Automattic, creator of Wordpress, is being sued by one of the largest WordPress hosting providers. The conflict fits into a trend of billion-dollar companies struggling to effectively monetize open source, and are changing tactics to limit their competition and increase their revenue.

This article was originally published a week ago, on 3 October 2024, in The Pragmatic Engineer. To get timely analysis on software engineering industry in your inbox, subscribe.

Wordpress is the most popular content management system (CMS), estimated to power around 43% of all websites; a staggering number!

What makes Wordpress popular is a mix of factors:

  • Permissive license: licensed as GPLv2, which allows for commercial use, and for modifying the code; as long as the license remains in place. This is known as a copyleft license.
  • Robust themes, plugins and customization: Wordpress has a superb themes and plugins ecosystem, and can be heavily customized on top. Wordpress has a thriving ecosystem of both paid and free themes and plugins, and consultancies and developers specializing in Wordpress customization.
  • “Tenure”: Wordpress has been around for more than 20 years, since being founded in 2003 by Mike Little and Matt Mullenweg.
  • Brand: Wordpress powers some very large websites, including NASA, The White House, TechCrunch, Microsoft News, and many others. 
  • Heavy development investment: Automattic – a VC-funded company founded by Matt Mullenweg – is the largest contributor to Wordpress, paying more than 100 staff to work full-time on the project. In 2023, more than 250 organizations contributed, including the University of Gothenburg in Sweden:
Number of commits contributed in 2023. Source: Wordpress

Corporate conflict breaks into public view

Within the Wordpress community, two entities are involved in a public conflict which resembles an old-school boxing match. The combatants:

  • In one corner: Automattic. A VC-funded company that raised $980M and was valued at $7.5B in 2021. Automattic generates most of its revenue by offering managed Wordpress hosting.
  • In the other corner: WP Engine. A company that raised $250M of funding from Silver lake Partners in 2018. (The same Silver Lake purchased a majority stake in Skype for $1.9B in 2009, and sold the company for $8.5B in 2011). WP Engine also sells managed Wordpress services, making it a direct competitor to Automattic.

Matt Mullenweg – founder of Automattic and co-creator of Wordpress – has launched a series of attacks on WP Engine, to which WP Engine has hit back in kind. A few choice examples in recent days:

  • 22 Sep: Insult. Matt Mullenweg calls WP Engine “cancer to Wordpress”, urging customers to switch providers. The example used to illustrate this point is that WP Engine turns off version revisions on the sites they host, thereby offering a cheaper price.
  • 23 Sep: Legal warning. WP Engine sends a cease-and-desist notice to Automattic about those comments, revealing private text messages Mullenweg sent to its board members, which it claims are pressure tactics.
  • 25 Sep: Hit back. Automattic sends its own cease-and-desist order to WP Engine, claiming it violates the Wordpress and WooCommerce trademarks Automattic owns. It also oddly claims that because WP Engine does not contribute enough to Wordpress development, it shouldn’t be allowed to use the trademarks.
  • 25 Sep: Block. Wordpress.org – which has a complex, intertwined setup with Automattic, and was also cofounded by Matt Mullenweg – bans WP Engine from accessing its plugin repository and updates infrastructure. This penalizes WP Engine customers.
  • 27 Sep: Unblock. Wordpress.org lifts the ban which hurts WP Engine customers, while stating it’s acting in response to “Silver Lake‘s commercial decisions.”
  • 3 Oct: “See you in court.” WP Engine files a lawsuit against Automattic and Matt Mullenweg, claiming “abuse of power, extortion and greed”, with a load of previously unpublished evidence against Automattic.

Right now, it’s getting ugly between these two parties, which each publicly accuses the other of lying to and misleading the Wordpress community. I would not be surprised to see a counter-suit from Automattic with yet more previously private information to add to the growing file of evidence on both sides.

Automattic’s bid to take out biggest competitor

Why is all of this happening?

Automattic started the feud, and Mullenweg is making it oddly personal by publicly attacking Silver Lake managing director, Lee Wittlinger. Automattic revealed in its cease-and-desist that it believes WP Engine earns more than $400M in revenue from managed Wordpress services. This kind of revenue could command a valuation of $2-4B, and almost certainly makes WP Engine the biggest competitor of Automattic.

Automattic revealed it extended an offer to WP Engine with non-negotiable conditions:

  • Pay 8% of annual, gross revenue as a royalty license fee to Automattic
  • Provide a detailed monthly revenue report, and allow Automattic to audit it
  • Agree to not fork WooCommerce (an open source project)
  • Agree to these terms for 7 years, on an annual recurring basis

This reads like extortion! We are talking about a competitor to WP Engine (Automattic) with no concrete knowledge of WP Engine’s true revenue, and demanding full access to detailed revenue reports. Both Automattic and WP Engine are private companies, and revealing detailed revenue reports to a competitor seems like business suicide. If WP Engine agreed to these terms, it would lose competitive leverage. If Automattic gets audit rights, it could use the information to fully map WP Engine’s customers and pricing, and poach its customers.

