How Automattic's 'Wrong' Approach Built a Billion-Dollar Empire

The Unconventional Path to Automattic's Success

The success story of Automattic wasn't achieved through conventional methods. While it may appear as a recent triumph to some, the company’s journey has been a long and deliberate one.

Dominating the Web Landscape

WordPress, the open-source software at Automattic’s core, currently powers approximately 42% of all websites globally. Furthermore, WooCommerce, the e-commerce plugin acquired by Automattic in 2015, is estimated to facilitate over 25% of all online stores.

The company boasts a workforce of 1,700 employees, operating within a globally distributed and asynchronous structure. According to Crunchbase, Automattic has secured nearly $1 billion in funding, with its most recent valuation reaching $7.5 billion.

Defying Conventional Wisdom

Achieving this level of success required 16 years of dedicated effort – or 18 years when considering the origins of WordPress itself. Throughout this period, the company consistently challenged established norms, a fact often viewed skeptically by venture capitalists.

Automattic strategically focused on the media sector during a time of significant disruption caused by the internet. Instead of adopting closed ecosystems like those of Facebook, Apple, and Google, it built its foundation on an open-source, volunteer-driven infrastructure, which raised concerns among many investors.

Pioneering Remote Work and Young Leadership

The company has maintained a fully remote and distributed workforce for 16 years, predating the widespread adoption of this model during last year’s global pandemic. Matt Mullenweg, Automattic’s founder, was only 21 years old – below the legal drinking age in the United States – when he initiated the company’s development, a factor that prompted some venture capitalists to seek more experienced leadership.

However, in hindsight, this unconventional approach proved to be the optimal strategy, a realization that is only now becoming fully apparent.

Exponential Growth and Future Prospects

“Exponential growth makes things appear small until a critical point is reached,” Mullenweg explains. He believes Automattic is still in the early stages of its growth trajectory, but the upward curve is becoming increasingly visible.

The story began with a single blog post, marking the initial step in a remarkable journey.

A Saxophonist's Role in the Rise of Blogging

Significant shifts often originate from humble and uncertain beginnings. The underlying technology is frequently immature and experimental, the potential audience is undefined, and practical applications are unclear or nonexistent.

In 2003, this accurately described the situation surrounding the “weblog,” a term soon shortened to “blog.” Blogger had recently been acquired by Google—for an amount that was not disclosed but likely modest. Prior to this, political blogs like Instapundit and Talking Points Memo had demonstrably impacted American politics.

These platforms successfully amplified coverage of a story involving Trent Lott, ultimately contributing to his resignation as Senate Minority Leader. Despite this, mainstream media maintained its dominant position in communication, and the concept of professional blogging, such as the one you are currently viewing, remained a future possibility.

Among the early adopters was Matt Mullenweg, a 19-year-old student in Texas with a passion for jazz. A blog post penned by him remains accessible online, detailing his vision.

Mullenweg’s background wasn’t conventionally indicative of a future tech leader. He pursued diverse interests, aspiring to be a jazz saxophonist while simultaneously studying political science at the University of Houston. He also dedicated considerable time to photography—a hobby reflected in his Twitter handle, @photomatt.

His interest in technology, including open source software, stemmed from his father’s career as a programmer, though Mullenweg hadn’t definitively decided to follow in his footsteps.

However, his post resonated with other developers, leading to the collaborative creation of the WordPress project. This project focused on providing a platform for blog publishing.

The initial version of WordPress was launched in May 2003, effectively succeeding b2, a previously existing but abandoned project.

Mullenweg quickly became a central figure within a rapidly expanding community. A profile in the Houston Press in October 2004 revealed that WordPress was powering over 29,000 blogs.

Mullenweg’s personal blog ranked among the most popular globally, and the resulting attention led to a job offer. He was invited to become a senior product manager at CNET, a media company based in San Francisco.

Despite this opportunity, WordPress was still considered a side project, or a “hobby.”

The Unexpected Benefits of Spam

CNET proved to be an ideal workplace for Mullenweg. The employment agreement permitted him to dedicate 20% of his time to WordPress development while also allowing him to maintain ownership of any code created during his tenure. This position also provided valuable insight into the operational infrastructure of a substantial media company.

During his time at CNET, he observed a pervasive issue that plagued the internet: the proliferation of spam. The comment sections of CNET’s websites were overwhelmed by automated bots. This struggle against these bots sparked an idea for a potentially profitable product.

