Before You Create A Network « WordPress Codex

Before You Create A Network « WordPress Codex: "A sub-domain install creates a domain-based network, even though you might use separate domains, and not subdomains, for your sites. A sub-directory install creates a path-based network, even though it does not use file system directories. If you want to use a sub-domain install, you must install WordPress in the root of your webpath (commonly public_html)."

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