Mobile start-ups thrive in Israel
December 5, 2008
By combining engineering talent, access to capital and a start-up friendly environment, Israeli companies have made their country a leader in the mobile media sector. But ICQ founder and Angel investor Yossi Vardi has a different explanation and more light-hearted explanation: the Jewish mother. “Nobody is harder to satisfy than a Jewish mother,” he said, relaying an old joke:
Q: How many Jewish mothers does it take to change a light bulb?
A: (In despondent, motherly voice) Don’t worry about me…I’ll just sit here in the dark.
According to the Israeli Export Institute, Israel has the world’s highest proportion of scientists and engineers with postgraduate education: 135 per 10,000, compared to 78 per 10,000 in the United States. Many engineers were first exposed to advanced communications technologies during their mandatory three-year military service, followed by degrees at world-class engineering universities such as Technion, Tel Aviv and Bar Ilan.
Today, in addition to home-grown players in the sector such as Comverse, Amdocs and IDB, more than 30 multi-national companies including Microsoft, Motorola, Cisco, HP and Texas Instruments, operate telco-related R&D facilities in Israel. This has created a pool of seasoned technologists with relevant expertise.
Another factor is access to risk-capital. Despite the global recession, 462 Israeli hi-tech companies raised moe than $1.75 billion last year–the most in six years and an eight percent increase over 2006 according to the Israeli Export Institute. Communications continues to be the sector with the most investment, representing 21 percent of all investment. More than half (61 percent) of that came from global venture capital companies with a local presence, such as Benchmark, Sequoia and Accel. The result is that Israel, with a population of only 7 million, ranks second in the world (after the United States) in funds raised by technology start-ups, according to the World Economic Forum, and third (after the United States and Canada) in number of NASDAQ-listed companies.
Take a stroll around the cafes of Hamenofim Street in Hertzelia Pituach (the Sand Hill Road of Israel) and you are just as likely to hear conversations in English or Russian as in Hebrew. The start-up scene has benefited greatly from immigration. Since the fall of the Soviet Union, more than one million Russian Jews have settled in Israel, many of them with technical skills.
Jon Medved, CEO of video ringtone enabler Vringo, and a transplant from the United States himself, likened it to the Indian and Chinese entrepreneurs in Silicon Valley. “Immigrants are natural entrepreneurs… these people are making a start-up of their entire lives.”
The greatest challenge for Israeli mobile media companies is scaling operations without a significant domestic market. Although Israel has more than 100 percent total mobile penetration, ARPU of $48 and 12 percent of handsets quantified as smartphones, the largest mobile operator (Cellcom) has only three million subscribers.
According to Ofir Leitner, founder of the Tel Aviv chapter of Mobile Monday, a global networking community for the mobile sector, “most start-ups view local operators as a beta site. They provide a reference point but you don’t expect to get rich from it.” As a result, Israeli start-ups, including Amobee (which provides mobile carriers with an advertising platform) and Jajah (consumer VOIP), maintain R&D in Israel but company headquarters are in Silicon Valley. Eventually, where to locate constitutes an important decision for all Israeli early-stage companies. Cellogic, which enables access to preferred mobile content with one-touch on the dormant screen, is typical. Although co-founder Justin Oberman is based in New York, co-founders Itamar Weisbrod and Avi Elias are debating whether to relocate all operations to the United States.
One defining characteristic of the Israeli mobile start-up scene is the quantity of repeat entrepreneurs. Avi Shechter, general manager of mobile Internet service and community provider Fring, previously founded ICQ.
“Provided lessons are learned from mistakes along the way, the journey is considered as valuable as the destination,” Shecter said. “It may take a few wrong turns but there is always an answer.”
Similarly, my6sense co-founders Barak Hachamov (seven start-ups) and Avinoam Rubinstain (three start-ups) have learned a few things along the way. “We lived though recessions. My6Sense is focusing like a laser… one platform and one market,” Hachamov said. The company uses artificial intelligence technology to bring personalized “digital intuition” toward finding the most relevant mobile content.
This ability to focus has allowed several Israeli mobile media start-ups launched during the last technology boom in 2000 to thrive in the present. For example, Infogin spent the previous eight years focused on developing technologies for delivering rich web experiences to any mobile device. Now Infogin works with carriers such as Telefonica and partners such as Microsoft, AOL and Comverse. Similarly, World Mate, which started eight years ago as a developer of PDA applications, eventually found an attractive niche in the mobile travel sector. Last month, the company announced a strategic investment from the Blackberry Partners Fund. World Mate CEO Nadav Gur says, “travel is the largest ecommerce vertical. World Mate is bringing all of that functionality and convenience to mobile.”
Another company that flourished during Mobile 1.0 is Mobixell. Focusing on the MMS user experience helped Mobixell win deployments with more than 250 mobile operators across the globe, including Vodafone, Verizon and Telefonica. Now Avichai Levy, executive vice president of marketing at Mobixell, wants to “help our carrier partners in other high-growth multimedia segments, particularly mobile advertising and mobile television.”
One disadvantage with the focus on the U.S. market is the lack of traction for many Israeli mobile media companies in Asia. Eyal Reshef, who heads the Israeli Mobile Association-an industry trade association dedicated to assisting Israeli-based mobile companies with business development overseas-has led delegations to India and the Far East. Not all companies have ignored Asia though. Clip in Touch, which was founded by multimedia veteran Rami Reshef with investment from Indigo founder Benny Landa, secured partnerships with Sina.com and other Asian content portals. “One thing is for sure,” Reshef said. “Everybody wants to be Steven Spielberg.” The service allows users to develop personalized content for web and mobile messaging.
Similarly, Todacell, which has a platform for off-portal mobile advertising, has set up its only overseas office in Tokyo. According to Zvi Eshel, Todacell’s vice president of products, Todacell has focused heavily on Japan’s mobile advertising market from its inception.
Israeli mobile media start-ups need global partnerships and relationships to survive. Before entering into a partnership, it is recommended to conduct business over a meal. There is a Jewish saying, “worries go down better with soup.”