Akismet, a spam filtering solution, was conceived not solely for WordPress, but designed to integrate with a wide range of popular blogging platforms. Following his departure from CNET, less than a year after joining, Mullenweg established Automattic (intentionally misspelling his surname with an additional “t”) and began marketing Akismet. His initial hires were individuals who had previously contributed to the WordPress project.

“We had already collaborated for a year or two prior to this point. It was an exploratory venture to determine if we could sustain ourselves financially,” Mullenweg explains.

Akismet pioneered a freemium pricing structure that remains largely unchanged today. Personal users with limited comment volumes can access the service at no cost, while businesses with extensive needs are required to subscribe to a paid plan.

Several months later, Automattic introduced WordPress.com to a select group of users. This service offered fully managed WordPress hosting, enabling clients to concentrate on content creation rather than server administration. Access was initially granted through an auction of “golden tickets,” a playful reference to “Charlie and the Chocolate Factory.”

Mullenweg remembers, “These tickets were being resold for $80 on eBay, which provided a clear indication of potential pricing strategies.”

Even after the initial tickets were sold, the company did not foresee the scale of its future success.

“To be completely candid, my initial expectation for a successful outcome was a sale to either Yahoo or Google for approximately $20 million to $30 million,” he stated.

Evaluating the Limits of Entrepreneurial Ventures

Mullenweg rapidly concluded that Automattic possessed a greater scope for growth than originally anticipated. However, to many external observers, the company’s prospects for success appeared doubtful.

Automattic was evolving based on two concepts that hadn't been proven, each of which caused hesitation among prospective collaborators and investors.

Initially, Automattic was developing a commercial alternative to an open source project. Although this approach has since become exceptionally lucrative, in the early 2000s, there were limited examples to emulate. Furthermore, open source itself was not widely regarded with favor.

“A prevailing belief regarding open source at that time was its perceived inability to foster innovation. It was thought that proprietary software would lead in innovation, with open source merely replicating it,” Mullenweg remembers. Due in part to investor skepticism, companies founded on open source codebases tended to remain small or ultimately absorbed the projects from which they originated.

The second challenge centered on Automattic’s geographically dispersed workforce operating on an asynchronous schedule, mirroring the collaborative, internet-based development model of WordPress. This contrasted sharply with the prevailing Silicon Valley trend of open-plan offices and co-located employees, making Automattic’s approach seem unconventional.

A further obstacle was multifaceted: Mullenweg was just 21 years old, lacking a track record of prior achievements, and young, first-time CEOs were not yet favored by venture capitalists. (Mark Zuckerberg, whose impact on this perception was significant, had only launched Facebook the previous year).

Challenges Faced by Automattic

• Building a commercial venture from an open source foundation.
• Employing a globally distributed, asynchronous team.
• Mullenweg’s youth and lack of established entrepreneurial experience.

These factors combined to create a significant uphill battle for Automattic in its early stages.

The Perception of Open Source

The prevailing view at the time was that open source projects were inherently limited in their capacity for innovation. It was widely believed that proprietary software would consistently drive advancements, while open source would primarily focus on replication.

A Fortuitous Partnership

As Matt Mullenweg initiated the formation of Automattic, a connection was made through Om Malik, a journalist and prominent blogger.

Malik facilitated an introduction between Mullenweg and Toni Schneider, a Yahoo executive who had joined the company via acquisition.

Schneider quickly formed a positive impression of Mullenweg. He noted Mullenweg’s attentiveness and insightful contributions, coupled with a far-reaching strategic outlook.

Schneider recalls Mullenweg, at the age of 21, expressing a commitment to dedicate his career to WordPress, a sentiment uncommon in the fast-paced environment of Silicon Valley.

Mullenweg’s character is consistently described by those who knew him during that period. The descriptor “calm” was used repeatedly by Schneider when recounting his initial interactions.

Currently, a 21-year-old founder exhibiting such composure, stability, and strong listening abilities would likely attract significant interest from venture capital firms.

These firms would also be hesitant to allow such a founder to relinquish control to a more seasoned chief executive.

However, it is important to note that Mullenweg himself was open to the possibility of stepping aside. He recognized Schneider’s potential to guide the company towards future growth and leadership.

“I’d found my business soulmate,” Mullenweg stated.

Within six months of Automattic’s inception, Schneider was brought on board as CEO, a role he fulfilled from 2006 until 2014.

