IF ANYONE HAD DOUBTS REgarding the prominence of Israeli start-ups in the mobile
applications and communications industry, a trip to Barcelona earlier this year
would have been sufficient to dispel any question marks.
at this year’s annual GSM Mobile World Congress, held in mid- February in Spain,
are still talking about the buzz Israel created in Barcelona.
the hallways [at the Barcelona trade show], the amount of Hebrew one heard being
spoken was astounding,” says Eyal Reshef, founder and CEO of the Israel Mobile
and Communication Association (IMA).
“There were over 150 Israeli
companies with over 1,000 Israelis attending in total. The IMAexhibit alone took
up 700 square meters, hosting 35 companies within it.”
founder and CEO of Vringo, which created a platform allowing users to create,
download and share video ringtones for mobile phones, says Israel’s presence was
palpable. “And the IMA exhibit wasn’t even the largest Israeli pavilion there,”
he tells The Jerusalem Report.
“The Israel Export Authority pavilion
hosted an additional 50 companies, and that is without counting the hundreds in
separate pavilions. Being Israeli, they were loud and boisterous and proud. And
proud for good reason, given how much Israeli technology and know-how there is
in the industry.”
A decade ago, when websites and applications were the
leading edge of the technology world, Israeli start-ups proved to be among the
most impressive and successful in the world. With the advent of the age of the
smartphone, a great deal of technology focus and energy nowadays is devoted to
the mobile telephone and its applications, and the “Start-Up Nation” – a term
popularized by a recent book on Israel’s high-tech miracle – is not missing a
Communications technology exports comprise over a quarter of the
country’s goods and services exports, according to the Ministry of Industry,
Trade and Labor, and out of over 6,000 start-ups nationwide, at least 20 percent
work in the communications industry. The list of areas in mobile technology in
which Israeli companies are pushing the technology envelope is
In mobile content management, the local ecosystem runs the
gamut from giants such as Comverse and Amdocs to nimble start-ups such as
Mobiltec and Unipier.
RESHEF FOUNDED IMA IN 2002, as a non-profit
intended to help companies in the mobile communications industry develop
products and get to market.
Most of the funding comes from corporate
sponsors and the Chief Scientist’s Office.
“We exist to build success for
mobile and telecom companies,” says Reshef. “Our team of experienced professionals from the mobile and communication industries lives
and breathes the world of communications. We form a nucleus of knowledge at the
heart of an ecosystem of market players, including technology companies, system
integrators, operators, network and handset vendors and venture capital
To attain the goal of helping companies “build success,” IMA
provides companies with both technological assistance and a market- promoting
web of international contacts.
On the technological side, IMA has
constructed an on-site test-bed laboratory at its headquarters in Tel Aviv’s
Ramat Hachayal neighborhood, one of the country’s major start-up epicenters. The
advanced lab contains at least 1,300 different telephone models made available
to start-ups to test their software – an important resource for small companies
that need to reach as broad a market as they can as soon as possible. In some
cases, new telephone models are available in the IMA laboratory three to four
months before they appear in the general market. The IMA Mobile Device Exchange
Program enables IMA member companies to borrow mobile devices as needed from its
shared device pool.
IMA is also beta-testing a network simulation package
that will give its members the opportunity to conduct tests on a network
simulator before they move on to more expensive testing on real networks. Tests
on network simulators can include functional testing, to ensure that each
element of a network provides functionality as intended, conformance testing,
for compliance with standards specifications, load and stress testing, to see if
heavy traffic may be borne without degrading performance, and optimization
monitoring, for top efficiency.
For marketing promotion, the IMA
maintains connections with hundreds of leading corporations and individuals in
the industry around the world. “This is an important channel for start-ups to
get information of their new products to the world, along with sales leads,”
says Reshef. “We conduct at least 14 roadshows a year to showcase Israeli mobile
The annual GSM world congress in Barcelona is an event in
which IMA invests a great deal of time, money and attention.
“Half a year
of preparations, including forging contacts, preceded the show,” says Reshef.
“This paid off with about 2,000 meetings conducted at the show between Israeli
companies and other attendees over the three and a half days of the event.” IMA
even mobilized “reserve forces,” people who are not associated with the
organization on a permanent basis, but are familiar with the technology and
speak foreign languages.
