Wikimedia Foundation Annual Plan/2023-2024/Finances
Overview: Reducing expenses
The world is currently in a period of increasing financial instability. The instability of our global economic outlook (including inflation and other concerning financial signals) creates uncertainty for the future financial projections of the Foundation. Currency fluctuations are also adding some unpredictability to the Foundation's finances as it raises and spends funds in multiple currencies.
Slowing budget growth. The Foundation's budget grew dramatically over the past five years, fueled in part by the creation of an ambitious Movement Strategy. Since last year, budget growth has been flattening; for this upcoming fiscal year (2023−2024), the growth flattened even more, to the point that it will not easily keep up with inflation and other unavoidable cost increases. What this means is that the Foundation had to reduce internal expenses in some areas to fund cost increases in other areas, including keeping our grants programs at similar levels to last year. Based on the information we have now, we expect to maintain an effectively flat budget for the next few years.
Most expense categories are affected by things like inflation, cost of living adjustments, and other unavoidable year-on-year cost increases, which means that the budget grows even if nothing else changes. To maintain current staffing levels (no additional overall growth in staff), the Foundation's annual budget would need to increase by 6−7% annually. We are looking instead at annual budget increases of about 3-5%, which has meant that we needed to actively reduce expenses to make up for those types of increases.
Reductions in expenses. Based on projections, we need to reduce expenses by approximately $8 million in the 2023−2024 budget compared to our current run rate. As a consequence, the Foundation is making budget cuts both in non-personnel and personnel costs. We focused first on preserving funding to grants and Movement support and funding inflationary increases in several core operating areas like data centers. Then we worked to identify reductions in non-staffing expense categories like professional services, legal fees, and subscriptions. However, it became necessary to consider staffing expenses, which affected some vacant/unfilled roles and about 5% of occupied roles. The Board of Trustees agreed to the availability (if it is needed) of 1% of the organization's financial reserve for one-time, non-recurring expenses.
Movement funding will not decrease. The Wikimedia Foundation raises the vast majority of resources for our Movement. We have an obligation to consider the financial sustainability for other entities that rely on funding from these resources. Therefore, we prioritized cuts in other areas so that the Foundation's overall grants budget will not be reduced. The overall budget for grants will increase by an average of 7% across all regions to keep up with global inflationary costs, support newcomers to the Movement, and increase funding for conferences and Movement events.
As the chart below depicts, Personnel costs followed by Grants and Movement Support remain the two largest expense categories at the Foundation, making up 59% and 14% of the budget respectively. Grants and Movement Support (which includes support for Wikidata) makes up a slightly higher share of the budget this year compared to last.
Product and Revenue "Dance Partners"
As part of multi-year strategic planning, we need to deepen the collective understanding among all stakeholders of Wikimedia's financial model, and the trade-offs inherent in any choices we make. Our current revenue streams are closely linked to both product and community decisions (e.g. how we approach banners, how we consider the Enterprise model, realism on the approach to endowment fundraising).
Online behavior of content consumption has indicated for several years that relying on banner fundraising alone would not be a future-proof revenue strategy for our Movement. The Movement Strategy working group on Revenue Streams recognized that banner fundraising might not prove to remain a major source of revenue by 2030, encouraging us to adapt to changing reader behaviors and to diversify streams of revenue.
In that sense, product and revenue are "dance partners:" these decisions need to be coordinated and intentional to avoid stepping on each other's toes, going into opposite directions, or stumbling into each other. Decisions to prioritize one kind of revenue, or restrict another, lead to real trade-offs, especially if those decisions are at odds with the behaviors of our readers: a decision to limit revenue from Enterprise leads to revenue trade-offs in a world where an increasing number of people access Wikimedia content via large commercial reusers. Conversely, community constraints on the content and format of fundraising banners involve revenue trade-offs in what has historically been our most stable source of funding for the Movement.