A Different Path: Avoiding the Advertising Model

Matt Mullenweg successfully obtained commitments from both Schneider and initial funding from Polaris and True Ventures. Notably, Schneider later became a partner at True Ventures, a position he currently holds.

However, Automattic still faced the challenge of defining its market position. Initially, the company’s focus was on establishing WordPress as the dominant blogging platform.

“We entered the market after others had already gained traction,” explains Schneider, citing Blogger and Six Apart’s Movable Type as prominent competitors at the time. “Significant progress was needed, and the potential for blogging to become a substantial industry wasn’t immediately apparent,” he adds.

Ultimately, blogging didn’t evolve into the large-scale business that WordPress’ competitors anticipated. Following its acquisitions of Applied Semantics (2003) and DoubleClick (2007), Google generated substantial revenue through search and display advertising.

The ownership of Blogger by Google led the industry to believe that competing effectively required monetizing blogs through advertisements.

In hindsight, pursuing advertising proved to be an unsuitable strategy for the broader ecosystem. This business model would only achieve success later, within the more controlled and predictable environments of social media platforms like Facebook and Instagram.

These platforms offered standardized content formats and large user bases, enabling effective advertising through precise targeting and detailed analytics.

Automattic diverged from this prevailing trend. “When we surveyed our users regarding advertisements, only 20% expressed interest, while the majority preferred an ad-free experience,” states Schneider. The community-driven nature of WordPress meant that user feedback held significant weight.

Without relying on advertising revenue, the company began exploring alternative subscription-based income streams beyond its initial offerings of Akismet and WordPress.com. “Automattic’s growth accelerated when we expanded beyond blogging to encompass small business websites and enterprise-level hosting with WordPress VIP,” Schneider noted.

This expansion likely contributed to the perception of Automattic as a complex organization from an external perspective. Each new product operated with its own distinct business model and customer base.

The acquisitions of IntenseDebate (blog-commenting software in 2008) and PollDaddy (survey product) further diversified the company’s portfolio.

Each new venture contributed to revenue generation and strengthened the overall WordPress ecosystem, but simultaneously complicated the understanding of Automattic’s core identity and strategic objectives.

A Focus on Core Principles

As the 2010s progressed, the focus of many in the media landscape began to shift towards companies such as Automattic. Platforms like Facebook, and subsequently Twitter, led a significant number of observers to believe that closed, proprietary systems represented the future of online content distribution.

However, Automattic largely refrained from adopting these emerging trends.

Schneider notes that Mullenweg’s approach to leadership was deliberate and measured. There was internal pressure to emulate the functionalities offered by competitors, but Mullenweg resisted. “Many founders and entrepreneurs – myself included – are drawn to innovation and novelty. Matt doesn’t operate that way.” His prevailing belief was that competitors would become preoccupied with new features, ultimately leaving Automattic as a resilient survivor.

Automattic’s steadfastness was justified by the continued expansion of the open web. Mullenweg observed that despite the growth of social media, links shared on these networks invariably directed users back to websites – a substantial portion of which were powered by WordPress.

Schneider admits to a period of concern regarding the company’s potential to be eclipsed by emerging platforms.

“While Facebook didn’t cause users to abandon their WordPress sites, Twitter presented a more direct challenge. Conversations and engagement migrated from blog comment sections to Twitter, due to its speed and interactive nature.” Schneider explains. “We attempted various strategies to address this, but eventually accepted the shift.” The realization dawned that a substantial demand for independent online presence would persist.

The VIP (Business) Line

As the adoption of social media platforms accelerated, a notable trend emerged. Numerous large corporations were implementing WordPress without any prior engagement with Automattic.

Paul Maiorana, formerly in enterprise sales at Automattic (currently CEO of WooCommerce), explains, “It became necessary to demonstrate to organizations like Time Magazine and CBS Local sites that WordPress could function as a comprehensive content management system.” The prevailing belief was that it was merely a blogging platform.

Nick Gernert, now CEO of WordPress VIP, previously worked at Voce Communications, a division of Omnicom, a leading marketing and design agency. He remembers, “The extent of WordPress usage by companies within Omnicom was substantial—including Merck and Capital One—yet there was no direct relationship with Automattic.”

Many of these businesses were transitioning from proprietary software used for website management in the early 2000s. “Our analysis revealed that approximately 26% of the Fortune 100 companies had WordPress integrated somewhere within their organization,” Gernert states. However, WordPress often served as a secondary or tertiary solution.