Some of the IMA laboratory was shipped to
Barcelona for showcasing.
THE TOTAL ISRAELI delegation to Barcelona this
year was the fourth largest, after the US, Britain and France, outdoing South
Korea, Japan, Canada and even Germany. Medved reports that the excitement was
felt even prior to the event. “Traveling to the annual Mobile World Congress
from Israel is like going on an annual trip, except that you get there by plane
instead of by bus,” says Medved. “Whether you go on one of the planes chartered
by the IMA for the sole purpose of getting to the conference and back, or you
travel by a commercial El Al flight to Barcelona that week, you are getting
there with a typically loud and proud group of Israelis, and the boisterousness
continues throughout the congress.”
Medved, who came to Israel from
California about 30 years ago, after studying history at the University of
California, Berkeley, has a long and successful CV in high-tech
entrepreneurship. He got his start in the industry in 1982, as founder and vice
president of marketing and sales of MERET Optical Communications, Inc. An early
pioneer in fiber optic communication systems for video transmission, MERET was
acquired by the Amoco Corporation in 1990.
Medved followed that success
by joining the founding management team of Accent Software International Ltd.,
which developed multilingual Internet publishing, browsing and email software.
Moving next into venture funding, he co-founded Israel Seed Partners and acted
as a co-manager of the fund from January 1995 to January 2006. During Medved’s
tenure, ISP had $262 million under management in four funds, investing in some
60 leading Israeli companies. Some of its major successful investments were in
Shopping.com (subsequently acquired by eBay Inc.), and Compugen Ltd. and the
Answers Corporation, both of which went public on the Nasdaq.
remember the exact moment the idea for Vringo came to me,” Medved tells The
Report on a sunny day at a Jerusalem café. “I usually discount stories of ‘the
moment the big idea came to me’ when other people tell them, but here it really
happened to me. I was sitting in a cab with my mobile telephone, waiting for a
customer representative at a Hertz Rent-A-Car call center to become available to
speak with me. While I was waiting, I heard a boring message repeated over and
over again, telling me to keep waiting. And I thought, why don’t you show me a
video while I wait, on my mobile telephone. It would at least give me a more
“Once I had the idea of showing videos on mobiles in
various situations,” he continues, “I was led to asking why not have videos
serve as ringtones. Ringtones are a huge business.
But now that we have
mobile telephones with video screens, we can turn ringtones into
Medved notes that moving into video was natural for him, given
that his first company, MERET, involved fiber optics for video transmission. As
a venture fund manager, he invested in a company specializing in video
compression, and EarthNoise, a precursor to YouTube (founded in Tel Aviv in
2000, long before YouTube), which had half a million active users uploading
video to its site before it was eclipsed by YouTube.
Selling the idea of Vringo in 2006, however, was not as easy as it now seems.
“We tend to forget just how fast technology is moving,” notes Medved. “When I
first spoke about video on mobile telephone screens back in 2006, before the
iPhone was even invented, people asked me if I was nuts. Who would watch a video
on such a small screen, they asked? If they thought about it at all, they
considered perhaps video conferencing using a mobile telephone, not watching
videos for entertainment. And we had to develop a lot of software. There was no
app store then.”
Although Vringo now lists a Manhattan office as its
headquarters, Medved, a longtime Jerusalem resident, originally founded the
company in Beit Shemesh, which is where the R&D of Vringo continues to take
After a long period of development, Vringo ran into another
difficulty. The company found the testing process required by large Western
mobile operators frustratingly slow. The solution that it hit upon for quicker
testing is an indication of how global the technology industry is nowadays:
working with smaller but more nimble operators in Turkey and Malaysia enabled
rapid testing leading to a roll-out. The product officially launched one and a
half years ago, and today users pay about $1.50 per month for a subscription,
giving them access to software and libraries of videos.
