Automattic Making Money: Contents and Conclusions

This post concludes my series on Automattic making money. The best structure for the post seems to be the time-honoured, time-based structure: past, present, and future.

I’ll start with a list of the past posts in this series.

Now, on to Automattic’s past. In some ways, there isn’t much of it, since the firm was founded in December 2005, and is often described as a startup. But there is more history than that might suggest. WordPress is the successor to b2/cafelog, which goes back to June 2001. One of the reasons this is important is that WordPress inherited from b2 its use of the GPL, and hence has always been free/open source software.

WordPress 1.0 was released in 2004. That same year, Yahoo acquired Toni Schneider’s startup, Oddpost, and so Toni joined Yahoo. While there, he founded the Yahoo developer network which allows third party software developers to use Yahoo as a platform for creating Yahoo-powered applications and services.

As CEO of Automattic, Toni has cultivated what might be termed the WordPress developer network, but is referred to as the WordPress ecosystem by shameless buzzword-slingers. This ecosystem includes WordPress consultants, theme developers, and plugin developers.

My main comment on the present is that things are changing fast. I’ll give an example of change for each of the following: WordPress.com, WordPress, and Akismet. Sonific is one of the means by which you can include music in a WordPress.com post. That will cease to be true on May 1, when Sonific is going offline.

WordPress 2.5 was released about a month ago. Its emphasis is on usability, but not everyone considers it an improvement. When WordPress.com moved to the 2.5 code base, there were complaints about the new admin interface, and about the suddenness of the change. Bloggers using WordPress (as opposed to .com) of course have more control over their blogs, including control over when to move to the new interface.

As a third and final example of recent change, consider Mollom. It’s a new competitor for Akismet, and will probably be a strong one.

If you read this far in the hope of finding bold predictions about Automattic’s future, you’re out of luck. If such predictions ever do come from me, they will probably get their own post. The best hint about the future, and hence the best closing sentence for this post and for the series, is one that Matt wrote after Automattic raised a second round of funding ($29.5M) earlier this year.

Automattic is now positioned to execute on our vision of a better web not just in blogging, but expanding our investment in anti-spam, identity, wikis, forums, and more — small, open source pieces, loosely joined with the same approach and philosophy that has brought us this far.

Automattic Making Money From Other Projects

By other, I mean other than WordPress. We are almost at the end of my series of posts on Automattic, and how the firm makes money. We’ll start by noting that the firm provides a handy summary of its projects. Some of them are covered in earlier posts in this series (e.g., WordPress.com).

There are three non-WordPress projects: Akismet, bbPress, and Gravatar. (Actually, to describe them as “non-WordPress” is to simplify since, as we will see, each has firm connections to WordPress.) I find the first of these the most interesting, and I know I’m not alone in that. Askismet is an ambitious project.

Automattic Kismet (Akismet for short) is a collaborative effort to make comment and trackback spam a non-issue and restore innocence to blogging, so you never have to worry about spam again.

Although Akismet is an Automattic project and is WordPress.com’s spam cop, it is not only for WordPress blogs. The Akismet API is published so that the server can be invoked from other applications.

The Akismet server is unusual among Automattic projects in that it is closed source. This seems to be the norm for spam-fighting server code: it is also true of Akismet’s rivals Defensio and Mollom.

Automattic, as a privately-held firm, is under no obligation to provide details of how much money it makes from specific projects. But Duncan Riley at TechCrunch described Akismet as Automattic’s biggest money earner. Toni, Automattic’s CEO, was quick to counter what he described as “misconceptions,” stating that Akismet is not even close to being Automattic’s biggest earner.

Direct earnings from Akismet come from commercial licenses. Indirect earnings arise from the extent to which Akismet helps convince bloggers to choose WordPress.com.

Moving on to the other other projects, bbPress is forum software. It runs the various WordPress forums. To put it another way, bbPress is the name under which Automattic released the software on which the WordPress.org support forums have been running for years. Automattic intends to offer hosted forums under the name TalkPress (rather as it offers hosted blogging at WordPress.com).

Gravatar is notable among Automattic projects for having been acquired; I believe it to be Automattic’s only acquisition so far. At the time of the acquisition, Om Malik described Gravatar as a small project that gives WordPress users the ability to add avatars to their profiles. It is clear from the Gravatar about page that there are far loftier ambitions for the project. Today, an avatar. Tomorrow, Your Identity—Online.

I’ll stop there, rather than speculate about the future of online identity. I’ll add one more post to this series: a wrapup.

