Israel’s tech-heavy economy performed well in Q1 2015. The pivot to Asia and vibrant tech M&A market are among the reasons for an upward revision of GDP. Technology, accounting for more than ten percent of Israel’s workforce, 16% of GDP and 42% of export revenues, is the engine of Israel's economic growth. Based on observations from recent trade shows (Consumer Electronics Show in January, Mobile World Congress in February and SXSW in March), and the perspective (and data) of  Marc Einstein, Industry Principal, Consumer Telecommunications and Digital Media, Asia Pacific, at Frost & Sullivan, the next round of winners this year may come from these five categories: Wearable Technologies, Wireless, Artificial Intelligence, Cyber Security and Big Data Analytics.

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Wearable Technology
Wearable technology is in its infancy. Although Google Glass was pulled from the consumer market, development continues for the corporate, vertical market. Sony and other hardware manufacturers continue to ramp investment in the next generation of “Visors”.

The Apple Watch, launched last week, crystallizes the lack of battery and memory capacity in the category. However, relative to wristbands, Frost & Sullivan predicts a complete transformation of the category, with Smartwatches dominating revenues.

One interesting wearable category is “Hearables”, ear-focused wearable technology. Many of the early pilots have been in healthcare. Deployments for more advanced applications across sectors will occur later this year.

Watches require content and the dominant mobile revenue category (87% of App Store revenue) is games. Epstein cites the example of Mixi, which was the largest social network in Japan before being eclipsed by Facebook in 2012. The company had a significant turnaround after publishing a social game “Monster Strike”, attaining the #1 position in Japan with 7m Monthly Active Users. Mixi is now the 5th largest game publisher in the world, with a version available for Sony Smartwatch. In summary, Israeli developers should consider revenue-generating, “vertical-centric” strategies for Smartwatch. Game developers should play with Apple Watch and prepare for a burgeoning market.

Wireless Services

One trend that was abundantly clear at Mobile World Congress last month, wireless carriers are desperate for new services to increase revenues. Einstein cites the example of mobile chatting application LINE, whose free OTT voice product brought a precipitous drop in voice revenue for Japan's wireless carriers and engendered a market rebalancing of pricing plans. Operators need to expedite plans for a post-voice market.

The Bottom Line: Consumer applications, with a “User Acquisiton” business strategy, may be missing the bigger opportunity- providing services to help wireless carriers offset the loss of voice and SMS revenue.

Artificial Intelligence
The market for Articificial IntelIigence (AI) is growing exponentially. Frost & Sullivan forecasts growth from US$6.3bn in 2014 to US41.1bn in 2024.

The Bottom Line
: There will be significant M&A within this year as category leaders seek to augment their portfolio with AI solutions and skilled teams.

Cyber Security

Cyberattacks have been growing exponentially with over 43m recorded in 2014. The average damage from a security breach was US$2.7m in 2014. Checkpoint, with a market cap of $15 billion, is a market leader in this domain. Other NASDAQ companies include Imperva and Cyber Ark, which raised more than $85 million in their September, 2014 IPO on NASDAQ. Other cyber companies that could be attractive M&A targets in 2015 include Theta Ray, BioCatch, Covertix, Lacoon Mobile Security, SenseCy, Votiro, Seculert and Argus Cyber Security.

Cyber Attacks by Industry 2014

Big Data Analytics

The combined market share of the Top 3 players is expected to drop over time, making room for new pure play software vendors to enter the market with competitive solutions. Moreover, companies like Palantir, valued in its last funding round at $15 billion, will be highly acquisitive as they gobble up market share from SAS and IBM.

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Disclaimer: The views and opinions expressed in this blog article are those of the author(s) and do not necessarily reflect the official position or viewpoint of The Jerusalem Post. Blog authors are NOT employees, freelance or salaried, of The Jerusalem Post.

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