready for their first official round of funding. When Matt Golden, who’d worked with Lau at Tira, started his VC firm in 2011, Wattpad was at the top of his list. “We’re always asking, how much time are we getting of someone’s day? If they’re reading long-form content, that’s a huge level of engagement.” The amount of time someone spends on a site correlates to the number of links they share and comments they make. Hyper-engaged users recruit their friends, who recruit their friends, which creates exposure for advertising and, maybe, someday, that most elusive ­Internet yield—revenue.

Golden had spent two years as a member of the BlackBerry Partners Fund, where he built up a series of connections in New York, Boston and California. He immediately started working up a list of potential investment partners, including Union Square Ventures, a billion-dollar venture capital firm based in New York. The firm is facetiously known as “Viral Ventures”: they focus on social-networking sites whose users generate and amplify the content through sharing. They made an estimated $192 million off their early $13-million investment in Tumblr, and the value of their stake in Twitter is estimated at $1.4 billion.

Albert Wenger, a managing partner at USV, saw that kind of revenue potential in Wattpad. “Reading and writing are deeply fundamental desires, and a platform that lets people do that and lets people get feedback and appreciation from others seems like exactly the kind of thing the Internet was made for,” he says. In September 2011, USV, along with Golden and a couple of other firms, pitched in $3.5 million. A year later, Wattpad secured another $17.3 million from a group of investors including the lefty Silicon Valley outfit Khosla and OMERS Ventures, an arm of the $65-billion Ontario municipal pension fund and real estate heavyweight. Wattpad was a natural addition to the OMERS portfolio of Canadian start-ups like Hootsuite (an app that lets users manage all their social media accounts on one screen) and Ottawa e-commerce operation Shopify. OMERS Ventures managing director Jim Orlando had heard about Wattpad from the teen daughter of one of his colleagues. He took the lead for the next round of funding, which shook out to a generous $46 million. It’s the third-largest raising of venture capital in Canadian history, after Hootsuite ($165 million), and Shopify ($100 million). Lau says they’re using the money to expand their staff over the next 10 years—they want more people proficient in more languages to help fulfill empire-building aspirations.

For now, Wattpad has three company goals: simplicity, growth and monetization. The first two they’ve met. The app is sleek, lively and breezily intuitive. Growth-wise, the company has surged from 19 million unique monthly users this time last year to 32 million, with a sign-up rate of 100,000 new users every day. About 30 per cent of the traffic comes from North America, but the company has also seen huge growth in ­Turkey, Romania, India and the Philippines—where it’s the number one mobile app and accounts for 20 per cent of user activity. Only 10 per cent of the users are writers. The rest are readers, mostly female and between 13 and 35, who latch onto Wattpad stories with fanatical zeal.

Monetization on a free app is the tricky piece. Lau and Yuen have pursued traditional banner ads, but they insist that won’t be the primary source of revenue. Instead, they’re focusing on native advertising: brand-sponsored posts, profiles and campaigns that integrate Wattpad users in an ostensibly organic way. “All of our brands have stories to tell,” says Candice ­Faktor, the co-founder of Torstar Digital who is now Wattpad’s proselytizing general manager. She secured the company’s first big native advertising deal last spring—a collaboration with the teen tearjerker The Fault in Our Stars. Wattpad commissioned some of its top writers—“influencers,” in ­Wattpad-speak—to produce original stories about extraordinary love; when readers clicked the link, a full-page ad for the movie materialized on the screen before they could access the content.

Within six weeks, the page had 225,000 followers, nine ­million readers and more than 25 million impressions (the number of times the ad was seen across all platforms). They followed up with a second campaign tied to the release of The Purge: ­Anarchy, a horror film that banked $106 million at the box office. ­Wattpad published custom stories based on the movie. The fluidity and breadth of the site’s content means that virtually any brand can find related content to sponsor: Starbucks could back a romance novel where two baristas fall in love slinging venti Americanos, or a TV cop procedural might hitch its name to a suite of gritty crime thrillers. Wattpad helps each advertiser find the right story, the right message and, using its algorithms, the right readers.

It’s a dubious revenue plan; a handful of native campaigns aren’t enough to justify a $70-million investment, and very few companies have figured out how to translate page views, viral networks and high valuation into tangible returns. The ones that have are behemoths with hundreds of millions of users, like YouTube (which was acquired by Google in 2006) and Twitter (which launched a successful IPO last year).

