Virtual anti-enclosure
Open source software took off in the 80s. Wikis, or easily edited collaborative websites, followed at the turn of the century. Professor Shane Greenstein (Kellogg) looks at Wikia, the largest for-profit provider of hosted open-source wikis.
The case (see reference below) first takes us back to the 1970s when the impetus for free software was born and found its father figure in Richard Stallman, a programmer at MIT’s artificial intelligence laboratory. Infuriated by the increasing restrictions placed by companies on their software in general, and in particular the inaccessibility of the source code of a Xerox printer he had to use, Stallman launched an international collaborative software programming effort in 1983 to create a free variation on Unix, baptized GNU(Gnu’s Not Unix).
Shortly thereafter, he founded the Free Software Foundation with the goal of promoting the universal freedom to edit, copy and distribute software. Over the years, the polysemy of the adjective free led to a distinction between freeware (software distributed free of charge) and open-source software (software which programmers are free to improve).
With the advent of the Internet in the next decade, online encyclopedias became a focus of interest. Stallman worked on a version baptized GNUpedia. But at about the same time, a graduate student in philosophy at Ohio State named Larry Sanger and an entrepreneur named Jimmy Wales jumped into the game.
Wikipedia
Jimmy Wales had accumulated capital from his startup, Bomis, a search portal and vendor of erotic images. He and Sanger created Nupedia in 2000, an online encyclopedia with entries written by selected experts. In his efforts to overcome the slow progress caused by the recourse to experts, Sanger came across WikiWikiWeb software. This software, designed by a Purdue alumnus, Ward Cunningham, allowed users to create and edit Web pages without any knowledge of hypertext markup language (html). Sanger and Wales wanted to shift to the collaborative model. This change did not appeal to other employees and so the partners were forced to a new server and a new name, Wikipedia.
Wikipedia started up in 2001 and gradually picked up steam. With the dotcom bust, Bomis disappeared from the Web. The question of selling online advertisements on Wikipedia rose to the fore but resistance of the Wikipedia collaborators proved strong and Wales and Sanger ultimately transferred Wikipedia assets into a nonprofit entity baptized Wikimedia. Wikipedia succeeded in crossing the one million page mark before its fourth anniversary in 2005.
Wikia
In 2004, Wales and a Wikipedia contributor, Angela Beesley, created the for-profit Wikicities, a free hosting service for wikis that would generate revenue from online advertising. Wikicities attracted numerous specialized wikis, a typical example being Wookieepedia (starwars.wikia.com), a wiki completely devoted to Star Wars. Many of the more successful wikis belonged to the gaming and entertainment domain.
By 2006 Wikicities had grown enough to attract outside investor attention. Venture capitalists wanted part of the action and Bessemer Venture Partners invested $4 million in Series A financing. At that point two moves were made. First, since the name Wikicities led many to believe that it was a specific wiki on cities rather than a home for multiple wikis, the firm renamed itself Wikia. Secondly, Wikia brought in an eBay executive, Gil Penchina, as CEO, the idea being that eBay executives were familiar with how to grow a company where customers do most of the work.
Six months later, on the basis of the Wikia business model and the continuing success of Wales’ previous creation, Wikipedia, Amazon called to join the fray. Though Wikia’s low burn rate of $1 million per year did not necessitate further financing, Wikia finally accepted an investment of $10 million from Amazon, bringing its financial reserves up to $14 million. By 2009, Wikia had turned cash-flow positive and generated some $4.5 million in revenues. But it was facing challenges.
Current challenges
Wikia’s overall challenge was to get people to do something for free that would allow Wikia to profit through the sale of advertisements. Unlike the case of Wikipedia, contributors would not be contributing to a universal philanthropic enterprise. The quality of the Wikis had to be high so that there would be enough visitors especially given the heavy competition posed by Web 2.0 startups using crowd-sourced models (an exhibit page 18 lists the names of some 60 competitors starting with the just the letter P!).
The challenge facing Wikia, with which the readers of the case are asked to grapple, is whether Wikia should aim for depth or width. Should it foster a plethora of wikis on wide-ranging topics or should it focus more on specific subject areas? Should it be horizontal or specialize more in verticals? While depth might be more attractive from an advertising standpoint, it meant greater outlays in time, capital and, conceivably, customized software.
The case brings up the example of Yelp, the restaurant review site, a very successful collaborative site but so specialized that it can’t enter new verticals easily. Another example is that of wikiHow, a well-designed wiki by and for do-it-yourselfers. Wikia could try to offer an alternative wiki but that would require an allocation of resources judged excessive. As Penchina puts it in the case: “You may lose the crumbs to that one specialist, but hopefully there are enough crumbs we can keep with a broad strategy that it works out in the end” (p.10).
Wikia’s most successful wikis were the gaming and entertainment ones. Some others, such as a diabetes wiki, had turned into greater successes than expected. One might believe that health sites require an expensive and complicated content team to generate the trust prerequisite to success of a science-related site. But in the case of diabetes, personal experiences are important and that individual variability made a user-driven wiki suitable.
Wikia faced a number of challenges with advertisers. First, by definition, there was no central control of appropriateness of content. Secondly, wiki users, unlike say an Amazon visitor, rarely come to the site searching for a purchase. Click-through rates on the gaming wikis had been poor. Because of this, Wikia focused on advertisers seeking to raise their brand awareness rather than advertisers hoping for immediate purchases. This in turn meant a smaller volume of ads but sold at a higher price (for confidentiality reasons, the case does not disclose Wikia’s CPM numbers).
But there remained pressure from investors to increase the effective CPM rate which could mean concentrating more on a successful vertical or overhauling the user-site relationship in direction of immediate purchases. The challenge shows how the commons and Mammon remain in negotiation.
Reference:
Kellogg KEL 464
"Triumph of the Commons: Wikia and the Commercialization of Open-Source Communities in 2009"
Professor Shane Greenstein, Rebecca Frazzano, Evan Meagher
Kellogg School of Management
Published in July 2010