Is commercial open source suffering a ZIRP-induced crisis?

Taking a step back, here’s my reading of this conflict.

  1. Open source is a fantastic growth lever. Wordpress grew as fast as it did partly thanks to its restrictive open source license. It allows individuals and companies to profit from selling consulting services and managed hosting.
  2. Automattic was a big winner of open source investment. As the company associated with the creator and maintainer of Wordpress, Automattic’s business boomed for two decades. In 2021, it was valued at $7.5B.
  3. Zero percent interest rates have ended: profits matter now. The end of the latest zero interest rate period (ZIRP) has been one of biggest events in the tech industry in the past 20 years, by slowing down the growth of tech companies, and leading valuations to drop. To maintain 2021-2022 valuations, companies need to increase revenue and profitability.
  4. “Freeriding” on restrictive open source is too tempting to pass on for other vendors. WP Engine uses a common loophole of contributing almost nothing in R&D to Wordpress, while selling it as a managed service. This means that they could either easily undercut the pricing of larger players like Automattic which do spend on Wordpress’s R&D. Alternatively, a company like WP Engine could charge as much or more as Automattic, but be able to spend a lot more on marketing, while being similarly profitable than Automattic. “Saving” on R&D gives the “freeriders” plenty of options to grow their business: options not necessarily open to Automattic while they keep investing as much into R&D as they are now.
  5. Commercial open source vendors pressure to end “freeriding”. Automattic is likely facing lower revenue growth, with customers choosing vendors like WP Engine which offer a similar service — getting these customers either via a cheaper price or thanks to more marketing spend. This legal fight could be an effort to force WP Engine to stop eating Automattic’s lunch, or perhaps get WP Engine to sell to Automattic, which would cement its leading status in managed Wordpress, while also boosting revenue by $400M a year – according to its own figures.

We have seen other similar stories play out recently:

  • In 2021, Elastisearch faced a similar “freerider” challenge from AWS. In response, Elasticsearch ceased being open source. This decision was unexpectedly reversed, as covered last week
  • In 2023, HashiCorp stopped being open source by introducing a restrictive license, as part of its battle against “free riders” undercutting HashiCorp’s pricing, offering the same managed products
  • In April of this year (2024), Redis stopped being open source, in an effort to fend off cloud providers offering managed Redis services. In response, AWS, GCP, Oracle, Snap and others are backing – and migrating to – the Valkey fork, which remains open source.

It’s a valid question why Automattic did not change the Wordpress license, instead of going after its biggest competitor. This is likely because making the Wordpress license restrictive would be far more challenging and trigger a large backlash, since Wordpress powers 43% of the web. It would be also complex due to the convoluted corporate structure of Automattic, Wordpress.org, and the Wordpress Foundation. 

Wordpress: free to use software, not free to use name

Speaking of the convoluted structure, let’s take a look at this. Automattic owns the WordPress trademark, and it has signed over the non-commercial rights to the WordPress foundation, and sublicenses commercial rights to other companies. Automattic explain them themselves like this:

Automattic controls the WordPress trademark, and thus the usage of this trademark. Source: Automattic

This setup has been revealed to the public for the first time this week. Until now, the impression was that the WordPress nonprofit foundation owned the full trademark, and not just the non-profit part! Automattic cofounder Matt Mullenweg himself shared this back in 2010:

“Automattic has transferred the WordPress trademark to the WordPress Foundation, the non-profit dedicated to promoting and ensuring access to WordPress and related open source projects in perpetuity. This means that the most central piece of WordPress’s identity, its name, is now fully independent from any company.”

There was no mention about how all commercial rights stayed with Automattic: in fact, this blog post implied that the opposite happened, writing:

“It’s important for me to know that WordPress will be protected and that the brand will continue to be a beacon of open source freedom regardless of whether any company is as benevolent as Automattic has been thus far.“

With the current events, it is clear that Automattic will start to enforce commercial trademark usage in some cases – which they have all right to do. This change in attitude means Automattic could do the same with any other company that Automattic considers to be doing commercial activity with Wordpress: which would include all managed hosting providers, consultancies: every vendor generating revenue thanks to Wordpress! In reality, Automattic is unlikely to target small businesses, just because litigation costs money for them as well. But now the cat is out of the bag: Wordpress might have a permissive license, but the name cannot be permissively used and Automattic is here to go after cases it deems as violations.

How will it end?

The lawsuits will likely take years to resolve; after all, it took two years for a Twitter employee to be granted the severance stipulated in black and white in their contract. My sense is that Automattic is entering a legal battle it’s likely to lose, but is betting that WP Engine will rather settle than have its business harmed by bad publicity.