Automattic Profits From WordPress

This post is the third in the series that started by posing the question: How is Automattic Going to Make Money?. It follows on from my most popular post so far: Making Money From WordPress.com.

In this post, we’ll be looking at how Automattic profits from WordPress, the free/open source software project that lives at WordPress.org. We’ll consider WordPress Multi-User (WPMU) as a subproject of WordPress, just as it is a subsite of WordPress.org.

To find sources of revenue for Automattic from WordPress, we’ll crawl around the relevant web sites. We won’t start from any particular framework for “making money from open source” or “open source business models.” If you want to read up on the more general stuff, just Google either of the phrases in quotes and you won’t lack for material.

So, the obvious place to start is WordPress.org. Remember, that site won’t host your blog. There are many thousands of sites that will. Many of them have Fantastico scripts to install popular software, including WordPress.

There is a WordPress hosting page that recommends a select few of these hosts. The page explicitly identifies itself as a money-maker.

If you do decide to go with one of the hosts below and click through from this page, some will donate a portion of your fee back—so you can have a great host and support WordPress at the same time.

It’s not clear to me how much money this generates, or whether the money goes to Automattic or in some sense goes directly to the WordPress project. It could be argued that it doesn’t make a lot of difference: funds that WordPress “makes for itself” are funds that would probably otherwise be supplied by Automattic. I could make a similar point about Amazon affiliate revenues earned by links from the WordPress books page, but I doubt that there’s a lot of money involved there.

Now let’s look at Automattic’s site. We see there a Services page, which points to the Automattic Support Network, aimed at enterprises and other clients willing to pay thousands of dollars annually for support.

This is a classic open source business model: give away the software, charge for the services. It’s worth noting, though, that the Services page points not only to Automattic’s offering, but to a directory of WordPress Consultants, most offering design and development services. (Automattic does not currently list itself as offering such services.) This is an example of Automattic opting to help the WordPress ecosystem thrive.

A variation on give away the software, charge for the services has already been covered in this series of posts. WordPress.com offers WordPress as a service. It’s a freemium service: give away the software as a service, charge for the extras.

Automattic invests heavily in WordPress, the free/open source software project. Perhaps the most straightforward evidence for that statement is the About WordPress page, which lists the developers: several of them work at Automattic. Automattic profits from this investment, but it does not do so directly. The WordPress software powers WordPress.com, from which Automattic makes money. The more WordPress is used, the more opportunity there is for Automattic to make money from support services.

The next post in this series will cover Automattic’s other products. The next big news from WordPress will be the release of 2.5, expected any day now.

Making Money From WordPress.com

WordPress.com is free: that’s free as in beer, as in gratis, as in at a price of zero. This post is a look at WordPress.com in the light of Chris Anderson’s Wired article Free! Why $0.00 Is the Future of Business. It is the second part of my series of posts addressing the question: How is Automattic going to make money?. (Hence this post is not about how bloggers can make money: but see the update note at the end).

There’s a particularly good fit between Chris’s article and WordPress.com. Chris identifies six business models. As we will see, Automattic uses each of the six in making money from WordPress.com.

The first model (following Chris’ order) is freemium: basic service is free, but there are extras for which you pay a premium. WordPress.com offers free hosted blogging; it also offers premium features under the heading of advanced services. One such feature is domain mapping: since I pay for domain mapping, this blog shows up as changingway.org (rather than just as changingway.wordpress.com).

I provided more details on WordPress.com premium features in a previous post. That post compares WordPress.com with its competitor TypePad in terms of feature pricing and packaging.

The “most premium” and least free option at WordPress.com is the VIP Hosting package.

The second business model relies on advertising. Automattic has run Google Adsense ads on blogs at WordPress.com since mid-2006. It has considered for at least that long offering bloggers control over the ads at their blogs. Currently, however, the only bloggers who can run their own ads or run their blogs ad-free are those paying for VIP Hosting.

WordPress.com uses the third business model, cross-subsidies, less directly than it uses some of the others. The essence of this model is that the free product entices you to buy another product. The different product is usually a complement to the free product, Gillette giving away razors in order to sell blades being the prime example (and indeed the example with which Chris opens his article).

One type of blade for your free WordPress.com razor is the Sonific SongSpot. An earlier post provides a description and an example. I just “snapped” the song in to the post.

The cross-subsidy model applies rather indirectly because I didn’t buy the song/blade from Automattic: I got it, free of charge, from Sonific. Sonific makes money from ads and affiliate transactions related to the music being played (e.g., the reader may buy music from Amazon).