Recognizing this opportunity, Automattic aimed to capture a larger share of this market.

Since its launch in 2006, WordPress.com had included a “VIP” pricing tier offering enhanced support, security, and technical assurances compared to the standard paid options.

Evolution into a Dedicated Business

With growing demand from major publishers, WordPress VIP evolved into a distinct and independent business line. This involved providing a fully managed service to large enterprises, encompassing hosting, source control, development environments, and guidance through the extensive selection of plugins and themes.

(For context, TechCrunch operates on WordPress VIP.)

Furthermore, in March 2011, the company introduced Jetpack, extending WordPress.com’s cloud-native capabilities to self-hosted WordPress.org installations. As Matt Mullenweg articulated in a blog post at the time:

Around this period, Automattic began granting greater autonomy to its various divisions. VIP pioneered the establishment of its own leadership structure, and Jetpack, intentionally developed with a separate identity, naturally followed suit.

However, it wasn't until 2018 that Automattic appointed its first subsidiary CEO, again selecting VIP as the initial focus.

Emerging Competitive Landscape

While the broader tech industry shifted its attention towards social media platforms, Automattic encountered several significant competitors. These included site builders offering drag-and-drop functionality, such as Squarespace, Wix, and Weebly. These companies were established around the same time as Automattic and had amassed substantial subscriber bases by the early 2010s.

These competitors possessed certain advantages over WordPress.com. Their software was proprietary in nature and catered to more specific applications, resulting in a simpler and more user-friendly experience, particularly for beginners. Crucially, their subscription-based revenue model enabled substantial investment in marketing initiatives.

Conversely, Automattic operated without a dedicated marketing department and refrained from paid advertising. The company actively promoted the availability of free WordPress usage options to its users. By the mid-2010s, extensive advertising campaigns from Squarespace and Wix had established strong brand recognition, despite WordPress powering a greater number of websites overall.

However, these competing platforms had a key limitation. They were compelled to concentrate on restricted, highly lucrative market segments, like websites for small businesses. In contrast, both Automattic and the broader WordPress community aimed for a more versatile software solution capable of addressing a wide range of potential applications, supported by a robust developer network.

Strategic Divergence

“We possessed a greater number of avenues for business expansion, and this is what we are witnessing today,” explains Schneider. “Automattic is experiencing growth across diverse areas concurrently, while Wix and Squarespace are primarily competing with each other.”

He further notes that businesses focused on a single product type may achieve faster initial scaling. However, they face significant challenges when adapting to new commercial trends.

Mullenweg emphasizes the company’s long-term vision. “Our chosen strategy, and one we continue to pursue, prioritizes user engagement, market share, and community building. This is favored over short-term revenue optimization or quarterly financial performance.”

Prioritizing Growth and Community

The focus on usage and community allows for greater adaptability. This contrasts with a narrow focus on immediate profitability.

This approach has enabled Automattic to expand into multiple directions simultaneously. It positions the company to capitalize on emerging opportunities in the digital landscape.

The Automattic Growth Model

The period around the middle of the 2010s marked a crucial phase in Automattic’s development. In January 2014, the company secured a substantial $160 million in funding, with Insight Venture Partners leading the investment – representing their first external capital raise since 2008.

During a TechCrunch interview at the time, Mullenweg articulated that the company had reached a point of being “capital constrained,” having previously operated with only $12 million in funding. Subsequently, later in the same year, Mullenweg reassumed the role of CEO, succeeding Schneider in the position.

Schneider, who had concurrently been involved in venture capital with True Ventures, transitioned to a full-time role at that firm. Mullenweg then focused on broadening the scope of Automattic’s product portfolio.

A key development occurred in 2015 with the acquisition of WooCommerce, a popular e-commerce plugin for WordPress. This acquisition initially received limited public attention.

Similar to how Facebook and Twitter dominated social media during Automattic’s early growth, Amazon was capturing the majority of focus within the online shopping sector. WooCommerce rapidly evolved into a significant component of Automattic, eventually surpassing even the more recognized Shopify in terms of market share of all e-commerce sites (further details can be found in part three of TC-1).

The WooCommerce acquisition highlighted a growing pattern: the WordPress open-source community was fostering innovative startups that often mirrored Automattic’s business model and maintained close ties with the company. Integrating these startups into Automattic’s strategic plan proved to be a streamlined process.