There is no simple answer to these questions; "revenue strategy … is inextricably intertwined with the larger decisions we have to make as an organization and a Movement," and we will need to continue having discussions about these topics in the years ahead, including with the Wikimedia Foundation Board, the Endowment Board, and community leadership structures (like a future Global Council).
|Product||We need more page views on our websites …||We need more focused initiatives and programs …||We need to consider charging more to large-scale reusers …|
|… to raise more (unrestricted) online/banner fundraising …||… to raise more major gifts …||… to build a sustainable revenue channel beyond charity…|
|Trade-offs||… but this is not where search and other internet trends are heading.||… but this is generally less flexible funding and can bring more risks.||… but this has trade-offs in how some people understand our mission.|
Short-term Revenue & Digital fundraising
Revenue for the Foundation has grown by a factor of 5 over the last decade, but this growth is reaching some limits due to a convergence of factors.
Trend 1: Donation revenue model relies on a high volume of readers visiting our website. The success of our banner fundraising model has been powered by high readership on Wikipedia. Growth in the early days of fundraising was fueled by increasing readership.
Trend 2: Internet trends are changing and readership is declining. As user expectations and online search change, declining page views present risks to our reader supported model. In the United States, we observed a -7% decline in average monthly unique visitors between Jan-Dec 2019 and Jan-Dec 2021.
Additionally, brand health is weak among young audiences in our key revenue countries, presenting long term fundraising challenges. 18−24-year-olds are generally less likely to consider the brand, use it, or recommend it to their friends. This is the case across all markets, with particular issues in the United States, Germany, and South Africa, where most young people wouldn't recommend the brand.
Trend 3: Banner campaigns have been heavily optimized with more visible trade-offs. When banner campaigns began, there were easy ways to increase revenue, and the targets were just a few million dollars per year. Over time, these campaigns have been heavily optimized. Different approaches are required to keep up with internet trends that are working against the traditional banner model.
Additionally, there are trade-offs in how we balance maximizing revenue with the impact on readers and volunteers. Over 75% of donors donate the first or second time they see a fundraising banner (see chart below). The return declines by showing a reader more banners and impacts the disruption to our readers and volunteers. The 2022 banner campaign on the English Wikipedia used lower-performing wording, and therefore required a longer campaign, more banner impressions, and more emails to past donors; it resulted in a $10 million decrease compared to the 2021 campaign.
There are limits to running longer campaigns.
Over 75% of donors donate the first or second time they see a fundraising banner.
The return declines by showing a reader more banners and impacts the disruption to our readers and volunteers.
Trend 4: Anticipated decrease in fundraising efficiency. Our fundraising ratio has been historically low and stable at $0.10 cost per dollar raised, driven by the high efficiency of banner revenue. As banner fundraising faces more constraints and diminishing returns, we need to consider increasing the share of revenue coming from other channels like email and major gifts, which incur higher costs. This will make fundraising ratios increase, to perhaps $0.12 cost per dollar raised (still much lower than the industry standard of $0.20).
Trend 5: Increasing major gifts requires broad organizational commitment. Increasing major gifts is dependent on building a culture of philanthropy to clarify key metrics, accountability, and storytelling of the impact of our work. Commitment to accepting restricted gifts is essential to growing major gifts and comes with trade-offs.
Accountability to donors and culture of philanthropy. We must better show causality and impact and prove that our work is actually "moving the needle" on Wikimedia projects, to replace the "leap of faith" our donors must currently make with demonstrable bona fides of our impact. We must also better develop directed gifts as part of our multi-year plans, to make large donations more meaningful and transformative, and develop the internal discipline and accountability processes to honor our commitments. To develop a culture of philanthropy, we must tell our story better to donors, and develop accessible materials and multimedia campaigns for the general public that explain the basics of how our projects and communities work.
There are still some positive trends and opportunities, but they will take time to develop and won't offset reduced growth in banners. More donors are signing up for monthly recurring donations, and email revenue continues to grow. We have opportunities to strengthen our donor life cycle to increase how much a donor gives over their lifetime. We may also open new fundraising countries and explore new channels, but these won't offset declines in our major markets. Last, organizational commitment to accepting restricted gift opportunities is essential to growing major gifts.
Multi-year revenue streams: Endowment and Enterprise
A permanent safekeeping fund to generate income to support the operations and activities of the Wikimedia projects in perpetuity. The Wikimedia Endowment is a fund separate from the Wikimedia Foundation. As a financial endowment, its principal (or "corpus") value is intended to be kept forever intact, while a portion of the fund may be spent each year. The Endowment is one of the ways we can increase the financial sustainability of our Movement.
