SmartPlanet: The Open Source Business Model

Culture, Design, SmartPlanet, Software

smartplanet logoFreedom from shareholders: how to succeed as an open-source business

For many launching businesses in today's fast-moving tech sector, the goal is to attract investors and shareholders, and eventually selling it all to an even larger company. One tech vendor, however, is bucking this urge, preferring instead to have a positive impact on its communities — both users and the cities in which it is locating offices. 

“A lot of companies are following that typical Silicon Valley path,” says Brian Cheung, CEO and co-founder of Liferay, Inc., a Los Angeles-based company which provides portal technology to organizations. “They’ve got their investors, and they’re aiming for that acquisition or that public offering. We're very conscientious about not doing that. We're still independent, privately held, with no outside capital.” The advantage to staying private is that becoming beholden to shareholders stifles innovation, he adds.

I recently had the opportunity to sit down with Cheung at Liferay's recent confab in San Francisco, in which he expounded on his company's unique philosophy toward innovation and community development. The company, which builds and distributes its software via an open-source model, is founded on the belief that innovation and growth comes from helping to make its customers and communities stronger.

“When you go public, you have a lot of shareholders that you need to please on a quarterly basis,” says Cheung, who helped start the company in 2004. “A lot of startups basically lose their innovation, because they’re unwilling to take risks, and because they need to show short-term results. They stop doing the things that they use to do when they were private that would really disrupt the market. They start to focus more on making their operations more efficient instead. We see a lot of benefits in staying private — we can take risks,  and we can support of our superstar developers who are sometimes are working in stuff that doesn’t have practical value in the short term, but ends up being revolutionary off in the future.”

As is the case with Liferay's open-source business model, Cheung sees many types of online services moving to a freemium model. For example, both the news and music businesses are being disrupted in this manner. The New York Times and other newspapers now offer content to drive traffic. The Times even “recently rebranded the International Herald Tribune as the International New York Times, basically selling off all non-core assets and focusing on high-quality journalism, digital subscriptions and also experiences such as special lectures and  special conferences. I think its similar in the music business business right now, where music is becoming the commodity that you see out in the market to generate interest, but you’re going to make all of your money from live shows, or even t-shirts.”

In the software business, the trend is to support community based, participatory software development, “and then establish our expertise in providing goods and services that are complementary.”

Cheung sees his company as an engine of economic development as well, with the company purposely locating offices in underdeveloped areas. This stems back to the early days of the company, when Cheung and his co-founding partner, Brian Chan, were donating 10 percent of the company's profits to charity and relief efforts. “After a while, we felt like writing checks wasn't as interesting as being on the ground and being involved,” he relates. “That's when we began opening office overseas in developing countries.”

Cheung emphasizes, however, that these efforts are not “charity.” Rather, “these are dynamic economic environments where there are also business reasons for us, as well as engaged employees.”

Recently, the company turned its efforts to the United States, opening an office in Hamilton, Ohio, a former manufacturing town that had been on the decline for decades. “The city helped us  locate some space. Our goal is to help create jobs and help local businesses. Everyone’s in Silicon Valley or Silicon Alley in New York. But when people see us making a deliberate choice to be in a place, it gives them shot in the arm, they support that.”  A regional bank even halted its planned purchase of Microsoft SharePoint servers and went to Liferay's portal solution as a result of seeing the company's interest in the distressed city.

Next, Cheung hopes to develop a presence in northeast Japan, in areas ravaged by the 2012 tsunami. Liferay employees have already been donating time in the area to help residents and businesses rebuild, and plans are underway to open an office there. “We'd like to open an office, and employ local young people, so they’re not all fleeing to the big cities, and have our employees invest their spare time giving to the community — to be a part of that community.. give them hope, give them a future.  It's a $10-billion economy, and we're just a drop in the bucket. But hopefully it will make a small difference to them.”

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