“The feature that
really gets users excited is that not only can one choose a video ringtone for
one’s own phone, but one can also determine the video that will be the ringtone
of a friend when one calls,” says Medved proudly. “We found a way to patent
that. The key is locally storing the video ringtone you want your friend to see
in your friend’s mobile handset, so that it is immediately available as soon as
With its success in international markets, Vringo now has the
attention of big Western carriers. Vringo launched in Britain in early March
with Orange, and it has plans to work with Verizon in the US, and to expand
further into Europe and India. It is also an example of a recent successful
Israel-based IPO, and it is now traded on the Amex exchange as
ANOTHER COMPANY WORKING in the mobile phone industry that has
recently attained headline success is Snaptu, the first Israeli start-up
purchased by social-networking giant Facebook. In fact, the Snaptu acquisition
is Facebook’s first outside of the United States. Snaptu’s innovations are
concentrated in enabling smartphone- like applications on what are termed
“feature” mobile telephones. Afeature phone is a low-end mobile phone that has
less computing ability than a smartphone, but more capability than a phone that
can do no more than initiate and answer telephone calls.
smartphones still comprise a very small market share worldwide, there are clear
advantages to applications that can be run on feature phones.
Naphtali, a spokesman for Snaptu, declined to answer questions, telling The
Report that until the full details of the Facebook purchase are finalized, no
press statements would be forthcoming. The price tag for Snaptu was speculated
by the local business media to be in the range of $60 million to $70
The Facebook fit was natural for Snaptu because the two
companies had already been partnering for several months in developing a
Facebook app for feature phones that can work across 2,500 different feature
devices, giving owners of those devices access to Facebook that had previously
only been possible through a smartphone.
Facebook claims that more than
200 million of its users worldwide have accessed its services by mobile phone.
In addition to a Facebook app, Snaptu has developed feature-phone apps for
Twitter, Picasa and LinkedIn access.
WHY HAS ISRAEL EMERGED as a mobile
industry powerhouse? Reshef is persuaded that the characteristics of the mobile
industry fit dynamic character traits shared by many young Israelis.
banking software industry, in contrast, is not dynamic,” says Reshef, who gained
expertise in the mobile telephone industry as a marketing director at Partner
Communications Ltd (Orange Israel), one of the three major mobile service
providers, when the company was first established, giving him a ground-level
view of how a mobile network is launched from scratch. “Banking software is
dominated by large, stable companies.
The mobile field, in contrast, is
dynamic, evolutionary and revolutionary. It is the right environment for nimble
start-ups. This fits the Israeli character. Israelis like identifying new
possibilities. They come with a strong technology background, and there is also
the advantage of the technology exposure and development in communication
devices, computer networks and chip technology that Israelis obtain in the
military and military industries.
That forms a very strong core
expertise.” The mobile applications market has also blossomed in recent years as
a potentially lucrative place in which to invest in innovative technologies,
because customers have been proven willing to pay money for apps, which they
obtain through virtual “app shops.”
Reshef tells The Report that in his
estimation “gesture software,” in which devices recognize and respond to hand
gestures, as opposed to keyboard-based interaction, is a big upcoming field, and
he believes that local start-ups are already well-positioned to attain success
“We are good at spotting new trends,” adds Medved. “This is
an industry with a major technology component. It is not purely business alone,
in which Israelis tend not to be as strong. It is an industry that favors the
small and maneuverable. And there is the significant and long-standing military
interest in signals processing.”
One criticism that is frequently raised
against the start-up business culture that has emerged in this country over the
past two decades, and is mentioned prominently in the book Start-Up Nation, is
that it is overly reliant on small companies that seek quick “exits.” The
typical local start-up entrepreneur imagines creating a company from scratch in
order to sell it to a large US or Europe-based corporation for tens of millions
of dollars – or hundreds of millions dollars in a very successful exit – within
a handful of years. Why is there no “Israeli Nokia,” meaning an
Israel-headquartered technology company with billions in annual worldwide sales?
“It is not clear that being Nokia is the best goal to have,” responds Reshef.
“When a company with a market presence as large as Nokia [has in Finland] fires
employees, that is felt far and wide. It is perhaps better to spread out risks
over many companies. We are also physically far from the major markets in Europe
and North America. On the other hand, there is a good question here, because
larger companies in this industry build themselves up by strategic acquisitions
and mergers, and for some reason Israeli companies are not strong in
Reshef adds that in the mobile software industry, business trends
can change quickly.
“A company like Snaptu is wise to sell now to
Facebook,” concludes Reshef, “because if it tries to build itself up on its own,
it can lose its market share quickly if trends change in the near future. Being
nimble and fast has many advantages. We are very good at that in Israel.”