I won’t discuss here the question of whether Automattic makes money from these “blades.” It may be doing so by charging Sonific for the prominent placement of the SongSpot service. I am not aware of any public statement from Automattic or Sonific on the terms of their relationship.

WordPress.com provides a very straightforward example of the fourth model: taking on a new blogger represents a near zero marginal cost for Automattic, since servers and other infrastructure are already in place to support the two and half million blogs currently hosted.

The fifth model is labor exchange: “the act of using the service creates something of value.” The main use of WordPress.com to create content, in the form of blog posts. There are many ways in which this content may be valuable. It may, for example, constitute pearls of wisdom that enrich the life of those who read it. Of more direct relevance here is that the content is also a source of economic value for Automattic when it is accompanied by AdSense.

The sixth and final model is the gift economy. I read Chris’s use of this term as an implicit reference to Eric Raymond’s assertion that the society of open-source hackers is in fact a gift culture. In this context, the free/open-source WordPress software was and is a gift from Matt Mullenweg and his fellow hackers to the wider hacker community.

It’s not much of stretch to view the free blogging service WordPress.com as the gift from Matt and his fellow Automatticians that seeded the WordPress.com community. That Automattic makes money, or will make money, from gift-giving is in no way counter to the ethos of free/open-source software.

We can relate the gift economy model back to the freemium model and note that the freemium model allows Automattic to receive gifts from bloggers. If, for example, I am unsure whether to pay for a premium service (e.g., CSS upgrade) for a further year, I may decide that even if I don’t really need the premium service, I feel good about paying Automattic the money, thus reciprocating the gift-giving Automattic initiated by giving me the free blog in the first place.

It is to this kind of gift-giving that the web-based photo-editing service Picnik appeals when it includes among the reasons for upgrading to its Premium Service “the warm fuzzies” you’d get for supporting Picnik.

Thus the sixth of Chris’s models (gift economy) brings us full circle to the first (freemium). It also points on to the next post in this series, which will be about making money from WordPress, the open source software. While the current post is about Automattic profiting from a free (as in beer, as in gratis) service, the next will be about the firm profiting from free (as in freedom, as in libre) software.

Before moving on to that next post, this one merits a couple of closing points. The first is about the post itself. It’s more about identifying and classifying than it is about evaluating. I haven’t attempted to estimate amounts of money, or percentages of profits, made by WordPress.com from each of the business models. Neither have I expressed opinions as to how well Automattic is executing each of the models.

The second point relates to affiliate programs. With respect to Chris’s list of business models, it’s not clear to me where such programs fit: somewhere between ads and cross-subsidies? Although WordPress.com bloggers (other than VIPs) may not use advertising programs such as AdSense on their blogs, we are permitted to use of affilfiate programs such as Amazon Associates.

I can’t think of any affiliate program used by Automattic at WordPress.com. I can think of one used at WordPress.org, but that really does bring us to the next post in the series on Automattic profits.

Update: If you’re a WordPress.com blogger who arrived here hoping to find a post about how you can make money, you’re in the wrong place. Or at least, at the wrong post: but see my post on how bloggers can make money. At the same time as I added this note, I made a few edits, but nothing major.

How is Automattic Going to Make Money?

Mark Evans recently asked: So How is WordPress Going to Make Money, Matt? My immediate reaction was to formulate what seemed like a better question.

How is Automattic going to make money, Toni? While WordPress is an open-source software project, Automattic is a privately-held for-profit firm. Toni Schneider is the CEO.

Matthew Mullenweg founded Automattic, having earlier founded WordPress. If I had to use a conventional term for Matt’s current post at Automattic, it would be CTO, or perhaps Chief Software Architect.

One way to answer the question is to ask Toni. In fact, I will do so by email. But I don’t expect to be able to get more out of him than Lindsay Campbell did when she interviewed him for WallStrip. I noted at the time (August 2007) Toni’s remark that Automattic was at about breakeven.

So we did at one point in time have an answer to the question: is Automattic making money? More recently, we got an answer to the question: do Automattic’s original investors consider its financial prospects good enough to invest further? The answer is yes: in January 2008, Automattic closed a $29.5M round of financing led by its original investors.

Toni and Matt each remarked at the time that the money is not just for the WordPress blogging software, but for other projects.

This is already a post-sized chunk of text, and all I’ve done is set the scene. I plan to follow it with another couple of posts this week, probably one on WordPress and another on Automattic’s other projects.