Silver Lake and portfolio company WPEngine have been dragged into a contentious dispute with WordPress steward Automattic, whose CEO, Matt Mullenweg, is one of the original creators of the WordPress platform.
WPEngine, in which Silver Lake acquired a $250 million majority stake in 2018, has built its business around a managed hosting service for the open-source WordPress environment, which powers more than 40 percent of the web.
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Earlier this year, Automattic went public with claims that WPEngine’s $400 million in annual revenue is derived “entirely from extensive and unauthorized uses of the [WordPress] trademarks.”
Automattic sent a cease and desist letter demanding a halt to what it says is unlicensed use of its own exclusive commercial rights to the trademarks. The company’s proposed resolution was a licensing agreement with an 8 percent royalty on WPEngine’s sales, or around $32 million per year.
That’s despite the WordPress Foundation’s published trademark policy, which, at the time of the demand, noted that “The abbreviation ‘WP’ is not covered by the WordPress trademarks, and you are free to use it in any way you see fit.”
The policy has since had additional language appended to it: “… you are free to use it in any way you see fit, but please don’t use it in a way that confuses people. For example, many people think WP Engine is ‘WordPress Engine’ and officially associated with WordPress, which it’s not.”
In September, after a breakdown in negotiations over the proposed licensing arrangement, Automattic and Mullenweg launched what WPEngine executives described in sworn statements as a “scorched earth nuclear approach.”
Automattic allegedly cut off WPEngine’s longstanding developer access to WordPress, hijacked one of WPEngine’s flagship plugins without customer consent, and set up barriers to WPEngine’s hosting tools, taking down customer websites in the process.
Mullenweg then rescinded his original licensing proposal, suggesting instead that he would force Silver Lake into a fire sale of the WPEngine assets.
“That deal’s not on the table anymore. We’re seeking more, not 8 percent,” Mullenweg said. “I don’t want to speculate on what the deal might be… In July it was less than 8 percent, it was smaller. In September, it was 8 percent. The deal they have to do next could be taking over the company, they have no leverage.”
Shortly after, in his keynote speech at the WordPress conference WordCamp, Mullenweg openly encouraged WPEngine customers to “not renew their contracts.” He also singled out Silver Lake Managing Director Lee Wittlinger, accusing Wittlinger of “strip-mining the WordPress ecosystem” and “giving our users a crappier experience so [Silver Lake] can make more money.”
On Tuesday, U.S. District Court Judge Araceli Martinez-Olguin granted WPEngine’s motion for a preliminary injunction, forcing Automattic to restore WPEngine’s full developer access.
The injunction also bans further tampering, including forced migrations or the “auto-updates” that surreptitiously substituted Automattic’s cloned versions of WPEngine’s tools.
For investors, the situation could prompt a closer look at conventional thinking around platform risk.
Investing in a business beholden to another for-profit entity is clearly risky. But, building on top of one of the world’s most widely used open-source platforms was probably assumed to be far less problematic.
In this particular case, there’s also an unorthodox element of third-party key person risk—as one developer commented on Reddit, “Matt is Automattic. Matt is WordPress.org. Matt is the WordPress Foundation.”
Tuesday’s ruling is a clear win for Silver Lake, though it doesn’t mitigate the damage done. WPEngine has now incurred substantial legal expenses, operational disruptions, and customer churn.
Brand damage and shaken confidence are hard to fix. While many WordPress users have expressed support for WPEngine and criticized Mullenweg’s actions, the reality is that purchasing decisions for WPEngine tools will now be tainted by the known risks to the end user associated with the tenuous situation.
It’s a dynamic Automattic has already used in its favor, allegedly issuing warnings to large web design agencies that working with WPEngine could lead to their own lockout from WordPress resources.
Beyond the immediate headache, any future exit event is now faced with the prospect of a substantial hit to valuation.
Mullenweg, again, has shown he’s fully aware: “Silver Lake has disrupted the ecosystem, and I’m fighting for my life’s work. I have a lot to work with. Silver Lake used to hold this asset on their books for $2 billion… They stand to lose billions [in the event of a cut-price Automattic takeover].”