The Endowment was launched in January 2016 with the initial goal of raising $100 million by 2026 to support the Wikimedia projects. The Endowment reached this initial goal in June 2021, $30 million of which were directly contributed by the Wikimedia Foundation.
Revenue from the Endowment. In 2023, the Endowment established a cost-sharing agreement with the Wikimedia Foundation, whereby the Endowment now compensates the Foundation for expenses it incurs on behalf of the Endowment. In 2022−2023, this amounted to around $1.8 million paid by the Endowment to the Foundation, the bulk of which represented the expense of Foundation staff working on Endowment matters. We expect a similar amount in 2023−2024.
Additionally, in January 2023 the Endowment Board approved its first grants to fund technical innovation on Wikimedia projects, to ensure that the Wikimedia projects stay relevant in a rapidly-changing technology landscape. This list of projects was developed by the Endowment's Grantmaking and Community Committee in partnership with the Foundation's Chief Product and Technology Officer. They represent a total of $3.2 million funding the following projects in the 2022−2023 fiscal year: Kiwix, Machine Learning, Abstract Wikipedia, and Wikidata.
Planned giving. A planned gift, or a legacy gift, is a contribution of any amount that is agreed to in the present and given at a future date. These gifts are often made through a will; they can also be made through life insurance policies, retirement accounts, bank or brokerage accounts. We receive, on average, 183 times more funds from donors via legacy gifts than via all the gifts those same donors contribute during their lifetimes. Planned giving is a long-term investment with a higher return on investment than any other fundraising effort. By adding new planned giving revenue streams, we can build up a pipeline of commitments that will come to fruition in stages over the coming years. By 2050, planned gifts could be the primary funding source for the Endowment.
A way to adapt to how Wikimedia content is accessed. The decrease in monthly unique visitors over the past few years (-7% between Jan-Dec 2019 and Jan-Dec 2021) is a challenge to our historic model for readership, contribution, and revenue. The Foundation's metrics team believes that third-party content reuse (services that use embedded Wikimedia data, thus negating the need to visit our sites) is one factor contributing to this.
We do not control how our content is reused in third party environments, limiting our ability to communicate with readers. At present, users who encounter our content via a third party generally do not have the opportunity to develop any kind of relationship with Wikimedia, whether through donations or, more dangerously for our core model of knowledge creation, through participation and editing in our projects.
Wikimedia Enterprise aims to address this new normal. It makes more of our Movement's content available in consistent machine-readable formats, charging commercial organizations for access to Wikimedia content delivered in these formats while remaining freely available for researchers and re-users. This is consistent with the Movement Strategy recommendation to Innovate in Free Knowledge, which directed us to "build the necessary technology to make free knowledge content accessible in various formats. … To make our projects technologically adapted to include more diverse formats of knowledge, there is a need to facilitate the reuse of our content on platforms beyond Wikimedia."
Wikimedia Enterprise provides a clearer and consistent way for the largest re-users of Wikimedia content, such as major search engines, to reinvest a portion of the benefit they derive from Wikimedia content back to the Movement, instead of making occasional altruistic donations that vary in size and regularity. Wikimedia Enterprise aims to incrementally grow our commercial business with high-volume reusers in order to replace the lost revenue from historical channels that depend on direct communication with readers (like fundraising banners). As such, it is a direct implementation of the Movement Strategy recommendation to Increase the sustainability of our Movement through "new opportunities for both revenue generation and free knowledge dissemination through partnerships and earned income."
Launched in March 2021, Enterprise offers an API platform to sell data access, professional services, and commercial guarantees to high-volume re-users of Wikimedia content, currently focused on the search engine and voice assistant markets but actively exploring new market opportunities as well. As of January 2023, Enterprise has $3.2 million in annual recurring revenue.
