$400M Fiction Giant Wattpad Wants To Be Your Literary Agent

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t took a less than an hour in 2013 for Anna Todd to change her life. The Army wife and part-time babysitter had spent a lot of time reading fan fiction, stories by amateur writers about existing fictional universes and real-life celebrities. So her erotic tale about Tessa and Hardin—a wholesome college freshman and a tattooed bad boy who is a thinly veiled stand-in for singer Harry Styles—came together quickly when she sat down to type the first chapter of After on her phone. Todd posted it to Wattpad, one of the world’s largest destinations for online reading and writing.

After has since been read more than 1.5 billion times on Wattpad. It’s now a bestselling book series, with 11 million copies sold after Wattpad brokered a mid-six-figure deal for Todd with Simon & Schuster. She fully credits Wattpad with getting her in the door. “If I had sent After to any publisher, there’s no way they would have even read it,” says Todd, 29. Wattpad got paid for its work, taking an estimated 15% of Todd’s book earnings–about what a typical literary agent would charge—and it’s also a producer of the After movie that began production in June. The lucrative evolution from Wattpad post to mainstream book to Hollywood movie is precisely what Wattpad wants to see more of.

“We had built the audience for the writers, the platform for them to share their stories,” says Wattpad cofounder Allen Lau, 50. “But we did have the idea, ‘Hey, we have millions of stories already. Perhaps we can expand that.’”

Wattpad’s 65 million active users (most of them women under 30) spend 383 million hours a month on its site and its mobile apps, reading pieces like “Brave,” a yarn about the Harry Potter character Neville Longbottom, and “Taking Selfies and Overthrowing the Patriarchy With Kim Kardashian.” Wattpad has more than 4 million writers, who post an average of 300,000 pieces a day. The company brings in an estimated $19 million in revenue, mostly from ads on its site and from stories sponsored by companies like Unilever who want to advertise alongside a specific writer or genre. Nearly all its writers are unpaid; several hundred make money from ad-sharing revenue and 200 of those also earn from writing sponsored content and inking publishing deals with Wattpad. That lean business model means Wattpad is profitable. It has few costs beyond bandwidth, its 130 employees and the Toronto offices. The model “is a great way to seek talent without having to pay huge amounts for it,” says Lorraine Shanley, a publishing industry consultant.

Revenue from digital ads isn’t going to set Lau and his cofounder, Ivan Yuen, 41, on the path to immense internet riches, so Wattpad badly wants to go beyond publishing. It’s got the full coffers to do so after raising $51 million in the past year from the likes of billionaire Pony Ma’s Tencent, a round that put an estimated $400 million valuation on Wattpad and raised its total funding to $117.8 million. (Lau and Yuen’s stakes are estimated at 12% of the company, worth about $25 million each.) Since Wattpad doesn’t own the rights to the stories on its site, it’s morphing into a talent agency for its authors, cutting out the famously fragmented and high-touch world of literary agents. By bypassing the middle man, Wattpad can funnel the most popular pieces directly to book publishers and TV and movie studios while taking a cut of the authors’ deals.

It’s not a revolutionary idea. Blogs, Tumblr posts and Twitter accounts have all been turned into additional forms of media over the years—with varying degrees of success. Wattpad’s greatest competitive advantage is, simply, its scale. It may never hit on the next Fifty Shades of Grey, which started out as fan fiction on a rival site. But it is hoping that pieces like “After”—a distinctly more modest success compared to Fifty Shades—can be discovered among the 565 million stories on the site, an increase of 165 million from 2017. “There’s a lot of crowdfunding, curating platforms, but you need a huge number of people contributing to make it work,” says publishing consultant Jane Friedman.

Wattpad was born on the back of a napkin. Lau and Yuen plotted out the idea for the company in the Vancouver airport in 2006 while Lau waited for a flight. They were both engineers—Yuen worked at Lau’s first startup, a mobile internet company that Lau left in 2006 and that folded in 2008—and both liked to read. They were also both working on creating a mobile reading app, and Yuen had already built a site where people could publish stories.

They joined forces in 2006 to simultaneously launch Wattpad’s desktop site and its mobile app, which was compatible with most mobile phones across nine manufacturers. They were a bit early. Back then the most popular phone was the Motorola RAZR. “It’s readable, but nothing compares to the iPhone or Android,” says Lau, who became the CEO while Yuen took the chief product officer title. Wattpad followed up with iPhone and Android versions in 2009.

The lucrative evolution from Wattpad post to mainstream book to Hollywood movie is precisely what Wattpad wants to see more of.

