You failed, frustrated, but still cannot figure out the reasons. Here I give you the answer.
WordPress hosting is the most simple one among free hosting services: you just install WordPress, and enable network, as I mentioned in previous post (Providing free WordPress blog hosting, actually is so easy).
Unfortunately, you cannot match your service with WordPress.com or Edublogs just in a few months. It take years to build a free and paid WordPress hosting services like them. To start, you need keep the following 5 points in mind.
Engaging with users. You cannot just setup a forum to answer questions passively. You are not Google. One common failure of most free hosting providers is lack of engagement with users. As a start-up, be humble, be reachable, and be proactive. Answering questions in forum is only one of the passive ways of engaging users, although WordPress is very easy to use. You need use proactive means as well, for example, creating a fan page or group in Facebook. Then you can post updates and request feedback on your service. The difference is not marginal. With facebook fan page, you are broadcasting. Another way to proactively engage users is through personal channel, for example, use Google+.
Install some must-have plugins. Although WordPress can work out of box, you need install some plugins to make your life easy. For example, stop spammers registrations to eliminate the notorious spammers; Quick cache to make your blogs load faster. These plugins will be discussed in a s separate article.
Be moderate on spammers. Most consultants will tell you to kill spammers in the first place. Actually, it is not necessary. Remember, spammers can bring some traffic, and boost your rankings, and therefore increase the visibility of your service. When you open the door for free WordPress blog hosting, 99% registrations are actually spammers to certain degree (e.g., to promote another blog, or to build link farms for some keywords). So, don’t be over excited, nor panic, when you see 100+ signups in the first day. You only need disable spammers when the blog is not abusive (e.g., posting more than 20 posts each day without substantial contents; or merely a copy of another blog). You need grow your network first.
Promote your free WordPress blog hosting services. Word of mouth is the stone age marketing. You need broadcast. So, use social network is essential: join any relevant groups, and let others know your service. Promoting your service does not necessarily means spending if you do not have the budget (I guess most people are in very tight budget). You can shamelessly advertise your service in any advertising forums (read the rules of the forum first), or put your service in your signature of your profile and contribute to the forum. Anyway, use all means you have to broadcast…
Knowing how to make money from your blogging service. Forget about selling advertisements directly within first two years, unless you can get a few thousand active (and not spamming) blogs. Your revenue source is advertising through third parties. Google Adsense is the first choice for most beginners. Remember, legally, you are NOT allowed to put your Adsense ads on your users’ blogs, and you can only put Google ads on pages or contents created by you. For most blogs, affiliate ads perform quite well, so you may try to signup some affiliate networks, in addition to Google Adsense. You also need some other revenue sources (e.g., alternative ads) to cover the cost, if no profit. I will show you some ad networks that work well with WordPress blog hosting in a separate post.
In short, it is essential to engage with your users (just like any other services), to install some WordPress plugins to improve your efficiency, to be moderate on spammers by utilizing their efforts to grow your network, to promote and broadcast your serivice, and to prepare proper revenue sources.