Albert Wenger and Jim Orlando aren’t worried. They are confident the site’s growth will eventually generate enough revenue for self-sufficiency—they just don’t know exactly how. “We’re patient investors. If you build something that is loved by a lot of people around the world, you’ll figure out a way to make money,” Wenger says. Orlando told me much the same thing: “The amount of usage is growing, so you can connect the dots to being able to monetize,” he said.

That deflective optimism echoes the dot-com buoyancy of the 1990s, the last time investors assumed that popularity equalled profit. Twenty years later, many of the same backers are greedily jockeying for a share of the booming mobile market, heedless to its potential risks. Lau believes in the billion-user business model: once the company reaches that milestone, they’ll have enough leverage to launch a successful IPO or sell the company to an even larger conglomerate. “I’m confident we can get to a billion users in five to 10 years,” he says. “In the meantime, I’m not spending one second thinking about an exit strategy.”

In April 2013, a Wattpad user named imaginator1D posted the first chapter of After, a sexed-up fan-fiction novel inspired by the members of the British boy band One Direction. Harry Styles, the much-worshipped lead singer, was reimagined as a chip-on-shoulder tattooed bad boy who falls in love with the fictional heroine Tessa Young; his band members became his college roommates. Before its author had even finished writing it, After became the most-read book on the site; imaginator1D, who now goes by the pseudonym Anna Todd, quickly published two sequels, and a prequel called—what else?—Before. Ashleigh Gardner, Wattpad’s head of content and the former director of content management at Kobo, monitors reader activity on the site to see which books people are finishing, liking, commenting on and recommending. The tactic helps her determine which titles to promote in the featured lists. When she saw After’s unprecedented momentum, she decided to pitch it to traditional publishers. She called up Adam Wilson, a senior editor at the Simon and Schuster imprint Gallery Books, which had massive success last year republishing the Twilight fan fiction Beautiful Bastard (it sold 1.5 million copies). “I’m a sci-fi reader, so I’d known about Wattpad from that,” Wilson says. “After was an edgy take on a classic theme. I could see why readers were drawn to it.” He acquired the series for a six-figure sum. Wattpad acted as Todd’s agent and took a cut from her windfall. Though the original Wattpad version was a mess of tortured prose and awkward pacing, the print version is clean and taut, courtesy of Wilson’s editing, with a few new plot points. The novel hits bookstores this month.

The bar is higher, of course, for the printed word, but in terms of sheer output and consumption, Wattpad is probably the most successful book publisher in the world. At last count, the app hosted 70 million stories—at Wattpad, a “story” can mean a poem, a prayer, a blog post, an essay or chapters from a novel. Most Wattpad authors publish their books serially, posting chapters as they finish them; often, they’ll take reader feedback and suggestions into account when they’re working on their upcoming chapters. Ashleigh Gardner says serialization helps alleviate writer’s block. “It can be so daunting to write a book, but with Wattpad, you only need to publish a chapter. Knowing that people are waiting for the next chunk can be really motivating,” she says. For readers, having the book doled out in parcels accelerates the suspense and anticipation. Their gushing comments are indecipherable cryptograms of emoji, exclamation points and exaggerated vowels. When they fall particularly hard for a title, they often create GIFs and fan art illustrating their favourite quotations, using stock images or celebrities to depict the main characters. The book images that appear on the app are often covers created and sent to the author by fans as a gesture of their devotion.

Wattpad poses a seismic threat to the traditional book industry. The company positions itself as a great democratizer, a platform that gives every writer a voice and an audience, regardless of experience, pedigree, connections or skill. No longer are ­writers ruled by subjective editors, towering slush piles and stuffy literary bureaucracy. Readers, too, theoretically benefit from the model, with access to millions of free titles. Wattpad crystallizes three of the digital age’s most treasured values: self-expression, connectivity and exploration. “Traditional writers, like the sci-fi author Scott ­Westerfeld and the chick-lit writer Meg Cabot, are using Wattpad as a marketing platform. They’ve realized that when you connect with your fans and offer free content, great things happen,” Faktor says, referring to the increased exposure and click counts afforded by a popular Wattpad story.

One of the greatest powers and perils of the digital age is the rise of disintermediation—eliminating the distributors from the supply chain. In theory, removing book publishers and editors from the process is a win-win: readers get content for free and Wattpad earns more cash. But publishers and editors are there for a reason. In a mire of 70 million stories, there’s no editing or quality control. Wattpad insists it’s boosting literacy and readership among teenagers and young adults. But there’s no curation, and readers must wade through a landfill of ungrammatical and often unreadable amateur work. Occasionally, you’ll find a jewel; Margaret Atwood published a few stories in 2012. Most of the time, however, you’re getting what you’ve paid for.

