Wikimedia Enterprise Financial report & Product update

Following the initial announcement and project launch in 2021, and first customers in 2022, the Wikimedia Enterprise team is pleased to provide the first financial report, representing the first calendar-year of operations. Also included is an overview of forthcoming product updates.

Wikimedia Enterprise is the API project designed to support the high volume data access requirements from large commercial reusers of Wikimedia’s freely-licensed content. By building a separate API tailored for their specific technical and legal needs, it helps improve the user-experience of people accessing Wikimedia content on third-party platforms, and provides an independent revenue stream for the movement. You can learn more about the reasons behind this project at the Community Essay.

A public meeting will be hosted by the team at 1900 UTC on Friday February 10 to discuss this announcement – details on our project homepage. If you have any other questions please consult the FAQ or ask them on the project’s talkpage.

Financial report

One of the principles of the Wikimedia Enterprise project has been “the publication of overall revenue and expenses, differentiated from those of the Wikimedia Foundation in general, at least annually”. We are therefore proud to present the inaugural “beta” edition of the Wikimedia Enterprise financial report. 

We are actively seeking feedback about how the report’s structure, content, and explanations can be improved for the next edition, which will cover the 2022-23 fiscal year. 

Context

In order to operate this API service – for which customers can pay for high speed/volume data delivery and Service Level Agreement (SLA) guarantees – the Wikimedia Foundation has created a limited liability company (LLC) which operates as Wikimedia Enterprise. This is a standard approach when a non-profit organization operates a for-profit activity. It is this LLC that signs the contracts with the customers of the API service, and it is that LLC’s financial report presented here. The Wikimedia Foundation is the sole owner of the LLC, all the people who work on it are Wikimedia Foundation staff, contractors, and vendors – and it is ultimately subject to the governance and oversight of the Wikimedia Foundation (WMF) Board of Trustees. For more details about this legal structure see the FAQ on the topic.

There are two reasons why this financial report should be considered a “beta” edition – timeframe and structure: 
1. Timeframe. Normally, the Wikimedia Foundation operates on a financial year starting in July and finishing the following June. But, as January 1, 2022, was the official start of commercial operation of the project, this report covers the calendar year of 2022. For future financial reports we intend to align with the normal financial reporting schedule of the rest of the Wikimedia Foundation. The next report will be in late 2023.

2. Structure. As the LLC is wholly owned by the Wikimedia Foundation, all of the financial information presented here will also be included within the Wikimedia Foundation’s audited financial statements and will be in the next Wikimedia Foundation “Form 990” filing as it relates to fiscal year 2021-2022, and future years. A “Form 990” is the annual informational document required for non-profit organizations in the United States by the Internal Revenue Service (IRS). However, there is no equivalent reporting form for a Limited Liability Company (LLC) which is wholly-owned by a nonprofit organization.

Financial performance summary

At the end of the calendar year 2022, the total revenue for Wikimedia Enterprise in the 2022 calendar year is $3.1 million – representing 1.9% of the Wikimedia Foundation’s 2022 total revenue. By comparison for the same period, online revenue (i.e. fundraising via websites, email, mobile app) was ~79%. As this covers only the first year of operation, it is expected that the Wikimedia Enterprise’s revenue amount, and its proportion within the Foundation’s overall revenue will increase by the next report. In accordance with the operating principle of financial independence and associated Board of Trustees statement, income from Wikimedia Enterprise would be capped at 30% of the total Wikimedia Foundation annual revenue.

The cost for a customer is based on the volume of data used, calculated on a per-request or per-gigabyte basis, and includes things like contractually guaranteed uptime requirements. The pricing model is described on the project website. Furthermore, there are also several no-cost access methods for the same dataset. The Wikimedia Enterprise API is an opt-in product. Wikipedia projects (and existing APIs, database dumps etc) remain free for anyone to access and reuse. The commercial use of Wikimedia content has, and remains, permitted under the principles of Free Cultural Works. 

For the first half of the calendar year 2022, the project’s monthly revenue (averaging $260,000 in calendar year 2022) covered the LLC’s monthly operating expenses (averaging $255,000 for the first half of 2022). For the second half of 2022, due to further product investment, monthly expenses grew (averaging $280,000) while revenue remained constant. In 2023, our second year of operations, with the addition of new customers and also new features, both revenue and expenses are expected to increase – but revenue growth is expected to outpace expenses. By comparison to other startup commercial API projects, to reach this stage within one year of operations is extremely rapid progress. The governance of these and all other commercial customer relationships is consistent with how the Wikimedia Foundation treats large corporate donations.

The total expenses (including cost of services) of the Wikimedia Enterprise project since its inception have been $4.5 million. This represents the full calendar years of 2021 ($1.3M) and 2022 ($3.2M) combined.

Expenses have increased by 142% from 2021 to 2022 – this is primarily a reflection of the increase in staffing, customer support costs and hosting charges. At the beginning of 2021 there were three full-time equivalent Wikimedia Foundation staff working directly for the project, plus external contractors. Over the course of the year the balance has shifted towards a larger portion of the work being handled in-house and thus the staff team has grown to 8.5 full-time equivalent employees across five countries at the end of 2022. We expect this trend to continue (we’re hiring!). The list of the current team (staff, as well as external contractors, and LLC board members) is on the project’s Meta-wiki page.

The LLC itself has no staff of its own – the sole purpose and benefit of the existence of the LLC as a legal structure is so that it can sign contracts with commercial customers and take the legal responsibility for those promises. This legal clarity is also the sole motivation or benefit of the LLC having been registered in the state of Delaware: it is the legal system that is most established and most well understood by American corporate law and the lawyers that practice it. 

