(Business 2.0 Magazine) -- Open-source is a great idea for users--they typically get a decent product for free. But it's a far trickier proposition for companies trying to make a buck from an open-source application.

That didn't deter Toni Schneider from quitting Yahoo, where he was a vice president, and joining Automattic in January. The startup, based in San Francisco, is named after 22-year-old co-founder Matt Mullenweg--the "Matt" in "Automattic" and the developer of WordPress, an increasingly popular open-source blogging tool. Launched six months ago, the company already claims 150,000 users. Schneider, 36, is now aiming to build a real business on top of Mullenweg's creation.

Toni Schneider is simply the startup type.

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This is Schneider's third turn at the helm of a startup. His first was as CEO of Uplister, an online music-playlist service that shut down in 2002. He then took the helm of Oddpost, a Web-based e-mail software company that Yahoo snapped up for $29 million in 2004. At Oddpost, Schneider's challenge was to improve on a product that Google, Microsoft, and Yahoo give away. At Automattic, he has a similar task: Figure out a way to charge users for a product they can download for free.

Ironically, the fact that WordPress is open-source gives Schneider some advantages. He already has a user base to sell new products to, and he knows exactly who to hire--the developers who've already worked on the software for free.

Business 2.0 caught up with Schneider to ask how he found his startup-CEO niche and to hear his plans for Automattic.

So you've left Yahoo, with thousands of employees, to run a company with--how many people?

"There's five of us."

In the Valley, some entrepreneurs like to build things and run them. Others like to build them and hand them off once they get to a certain size. Where do you fit?

"I found that my sweet spot is in taking something at the prototype stage, where there's proof of concept but there isn't market validation yet. It can then be handed to somebody whose business is to take it to the mass market. It takes a different skill set to just start from scratch and say, 'I'm just going to sit there for a year and work on this thing, and maybe it'll work and maybe it won't.' That's more of an inventor."

Isn't that where you were with Oddpost?

"I came in very early, but there was a prototype of the software. Oddpost had the initial glimmer of greatness, but there was still a lot to do. We looked back at that first version, and it looked really impressive, but there was so much missing. Like spam filtering! People signed up for it and paid anyway, but we said, "Maybe we should have had a spam filter ..."

You've joined Automattic to help it capitalize on WordPress. Why?

"WordPress is an interesting new challenge because it's not like most startups, where the world still hasn't heard of you. WordPress is way past that stage. On the other hand, there is no business yet. Until Automattic came along, there was nobody working for it. It was all volunteers. So taking that product momentum and somehow turning that into a business will be really interesting.

I also really like the virtual-company aspect of it, how teams all over the world come together based on shared interests. You have this selection process of people who want to work together. That to me is a lot better than interviewing people, looking at resumes, and deciding if a person is going to work out. It's a different approach to building a business."

So what is the business model?

"We're looking at a number of things. WordPress as a blogging platform is already open-source. If you want to run your own blogging service and host other people's blogs, great. Take it. We want lots and lots of people to become serious bloggers. Then we can offer add-on services to those people.

If a blog starts to have so much traffic that you start making some money, once you get to that point, you're ready to spend meaningful money. For people who just casually blog, it should be free.

We're starting to license add-on services like Akismet, which blocks Web spam, to other people who are running corporate blogs, for example. If you're, say, an About.com, and your business is on blogs, you can't have spam on there."

What's Web spam?

"Web spam happens anywhere you have a website that's open to public posting and comments. It could be a blog that's open to comments, it could be a wiki, it could be a bulletin board, it could be a newsgroup. And in all of those places, you start getting garbage in there. Spammers try to sneak in comments without you noticing, so that they get the links back to their sites."

How do you view competitors like Six Apart and Blogger?

"Blogger is interesting. They compete at the low end because they're free--a lot of people start on Blogger. They are probably the biggest blogging platform out there.

There are 27 million blogs out there. It's not well understood, but the biggest services--like Blogger, MySpace, and MSN Spaces--probably account for half of that figure. But that's just the raw number of blogs.

In terms of how much traffic they generate, where a lot of the high-end blogging happens, that happens on services like Six Apart's TypePad and with software like WordPress and Six Apart's Movable Type. There we don't have accurate numbers, but my guess is that there are probably somewhere between 200,000 and 500,000 WordPress blogs out there and probably about half as many Movable Type blogs. And TypePad might have a few hundred thousand as well. So I actually think Movable Type and TypePad combined are probably smaller than WordPress at this point, but I don't have any real numbers."

Why not?

"Because WordPress is open-source, we only know how many downloads there have been of the WordPress package."

So what does Automattic own, exactly?

"It owns the WordPress trademark and WordPress.com, where we host blogs. We launched that late last year."

Why do you think Blogger, which is owned by Google, hasn't evolved into a more sophisticated product?

"My guess would be that the market opportunity doesn't fit what Google is going after. I think Yahoo deals with this as well: Do you become a blogging platform yourself, or do you work with all the other platforms out there? Because you actually want everybody's content, not just your own."

You worked at Yahoo for a year and a half after the Oddpost acquisition. What was your role there?

"I worked on Yahoo's products for the software developers. Before I came, Yahoo didn't have anything like that. If you were a third-party developer and you wanted to do something with Yahoo, you couldn't really do it. There were no rules. With all the Web 2.0 activity, all of a sudden lots and lots of small companies wanted to build things on top of the services and infrastructure that Yahoo and others already had.

It was perfect timing to say, OK, let's take some of these things that Yahoo has built that are super industrial strength and make them available to developers. Yahoo makes it really easy to then plug into various parts of Yahoo. Say you want to build a weather feed into your application, or traffic information, or maps. Now you can just pull it in from Yahoo."

Why did you leave Yahoo to go through the startup grind again? Didn't you make enough money from Oddpost that you don't have to work anymore?

"No. I'm plenty motivated still."

Really? The general perception is that Oddpost was a big win.

"It was. It was a nice chunk of money, but, you know, raising a family in San Francisco--it adds up. Oddpost definitely worked out all around. The only person who didn't want to do the deal was Tim Draper, one of our lead investors. He said, 'You're selling too cheap. It's too early. You could be the next Microsoft. They're stealing this company.'"

John Battelle is program chair of the Web 2.0 conference and author of "The Search" (Portfolio, 2005).