The Start-app Nation

Tiny Israel is making a big footprint in the field of mobile communications, especially in new applications for smartphones.

By ZIV HELLMAN
Jon Medved_311 (photo credit: Courtesy)
Jon Medved_311
(photo credit: Courtesy)
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.
The participants 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.
“Walking 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.”
Jon Medved, 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 step.
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 dizzying.
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 firms.”
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 products.”
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.
“I can 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 pleasant experience.
“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 videos.”
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 place.
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 you call.”
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 VRNG.
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.
Since smartphones still comprise a very small market share worldwide, there are clear advantages to applications that can be run on feature phones.
Paul 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 million.
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.
“The 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 there, too.
“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 that.”
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.”