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The WordPress hosting space may just simultaneously be one of the most lucrative, yet underfunded, industries out there.

There’s no question that the use of WordPress, the open source content management system (CMS) that enables the publishing of blogs and e-books (among other things), is growing exponentially. The WordPress CMS has grown to 30 percent of the Internet, up from 13 percent in 2010, according to W3Techs.

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But all those WordPress sites need to be powered somehow, and that’s where WordPress hosts come in.

Our research has found that the WordPress hosting space is small but mighty. However, venture funding into these startups has been minimal.

Servers For WordPress

Austin-based WP Engine made headlines earlier this year for its massive $250 million private equity investment from Menlo Park’s Silver Lake Partners. But prior to that, dedicated WordPress hosting startups had raised just over $300 million across 30 deals between 2005 and 2017 according to Crunchbase News research.

2014 seems to be the year that venture investors really started taking notice of the space. During this time, eleven deals brought in a combined $201 million according to Crunchbase data. By contrast, WordPress startups raised a total of $33.6 million in 2016 and just $300,000 all of last year.

When it comes to venture investment, Automattic, the startup behind the development of WordPress’s core functionality, has raised the most money. WP Engine, Pantheon, Omaha, Flywheel, and Sova round out the top five WordPress hosting providers in terms of dollars raised.

Kip McClanahan, General Partner at Austin-based Silverton Partners, saw the potential in the WordPress hosting space early on.

He was an angel investor in WP Engine. Silverton Partners then led the startup’s Series A and B funding rounds in 2011 and 2012. McClanahan served on the company’s board until its most recent investment from Silver Lake.

“I’ve got a lot of love for the company,” he said

In general, he believes the potential for WordPress hosting “may be one of the largest tech markets in the world.”

“One out of four websites are powered by WordPress,” McClanahan told Crunchbase News. “That’s a pretty good field to play in.”

Two Ends Of The Market

The contrast between WP Engine and Pagely’s path toward growth is stark. The startups have taken very different directions with one choosing to raise large sums of money and the other not. Wp Engine has historically focused on smaller-to-medium customers that don’t pay large fees every month. On the other end of the market is Pagely, which is focused on larger clients, such as Disney and Warner Bros., who pay higher monthly fees.

WP Engine’s $250 million private equity raise is impressive because of its sheer size. The investment brings its total raised to $290.7 million. On the other hand, Pagely’s lack of venture funding is notable, namely because of what the company has been able to achieve without it.

Pagely co-founder Joshua Strebel said his co-founder (and wife), Sally, decided early on not to take outside capital for a number of reasons.

“We have friends who have started companies and taken outside funding who have yet to have gotten a payday, or been politely asked to move on from their own companies,” he told Crunchbase News. “Plus, Sally and I feel strongly that when the focus is on a return for investors, that incentivizes actions that are not customer, or employee-friendly.”

Strebel and his wife own 85 percent of the company’s shares, with the other 15 percent being provided as options for its 35 employees.

“When we exit at some point, everybody gets a share of it,” he said. “No one told us to do that. We felt like it was the right thing to do.”

While WP Engine won’t disclose revenue growth over time, Eric Jones, the company’s VP of global communications, told Crunchbase News that the startup recently achieved more than $100 million in annual recurring revenue with more than 75,000 customers. It has 500 employees scattered across its headquarters in Austin and offices in San Antonio, San Francisco, London, Limerick, Ireland, and Brisbane, Australia. Heather Brunner serves as its chairwoman and CEO.

Meanwhile, with just 35 employees, Pagely has a few thousand customers average deal size of $8,000 to $9,000 per month, among new accounts. The startup’s revenue grew 900 percent year-over-year from 2014 to 2017, according to Strebel, and it is profitable.

“Since we don’t have investment money to fall back on, there’s no such thing as a burn rate for us,” Strebel told Crunchbase News. “We’ve had to make money and be profitable every month we’re alive.”

Despite different approaches to keeping the lights on, the startups do have something in common. Both have chosen not to invest in their own infrastructure. WP Engine has partnerships with Amazon Web Services and Google Cloud Platform. Pagely also is partnered with Amazon Web Services.

“We optimize AWS and GCP for WordPress, so our customers don’t have to, and can instead focus on innovating in their business,” Jones said.

A “big chunk” of Pagely’s revenue spend goes toward Amazon. But Strebel believes it’s worth it for the business that being an Amazon partner brings in. As a result, it doesn’t spend as much on marketing either.

In terms of their actual offerings, Jones said WP Engine’s Digital Experience Platform for WordPress was built to address users’ biggest issues.

“Our products help… developers, marketers, and agencies innovate and go-to-market faster, improve the performance of their brand’s online presence, deliver actionable insights to improve the ROI of their sites and applications and enable integrations,” Jones said.

The company also partnered with digital intelligence startup New Relic to include its analytics software as part of a new solution.

Meanwhile, Strebel believes the most significant difference between its offerings compared to competitors lies more in the way the company runs its business.

“At first, differentiation in this space was feature-driven,” he said. “But over the last few years, everybody essentially has come to do the same thing. The difference comes down to the target customer base and the business model around it…. At Pagely, we need fewer deals since our deal sizes are typically larger than our competitors, so we’re much more targeted in who we approach and the words we use to attract our customers.”

Dedicated WordPress hosts may not be plentiful or raising tons of money, but that doesn’t take away from the importance of the space. As WordPress continues to grow as the platform of choice for web creation, the early dedicated WordPress hosting companies will be in a position to take an even bigger share of the market.

Editorial note: Updated to reflect that Pagely’s per-customer revenue averages reflect new, and not older, accounts.

iStockPhoto / z_wei