For any and all vendors offering managed Wordpress hosting: Automattic making it clear that it will enforce its commercial trademark rights is a worrying sign. I can see a few things happen:

  • A fork (or more). Forks gaining momentum that has the code of Wordpress, but uses a different name could also be in the books. This is especially true if one of the larger managed Wordpress vendors spearhead a fork.
  • Vendors diversifying. I can see vendors considering diversifying away from offering open source solutions where they could find themselves in the crosshair of Automattic, just like WP Engine has done so. 
  • Waiting on the result of the lawsuit. The majority of vendors and Wordpress developers will likely do nothing but wait. If WP Engine wins their lawsuit against Automattic: this would be a relief for both WP Engine and all managed Wordpress prodviders, and a blow to Automattic. Should Automattic win: it would be a chilling effect for Wordpress vendors,. In this case, a Wordpress fork is all but sure to gain momentum and adoption.
  • A license change for Wordpress. Although less likely, it’s still in the books that Automattic would consider changing the Wordpress license to be more restrictive, and prevent other managed hosting providers crossing a certain revenue from offering managed Wordpress solutions. Should Automattic not be able to enforce its Wordpress trademark in court, this outcome becomes increasingly likely.

Personally, it’s sad that open source is becoming a battleground for investors’ interests and it’s educational to see that the trademarked name of an open source project is used as a tool in this fight. At the same time, we should acknowledge that there needs to be a way to fund the salaries of software engineers who write open source software, full-time. I’d rather see companies like Automattic be profitable and continue to contribute to open source, rather than lose money and cut their open source investments.

There’s an ethical dimension, too, with companies like WP Engine contributing very little to Wordpress core, while profiting a lot. But ethics aren’t always enforced by the law, while the end of zero interest rates is forcing tech companies to focus more than ever on profits, which creates cut-throat behavior.

The end of ZIRP is likely to cause more commercial open source companies to restrict licenses, or enforce their trademarks more. This episode is a reminder that we should not take corporations funding of open source for granted. For-profit companies with open source roots like Elastic, HashiCorp, and Automattic, are now forced to come up with ways to keep competition at bay, so they can generate enough profits to keep building software like Elasticsearch, Terraform, and Wordpress. How to do this – turning formerly permissive licenses restrictive, or via trademark lawsuits against large competitors like Automattic – is up for grabs. Realistically, I expect more conflicts like this one.

True open source is a model that is proven to work well in non-profit settings. However, at for-profit operations, business models that support billion-dollar valuations are rarely, if ever, compatible with true open source.

A week later: the drama continues

The below is additional analysis, published on 10 October 2024 in The Pragmatic Engineer.

Automattic is further escalating its battle against its biggest competitor, WP Engine. In order to log into the WordPress.org community site, people need to tick a checkbox stating “I am not affiliated with WP Engine in any way, financially or otherwise.”

The WordPress.org site is the website of the nonprofit WordPress foundation. It’s where WordPress plugin users can get support for their plugins, and where WordPress plugin developers can give this support.

The wording is ambiguous: is a developer that has customers hosting on WP Engine “affiliated” with WP Engine? If a user purchased a plugin from WP Engine, are they “affiliated?” On the WordPress Slack, the suggestion from Automattic is for developers and WordPress users to consult a lawyer(!). Contradicting this advice, the official WordPress account suggests asking WP Engine if someone is affiliated. So which is it? Do we talk to lawyers, or ask WP Engine for clarification about a vague checkbox WordPress.org has created?

This episode captures how the situation is getting comical. It’s a battle between two billion-dollar companies with plugin users and developers as collateral damage. Several long-time WordPress contributors are leaving out of frustration, and several more are banned by WordPress themselves for asking questions (example 1, example 2, example 3, example 4, example 5). The situation is likely to be resolved when the lawsuit WP Engine filed against Automattic runs its course, or when WP Engine and Automattic come to a mutual agreement – which seems far away at present.

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Related analysis on open source business model challenges from The Pragmatic Engineer:

  • Elasticsearch unexpectedly goes open source again: Elastic was forced by AWS to change the permissive license of Elasticsearch to be restrictive. Three years later, this is being reversed. Could we see more such cases by open source businesses?
  • Commercial open source companies in trouble? Redis Labs changed the formerly permissive open source Redis license to a restrictive one, with the goal to have cloud providers pay when they host Redis. As a response, cloud providers started the Valkey project, which could become the “new and still permissive Redis.” HashiCorp is facing similar challenges with Terraform / OpenTofu.
  • Pressure on commercial open source to make more money: a divisive open source license change at HashiCorp, tension between monetization and serving free users at Insonmia, and the fall of open source Rome Tools
  • The end of 0% interest rates: what it means for tech startups and the industry: many of these open source challenges are – surprisingly! – connected with interest rate changes. The end of free money puts more pressure on commercial open source to focus on profits, not just growth.

Additional independent analysis on other publications:

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