It was a full two years before a user uploaded an original story to Wattpad—its first works were public domain titles from things like Project Gutenberg. In the meantime, Lau and Yuen started and sold a mobile ad company, using the proceeds to keep Wattpad going. It was another few years before people started submitting regularly. To stoke the site’s popularity, Lau and Yuen added the ability to vote on works and follow authors, and hosted regular writing contests. Later on, Wattpad gave writers access to certain metrics, like the number of page views and likes a story received, and allowed readers to comment on each paragraph and create markers on a narrative’s best parts. By 2013, Wattpad had 18 million users and more than 32 million stories.

Lau and Yuen weren’t the only ones plunging into digital fiction. FanFiction.net, where EL James wrote the stories that became Fifty Shades, had launched in 1998. But FanFiction.net rarely updated its site as the Web evolved, and it still looks pretty much like a Web 2.0 message board. Traditional publishers have tried their hand, too. In 2008, HarperCollins launched Authonomy, where users could upload manuscripts and editors would read the five highest-rated stories each month. By the time the site shut down in 2015, the publisher had picked up 47 books for publication. Macmillan’s five-year-old Swoon Reads plans to release 22 titles in 2018, but with more than 70,000 users and 700 manuscript uploads, its reach is far smaller than Wattpad’s.

Wattpad has not only the bigger size but also the burning desire to avoid another of FanFiction.net’s errors: letting a craze like Fifty Shades happen without getting a piece. To that end, Wattpad has put together more than 100 book deals for its authors over the past four years (not including foreign rights deals), likely collecting the typical 15% commission of a literary agent.

The scenario is a win-win-win. Wattpad gets a taste of the earnings while keeping authors close. Authors get a chance to earn real money. As for the publisher, “our sales prove that once a work on Wattpad has been transformed into a book, the community of readers will go and buy it,” says Cécile Térouanne, managing director of Hachette Romans, a Wattpad Studios partner. This proved to be the case with French author Mathilde Aloha’s “Another Story of Bad Boys,” which received 3.2 million reads on Wattpad and averaged 65,000 views per chapter. Hachette Romans published the story in two parts in 2017 with a third in 2018, and each novel was a bestseller, moving more than 60,000 copies in total, incredibly strong figures for the French market.

Novels are just one part of Wattpad’s plan. It has inked at least eight deals to develop Wattpad stories for film, television and digital video, including one with NBC’s Universal Cable Productions. “We’re telling networks and studios, ‘You don’t have to just reboot. We’ll find you that new universe with that same built-in audience who are going to follow you,’” says Aron Levitz, the Wattpad executive responsible for the push into TV, film and books. “We know, down in the paragraph where people are commenting, what they like about it. We’re able to say, ‘Look, here’s where we think Season 1 should end because we can watch the ebb and flow in the comments.”

The scenario is a win-win-win. Wattpad gets a taste of the earnings while keeping authors close. Authors get a chance to earn real money.

The one Wattpad show that has aired in the U.S. this year wasn’t a thundering success. CW Seed, a division of the CW network that creates digital-only shows, debuted a pilot of Cupid’s Match online in February. The CW hasn’t officially decided on the show’s future, but if it had one, the network probably would’ve already made the call. Two more Wattpad-based shows are in the works. Hulu greenlit a season of supernatural thriller Light As a Feather in April, and that same month Sony Television said it was picking up the rights to “Death Is My BFF.” The Hulu series will air on October 12. Wattpad author Beth Reekles’ story “The Kissing Booth” was adapted for Netflix. Wattpad was only involved in the marketing, not the production of The Kissing Booth but the rom-com, though panned by critics, was one of Netflix’s most-watched movies of the summer.

“It’s possible that if [a studio] wanted to reach a teen, young adult, female demographic, someone might look at Wattpad, but they’re only one place to go for content that targets that demo,” says digital media consultant Bill Rosenblatt, a Forbes.com contributor. If Wattpad’s literary-agent aspirations don’t work out, Rosenblatt says Lau and Yuen might able to cash out by selling the firm to their big investor, Tencent. Fan fiction is particularly popular in Asia (the Philippines are its second biggest readership after America), and Tencent bought the digital literature site Cloudary in late 2014 for approximately $730 million. Wattpad stories have been adapted for 250 television episodes and nine films in the Philippines. In August, Wattpad inked an original content deal with Malaysia-based Iflix, the Netflix for emerging markets, that identified 26 Indonesian projects for production and a commitment to coproduce all of them. Even if Hollywood doesn’t embrace Wattpad, the company can leverage its popularity with the Asia-Pacific market, which rang up $16 billion in movie ticket sales in 2017.

As Lau and Yuen understand well, there’s more than one way to write a happy ending. 

Reach Hayley Cuccinello at hcuccinello@forbes.com. Cover image by Asaf Hanuka for Forbes.