In the era of self-publishing, the value of the written word has plummeted. The model convinces writers that it’s their chance to be discovered, or that page views and fans and user engagement are a substitute for compensation—a user could have more readers than Stephen King, and many do, but often they won’t see a dime. Ashleigh Gardner says Wattpad writers are largely amateurs by choice. “Not all of our writers want to be published authors in the conventional sense, just as not all Instagram users want to be professional photographers,” she explains. “But, if you do want to be a published writer, this is where you should be devoting your social media resources to kick-start your career.”

Adam Wilson sees the relationship between Wattpad and traditional publishing houses as a symbiotic one. “To say self-published authors are diluting the book industry is like saying bloggers are diluting the journalism industry,” he says. Anna Todd is by far Wattpad’s most popular writer, but a few others, like the 19-year-old British YA author Beth Reekles and the fantasy writer Nikki Kelly, have also scored six-figure publishing deals.

The Wattpad staff frequently brag that they’re changing lives—of the writers who get publishing deals, the teenagers who discover a love of reading, the social networkers who make friends and connections on the site. Melissa Shapiro, the company’s chief marketing officer and former PR director for Mozilla, says she recently interviewed a job applicant who told her that at Wattpad, she felt she could make a difference. Most staffers were attracted by the small, scrappy atmosphere and the idea that they could see their work directly influence app users. Tarun Sachdeva is the company’s head of product and current Ping-Pong champion. He joined Wattpad two years ago after several years in the cogs of RIM and Rogers Wireless. “I hated that corporate assembly-line culture. Here, we’re disrupting a massive industry,” he says, using the clichéd tech term for radical entrepreneurship. Seema Lakhani, a product manager and former Torstar strategic innovator, was a Wattpad reader before accepting a job there and takes a similarly grandiose stance: “At Wattpad, it’s us against the world. And that makes me feel like we’re changing the world,” she says.

It’s important to Lau and Yuen to keep Wattpad in Toronto. The city’s multiculturalism makes it an ideal place to launch a global tech company, especially one whose content spans 51 languages; Wattpad has employees fluent in Tagalog, ­Cantonese, Mandarin, Turkish, Hokkien, Japanese, Hindi and Ukrainian. Like most tech start-ups, it dispenses with 9-to-5 culture and institutional hierarchies. Employees are encouraged to make their own hours and retreat to beanbag-dotted rest nooks or cushy, soundproof rec rooms when they need to get away from their desks. Instead of meetings, the staff hold a daily “scrum.” Lau and Yuen don’t have offices—they sit with the team in the open-concept space. Staff seem possessed of a hive mentality: each employee uniformly gushes about the laid-back office culture, the supportive environment, the adrenalizing work.

For all its puffed-up self-importance, Wattpad has changed at least one life. In September, I called Anna Todd to chat about her new publishing deal. Todd, a 25-year-old army wife whose husband has served in Iraq three times, lives in Austin, Texas. She has chipmunk cheeks and a bubbly demeanour. In the seven years since she graduated high school, she’s been in and out of college, jumping from job to job—she’s been a waitress, a makeup artist and a tax clerk. She’d never understood the fuss about One Direction until last year, when her teenage cousin suggested she watch the band’s video diaries on YouTube. “At that moment, I went all in to the fandom. I watched every clip, started fan accounts on Instagram and Twitter, and began writing fan fiction,” she says. “I’d never published anything before. It was just a hobby.” The popularity of her book finally hit her last summer, when she started noticing people creating fake Twitter accounts for the characters in her book and saw her reads climb to a million, then 10 million, then 500 million. She credits Wattpad entirely with her success. “They’ve done everything for me. Everything,” she raves.

The book deal means Todd, who grew up in poverty in rural Texas, no longer worries about paying her electricity bill. She and her husband have rented out their small suburban house and moved to SoCo, a trendy neighbourhood in the city centre. Todd is currently working on a new book, a spinoff of After centred around another fictionalized One Direction band member, the baby-faced Liam Payne, which she hopes to publish on Wattpad in the next few months. “It’s not so much their music, but their personalities,” she says about the band. “They’re just like us, these normal people something amazing happened to.” Todd—and the Wattpad team—can relate.