“Our mergers and acquisitions strategy benefits from a unique pipeline,” explained Mark Davies, who joined Automattic as CFO in 2019. “We identify innovation within the WordPress ecosystem and assess whether a company would complement our business model, with minimal integration challenges.”

Davies further noted, “There’s minimal business risk involved, as we have a clear understanding of how to integrate any acquisition into the Automattic flywheel.”

WordPress: A Versatile Platform

Beyond WooCommerce, Automattic significantly expanded its portfolio of products. Development within the WordPress project focused on modernizing the platform’s core code and content management system (CMS). This included a prolonged undertaking to create a new system known as Gutenberg, which will be examined in greater detail in the second part of this TC-1 series.

The process was often challenging and, typical of open source projects, didn’t receive universal approval. However, Matt Mullenweg’s promotion of these updates garnered sufficient community support. The range of applications for WordPress continued to broaden, consequently increasing its share of the internet’s websites.

In 2013, WordPress was estimated to power 20% of the top 10 million websites. This figure rose to 25% by 2015 and reached 30% in 2018.

A key factor in this growth was the increasing fragmentation of software solutions utilized by larger enterprises. Previously, many companies relied on a unified technology stack, like those offered by Adobe for web development and design.

However, as the web evolved in complexity, organizations began integrating diverse technologies, creating opportunities for Automattic. This shift allowed WordPress to gain traction in enterprise environments.

“The previous approach involved a single license, providing a sense of control, albeit limited. We now envision a future characterized by greater integration,” explains Gernert, CEO of WordPress VIP. Currently, prominent companies such as Facebook, Salesforce, and Credit Karma leverage WordPress for specific aspects of their online presence.

Expanding Use Cases

The adaptability of WordPress has led to its adoption by a wide array of organizations. It’s no longer solely a platform for blogs; it’s a robust solution for complex web applications.

• Enterprise Solutions: Large corporations are integrating WordPress into their existing tech stacks.
• Diverse Applications: WordPress is used for everything from simple websites to e-commerce platforms.
• Community Support: The active open-source community contributes to ongoing development and innovation.

Gaining Momentum After a Period of Consistent Progress

In recent years, Automattic has increasingly become the focus of attention.

Previously favored by technology investors, walled garden ecosystems are now encountering challenges. While social media platforms, including Facebook and TikTok, continue to attract substantial user bases, their public image has significantly deteriorated.

A similar trend is observable in the e-commerce sector, where Amazon’s popularity among sellers has waned due to its stringent store policies and allegations of utilizing platform data to replicate their offerings.

Schneider explains that there is considerable criticism and resistance towards these large, centralized entities, stemming from growing concerns about privacy breaches, extensive ad tracking, and the prevalence of negative occurrences on these networks. He emphasizes that Automattic has consistently advocated for an open, distributed platform, and this vision is now gaining traction.

Salesforce recognized the potential within Automattic as the internet landscape evolved, leading to a $300 million investment for a 10% stake in the company in 2019.

Automattic has historically experienced steady growth, but is now demonstrating an accelerated expansion rate. Davies notes a substantial increase in gross margin – 600 basis points over two years – and a faster growth rate as the company scales, indicating its increasing momentum.

The Salesforce investment, coupled with the organizational restructuring of Automattic’s businesses into distinct operating units such as WordPress.com, WordPress VIP, Jetpack, and WooCommerce, has contributed to this acceleration, according to Schneider. The shift to online activities during the COVID-19 pandemic also fueled the company’s growth.

He states that the company’s progress has transitioned from a consistent pace to a higher gear, driven by these factors. However, this acceleration isn’t attributed to a sudden innovation but rather to a continued adherence to its core principles and open-web approach.

Mullenweg and Automattic have consistently deviated from conventional tech industry norms. Nevertheless, the company possesses financial resources, a growing user base, an expanding product portfolio, and a series of acquisitions, including Tumblr and Parse.ly. It operates as a significant media conglomerate, largely unnoticed by the public, while powering numerous websites through WordPress.

Despite this diverse range of products, Automattic’s connection to the open-source WordPress project remains crucial for its sustained success – a topic that will be explored in the second part of this TC-1.

Automattic TC-1 Table of Contents

• Introduction
• Part 1: Origin story
• Part 2: Open source development
• Part 3: Acquisitions and future strategy
• Part 4: Remote work culture

Further TC-1 analyses are available on TechCrunch+.