Book sales during the pandemic went up, and it seems the amount we are reading did, too. Now Inkitt, the startup that operates a free, popular platform of the same name for anyone to write and publish stories — stories that Inkitt then analyses using data science to determine which of them to take to the next level to produce longer works for its separate paid app, Galatea — has raised $59 million in funding that could help it capitalize on this moment. Valuation with the Series B is not being disclosed, but from what I understand from a reliable source, it is in the region of $390 million.
The funding will be used by Berlin-based Inkitt to continue building out its algorithms and technology, which is important because the curation of stories — including choosing what catapults from the free to the paid app as a longer work; and acting as “editor” with A/B testing of variations in story directions — are all generated by those algorithms, not humans. It will also be using the funds to hire more people, in particular to expand further into the North American market. And it finally plans to work on how it might extend the platform in the longer term. That could involve more formats beyond reading (it’s now taking early steps into audio, for example), and it could also involve building APIs and SDKs so that other parties, such as other publishers, might be able to use its tools to also test out shorter works to see what might work as books.
Inkitt has been on a growth tear in the last couple of years — the company now has 7 million users (AKA readers) and a community of 300,000 writers, up nearly threefold on the 1.6 million readers and 110,000 writers it had when I covered its last funding round in 2019. The paid Galatea app, meanwhile, has a run rate of over $38 million (that figure has grown more than 6x: it was just $6 million two years ago).
The startup has also been catching the eye of others in the publishing industry, underscored by who is investing in this round.
Scott Sandell, managing general partner of NEA, co-led the investment with German publishing giant Axel Springer. Michael Lynton, the chairman of Snap (and in previous lives, the CEO of Penguin Books and a senior executive at Disney who started Disney Publishing); and Stefan von Holtzbrinck, the chairman of the eponymous publishing giant (which owns Macmillan, among others), also participated, alongside Kleiner Perkins, HV Capital, Redalpine and Speedinvest. Kleiner led Inkitt’s Series A.
Writers on the platform — at least those whose initial chapters chime well with Inkitt’s algorithms, which they then turn into longer works that resonate with readers — are also seeing some big numbers, with a few notable fairytales among them.
Seemran Sahoo, from one of the more impoverished states in India, Odisha, has made $2.7 million to date from “The Arrangement,” a novel she wrote and published on Inkitt entirely on her smartphone. Sapir Englard from Israel originally wanted to use the proceeds from her Inkitt-germinated book, “The Millennium Wolves,” to finance her tuition at Berklee College of Music in Boston. Tuition is expensive at U.S. higher learning institutions, but even so, she has ended up doing a little more than that: so far, she’s made $8 million to date from the novel. (Note: both of these were published before Inkitt’s last funding round: they have continued to rake in a lot in sales.)
These two are outliers, but Ali Albazaz, Inkitt’s founder and CEO (pictured below), says most of those who make the cut for Galatea do very, very well relative to other publishing environments.
“The majority of our Galatea writers made more than $100,000 in sales,” he said. But if books, and specifically a kind of blockbuster, are at the heart of what Inkitt does today, Albazaz is given to describing his bigger vision for Inkitt as much more than just reading. The company has started to make small steps into audio books, and there are plans for developing films, TV shows, merchandising, games and maybe even a theme park: “The Disney of the twenty-first century,” in his words.
That journey is consistent, but it isn’t being taken at a breakneck speed: This was almost exactly what Albazaz told me was his plan in 2019, too. (Some things have not remained as prominent: the company’s unique selling point originally on Galatea was a set of “effects” that it adds to books — sounds and jolts that make the reading experience more immersive. These are still there but it seems that they are no longer central to every experience, and even Albazaz referred to the effects in our conversation only as an afterthought.)
As for why the Disney vision has yet to be realized, to be fair we have been in a pandemic. Also, “move fast, break things” isn’t always the best way forward.
Albazaz said the company is getting “between two and four requests every week from TV and movie and production companies,” to make content-based Galatea/Inkitt books (as the publisher, Inkitt owns the rights for film and other options), but it has yet to sign any deals. Partly that is because of this Disney idea: Inkitt wants to have a role in what comes next.
“We are figuring out what is the best for us,” he said. “We want to leave the option open that we might have video on Galatea.” That is incidentally also another area where Lynton, who also spent years as the CEO of Sony Pictures Entertainment, might help.
Like other self-publishing platforms like Wattpad — which has gone further along in its own “Disney” ambition, with a wide range of video and other content spun out from works that got their first oxygen on its platform; Wattpad earlier this year was acquired by Korea’s Naver for about $600 million — Inkitt has paved the way for a new route to the market for creative people who want to write for a living, as well as those who just want to get their work out there into the world. There are a lot of places already where you can do that, of course, from sites like FanFiction, through to Amazon and everything else in between.
As for the latter, Albazaz is unequivocal about his disdain for the e-commerce giant, which “took away all the margins and pushed down profits” on books and ruined the reading experience with its Kindles. That sentiment, he said, is what drove him to build Galatea as an addition to Inkitt, since previously the company used to shift books to Amazon once they expanded beyond the short format central to the flagship app. But, it should be pointed out, Inkitt also has its own quirks that don’t sit right with everyone.
One prominent author — name undisclosed — was curious about how a new work might fare through the Inkitt machine and submitted a chapter for publishing on there.
The Inkitt data science engine — which is unsentimental about who is writing, just what might “do well” — “measured that readers weren’t engaged with the story and would stop reading very quickly.”
The author was “furious,” Albazaz said, and so was the author’s publisher — not least because of what the author had done with their book. The author ignored the feedback and the book published as the author wrote it (the whole book was already written when the chapter was submitted). The book sold 1 million copies, definitely okay for some, but nothing like the author’s previous blockbusters.
“Those 1 million bought it because of the author’s name,” Albazaz said flatly.
Longer term, it will be interesting to see whether Inkitt not only can sustain its growth, but to leverage it, as it wants to, in a bigger media play. Potentially that will not just be up to Inkitt executing, but also what happens in the wider market.
Because so many ideas for other content germinate from stories that you read, it’s inevitably an area that Amazon, and others like ByteDance (already giving some in the publishing world the shivers), might also want to explore over time, too. Amazon has extensive A/B testing for other parts of its operations, and a formidable arsenal of data science and AI that it uses across every part of its business. So far, it hasn’t made huge inroads in building a product to take all of this to its self-publishing efforts… not yet, at least.
On a more positive note, though, this also speaks of big opportunities, and present traction, both of which are what investors like to see.
“Inkitt is well-positioned to become the future of storytelling, having already moved beyond traditional content forms to new formats that are innovative and engaging for millions of readers,” said Sandell in a statement. “A critical shift is taking place in how people consume stories, and Inkitt understands that. We are thrilled to partner closely with Ali and the rest of the Inkitt board to help drive what is sure to be an exciting and exponential phase of growth.”
“Inkitt’s technology is extraordinary, very successful and truly illustrates the future of storytelling,” added Mathias Döpfner, Alex Springer’s CEO. “When you consider how many Inkitt authors are achieving great commercial success, you can clearly see how deeply this company has disrupted the way people consume books. We are excited to become part of the further development and work with them as they continue on their journey.”
Update: Article clarified to note that Inkitt did not suggest alternative plot lines to the unnamed author; just told the author that as is, the story would not engage readers very much.