As defined in the cost sharing agreement, the Wikimedia Foundation charges the LLC for 1) direct business costs such as third-party vendors; 2) staff costs for the Wikimedia Enterprise team; and 3) indirect costs that the Foundation incurs on behalf of the LLC, which is calculated to be 15% of the direct costs from (1). and (2). Item (3) is meant to recover the Foundation’s general and administrative expenses, primarily for the time spent by colleagues from the Legal, Finance, and Talent & Culture departments, ongoing access to office equipment, IT services, etc. 

Financial performance detail for calendar year 2022

Revenue (Subscription & Prof. Services)	$3,120k
Cost of Services	$1,060k
Internet hosting charges	$210k
Software Amortization	$300k
Customer support	$550k
Gross Profits	$2,060k
Operating Expenses	$2,120k
Staffing costs	$980k
Prof. Services and Contractors	$640k
Other operating expenses (incl. 15% overhead charge)	$500k
Net Profit/Loss before Tax	($60k)

The Wikimedia Foundation incurs costs which are eligible for capitalization (expensing the value of an asset over its useful life, rather than all at once) – primarily personnel expenses and outside professional service costs for software development.^[1] The amount capitalized for Wikimedia Enterprise was about $1.9 million at the end of 2022, of which $380,000 has been amortized (depreciated) so far since 2021.

Taxation

Based on advice from our external tax advisors, the revenue derived from the API subscription itself is not taxable. By contrast, income derived from unrelated business activities may be taxable to non-profit organizations.^[3] This unrelated business income is income from a trade or business, regularly carried on, that is not substantially related to the purpose that is the basis of the organization’s tax exemption. For Wikimedia Enterprise, taxable income includes professional service revenue, net of expenses. In this context, “professional services” is the small portion of revenue Wikimedia Enterprise engineers spend consulting with customers at their request, to provide expert technical advice to a specific customer about their own systems and setup.

As such, Wikimedia Enterprise’s federal tax liability for the professional services revenue is estimated to be $6,300 for the 2022 financial [not calendar] year. However, as the Wikimedia Foundation’s merchandise store had a prior-year net operating loss which can be offset, we expect this to result in $0 taxes payable to the IRS for FY22. This will be recognised in the Wikimedia Foundation’s 2022 federal tax filing, currently in the process of being prepared.

Wikimedia Enterprise may also be subject to state and local taxes. Certain business activities, including reaching a certain sales threshold to customers located in that state, may invoke a state and local tax obligation within the state. In FY22, Wikimedia Enterprise only sold to customers within the state of California and thus was subject to California state tax requirements. However, no California state income taxes were due as our gross taxable revenue in the state was under the $250,000 threshold for taxation. 

There is no state tax return to file for LLCs that are formed in Delaware if they have not conducted any business there – which Wikimedia Enterprise has not. As an LLC which is wholly-owned by a 501(c)(3) non-profit, there is no difference in our federal tax liability by being registered in Delaware compared to being registered in any other state in the US. Equally, the federal tax reporting requirements remain functionally the same regardless of which US state the LLC is registered in.

Product updates

The following is an overview of the new updates that will become available via the API service over the next few weeks. These details will be covered in greater depth in an upcoming post on the Enterprise news page. Technical documentation will also be updated accordingly and ongoing updates for the community can be found via the project’s MediaWiki page. 

While the Enterprise API features are designed with large commercial reusers in mind, other kinds of reusers – including individual volunteer Wikimedians – can also benefit. There are several access methods to the datasets available at no cost/no registration, including a free Wikimedia Enterprise account via the project’s homepage.

First and foremost this update includes substantial architectural improvements that are required to build more advanced API features in the future. Alongside these foundational changes are some general overall improvements. We’ve introduced response filters and added endpoints to save time and hassle in procuring the data reusers need across projects. We have ensured complete parity in the response data structure across the Enterprise API suite, in order to assist reusers parsing response data in the same manner regardless of API. 

The “Realtime streaming” API has received some further improvements on top of the aforementioned optimizations. This update lowers event latency increasing the overall speed. It now provides a reliable unified event stream which ensures a linear timeline for reusers which eliminates any confusion with the order of events.

The “Credibility Signals” feature is our ongoing effort to incorporate the API with some of the public information that Wikimedia editors use to make their editorial decisions. This update adds a handful of new fields, such as date_created and date_previously_modified, with more coming soon. These help contextualize the data and allow reusers to make better informed decisions.

“Summaries” is also a new data field within the API which provides a concise description of Wikipedia article content (similar to the existing page-preview hover cards) without the need for reusers to parse the entire Wikitext or HTML article body themselves. This saves a lot of time and compute power, and lowers technical barriers for reusers to understand the content within articles.

You can learn more information about these new API features on the Wikimedia Enterprise news page.

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We look forward to continuing to provide updates, primarily via the Enterprise news page. In particular we are seeking feedback about how the structure, content, and explanations of this “beta” edition financial report can be improved for the next edition. We are pleased to answer any questions you may have on the project’s Meta-wiki talk page or at the forthcoming public meeting – details of which are on the project homepage. 

^[1] Accounting Standards Codification (ASC) Subtopic 350-40, Intangibles – Goodwill and Other – Internal Use Software of the Financial Accounting Standards Board (FASB). 
^[2] ASC 606, Revenue with Contracts with Customers.
^[3] IRS Publication 598