Automattic

Automattic Inc. is the digital powerhouse behind some of the web’s most recognizable names, including WordPress.com, WooCommerce, Tumblr, and Jetpack. Founded by Matt Mullenweg, one of the original creators of the open source WordPress software, Automattic's mission is to “democratize publishing and commerce.” The company provides the tools and platforms that power a staggering portion of the internet, from personal blogs to massive online stores and corporate websites. While the open-source WordPress software is free for anyone to use and host themselves, Automattic builds a profitable business by offering premium hosting services (WordPress.com), e-commerce solutions (WooCommerce), and other powerful tools. It's famous for its fully distributed work culture, with employees (called Automatticians) collaborating from all corners of the globe. For investors, Automattic represents a fascinating case study in building a durable business on an open-source foundation, creating a vast and loyal ecosystem.

From a value investing perspective, Automattic is a prime example of a company with a deep and wide economic moat. However, there's a crucial catch for the average investor: Automattic is a private company. This means its shares are not traded on public stock exchanges like the New York Stock Exchange, and investment opportunities are generally restricted to large institutional investors like venture capital and private equity firms. Despite this, studying its business model provides invaluable lessons on what makes a high-quality, long-lasting enterprise.

Automattic masterfully monetizes the massive user base of WordPress through a multi-layered strategy that looks a lot like being a landlord for a huge chunk of the internet.

• The Freemium Funnel: WordPress.com operates on a classic freemium model. It offers a free, basic website to anyone, creating a massive funnel that attracts millions of users. As these users' needs grow, they are encouraged to upgrade to paid plans for features like custom domain names, increased storage, ad removal, and advanced design tools. This is a low-cost way to acquire customers who then become a source of recurring revenue.
• E-commerce Engine: WooCommerce is Automattic's crown jewel for e-commerce. It's a free, open-source plugin that turns a WordPress site into a fully functional online store. Automattic generates revenue by selling premium extensions, themes, and, most importantly, through its integrated payment processing service, WooCommerce Payments, where it takes a small percentage of each transaction.
• Enterprise-Grade Services: At the top of the pyramid is WordPress VIP, an enterprise-level platform providing hosting, support, and security for high-traffic sites like those of major news outlets and Fortune 500 companies. This division offers high-margin, stable, and predictable revenue from clients who cannot afford any downtime.

Automattic's competitive advantage, or moat, is formidable and built on several pillars that are incredibly difficult for competitors to replicate.

• Powerful Network Effects: WordPress benefits from one of the strongest network effect examples in the software world. Because it powers over 40% of the web, a vast global community of developers builds themes and plugins for it. This massive library of tools attracts more users, which in turn incentivizes more developers to support the platform. It's a virtuous cycle that constantly strengthens the ecosystem.
• High Switching Costs: Once a business builds its website and operations on the WordPress/WooCommerce platform, moving to a competitor like Shopify or Wix is a significant undertaking. Migrating content, customer data, and sales history is complex, time-consuming, and risky. These high switching costs create very “sticky” customers, ensuring a stable revenue base for Automattic.
• Brand and Trust: The WordPress brand is synonymous with web publishing. Its long history and open-source roots have built a level of trust and a loyal community that newer, closed-source platforms struggle to match.

No business is without challenges, and it's important to understand the pressures Automattic faces.

• Stiff Competition: While WordPress is the market leader, it faces intense competition. All-in-one, user-friendly builders like Squarespace and Wix appeal to beginners, while Shopify is a dedicated and formidable rival in the e-commerce space. These platforms often trade the infinite flexibility of WordPress for simplicity, which can be an attractive proposition for many users.
• Open Source Complexity: The greatest strength of WordPress—its open-source nature—can also be a weakness. The reliance on third-party plugins can introduce security vulnerabilities and performance issues. For a non-technical user, managing a self-hosted WordPress site can be more complex than using a closed, all-in-one service.
• Inaccessibility for Public Investors: As mentioned, the biggest hurdle for an ordinary investor is that Automattic is private. There is no ticker symbol to look up or shares to buy. While there is occasional speculation about a future IPO (Initial Public Offering), there are no concrete plans, meaning it remains out of reach for most portfolios.

Automattic is a remarkable company that has built an enviable digital empire. It boasts a brilliant business model, a wide economic moat protected by network effects and high switching costs, and a long runway for growth, especially in e-commerce. For value investors, it serves as an excellent educational tool for identifying the characteristics of a durable, high-quality business. While you can't invest in it directly today, understanding why it's so successful can make you a better investor and help you spot similar qualities in publicly traded companies. It is certainly a company to watch if it ever decides to enter the public markets.