Growth of the Wikimedia Foundation's budget will be flattening compared to prior years, increasing by +5% to $177 million. This includes growth in grant and Movement funding while also preserving investment in areas like our data centers, which are required to keep Wikimedia projects available. As described above, we have had to make cost reductions in non-personnel and personnel expenses to account for a small reduction in budget growth relative to the rate of year-on-year expenses. If needed (particularly to avoid additional personnel reductions), the Board of Trustees has agreed to make available ~1% of the organization's financial reserve for one-time, non-recurring expenses.
*Note: In 2019−2020 we were able to use a budget underrun to pay forward grants for the future in order to provide funding certainty for our grants programs in an uncertain time. The amount shown here for 2019−2020 is reduced to reflect that action.
Revenue growth is also expected to be nearly flat as compared to projected revenue in the current year. Due to the trends described above, growth in revenue from our biggest digital channels are reaching some limits. In particular, banner revenue is a declining share of the Foundation's funding next year, therefore requiring other revenue channels to increase to fund the budget.
|Revenue||2022−2023 Projection||2023−2024 Budget||Change|
|Endowment (estimated*)||$5 M||$5 M||0%|
|Enterprise||$3 M||$4 M||33%|
|Major Gifts||$18.5 M||$19 M||3%|
|Online Email||$36.5 M||$38 M||4%|
|Online Recurring||$30.5 M||$33 M||8%|
|Banner & other||$77.5 M||$74.5 M||−4%|
|Investments||$3 M||$3.5 M||17%|
|Total||$174 M||$177 M||2%|
* The Endowment revenue represents grants and cost reimbursement from the Wikimedia Endowment to the Wikimedia Foundation. However, this revenue is an estimate, and will be determined by the Endowment Board after July 2023.
In 2023−2024, the proportion of the Foundation's budget funding direct work on the mission, also called "Programmatic Expenses," will grow to 78% of the budget, which has averaged 73%-76% recently, reflecting the increase in allocation to grants and funding to Movement partners, among other areas.
|Budget by Expense Type|
|General & Admin||$21.3 M|
Building knowledge as a service reflects the largest part of the budget in 2023−2024. Supporting equity represents the second largest part of our programmatic work, with grants and Movement support representing the majority of the budget within the equity goal.
|Budget by Goal|
|Safety & Inclusion||$20.5 M|
Grants and Movement Support
Aligned with Movement Strategy, we continue to grow the Foundation's direct support to the Movement. This year, we will increase overall Movement support by 15%, including funding for Wikidata, in line with the existing plan for that project, and grants by 7% compared to this year.
The Community Fund grant program, which includes the regional budgets for General Support Funds (non restricted and multi-year grants) and Rapid Fund programs, will grow by 10%. To build on our commitment to more equitable resource allocation, funding will grow in all regions, while prioritizing a proportionally larger growth in underrepresented regions. Funding for regional and thematic conferences will increase by 7%, while funding for Research Grants and the Alliances Fund will decrease.
In 2023−2024, we will build on the work done with grantee partners in 2022−2023 to revise elements of the grantmaking process with the overarching goals of creating a lighter-weight process for grantees, increasing partnership between the Foundation and affiliates, and a commitment to shared learning. We are proposing the following changes to the General Support Fund:
- Expanding multi-year funding eligibility for all General Support Fund applicants to support long-term costs (i.e. staffing and rent), without a multi-year strategic plan.
- A lean grant renewal process that focuses solely on important changes, lessons learned, and is pre-populated with previous grant information.
- Removing the requirement for a written midterm report
- A revised and simplified grant agreement (cut from 12 to 7 pages)
All General Support Funds remain unrestricted as they have been since the relaunch in 2021.
Unsurprisingly, the largest category of the Foundation's budget is personnel, representing roughly 60% of expenses across permanent staff and temporary contractors. The increasing costs in our budget reflect cost of living and similar expenses related to salaries, benefits, and other personnel costs. This is followed by Grants and Movement Support, where we are prioritizing growth in this fiscal year, as discussed above.
Travel and Events is increasing this year because Wikimania is returning to a primarily in-person event in August 2023, which represents a significant portion of that budget.
We have budgeted for small growth to reflect typical year-on-year costs for many of the categories which are core to maintaining operations, like Capital Depreciation, Internet Hosting and Donation processing. We are working to reduce and manage costs in most other expense categories.