startup

Humus Manifesto and Shakshuka Reality

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Shakshuka
Image by STML via Flickr

Michael Eisenberg, an Israeli VC, wrote two thought provoking posts about the way the government  invest properly in Israeli High Tech. From Microsoft and .Net monopoly through iPad banning, to poor distribution of CSO funds, our government neglects the important aspects of maintaining Israel’s technological leadership.
Though not a VC, I’ve worked in several industries, from mobile to internet to media, and I meet a lot of startups in different stages. And I think that though Michael is right in his claims, there is another angle to this story – the core competencies of the Israeli industry is not as important as in the past.

Origins of Israeli High Tech
Israel’s High Tech originated, broadly speaking, from 4 sources:
1. Technological army units such as 8200, Air force and Mamram
2. Universities such as Technion
3. Russian immigration
4. ECI/Comverse RAD group and other major companies, whose employees who jumped ship and opened their own startups.

The strong points of these sources were electrical engineering and telecom oriented know how.

The Best Beta Site
Israel has one of the highest mobile and broadband penetration rates. Therefore, a mobile startup could easily sign a deal with a local mobile operator and make it a beta site. The local mobile industry was at the same level as  European mobile markets, so Israeli companies could launch products in that huge market relatively easily, as it was close to what they had locally. I was a part of such process when working with Flash Networks. First we sold our product to Orange, and then to T-Mobile. We knew what was needed in order to build and deploy a product in such an environment.

Media and Internet are Winning. Pipes are losing.
However, the market changed. World wide innovation lies more and more in internet companies. Hulu is more innovative then Motorola. Google is more innovative (and profitable) then Nokia. Mobile operators are not as important in the value chain as they were before. And Apple is changing the game again and again with innovative hardware and software.

Failure in  Growing the Business
Most Israeli companies are just not big enough, or maybe not with the right culture and financial resources to win over the mobile and telecom market and create the next Nokia or even next iPhone. The last guys who tried it failed and closed shop, not to mention their founder’s financial trouble. Yes, I am talking about Else Mobile and Eli Reifman‘s troubles. So in that area we are basically, well, screwed.

No Longer a Beta Site
So let’s look at the Israeli internet industry. Unlike the mobile market, there is a huge difference between local internet industry to international or American one. While video is growing drastically in the US, and major media companies experimenting with new business models, our market is just too small, too centralized, to make companies feel their bread and butter is at risk. With 3-4 major media players (Hot, Yes, Reshet, Keshet), and two major portals (Walla, Ynet) no one has the incentive to innovate. They are making enough money as is, and digital cents are not even on their map, as no one buys content here.
We don’t have an Israeli iTunes. We don’t have an Israeli Hulu. We don’t have an Israeli Huffington Post. We don’t have an Israeli ereader market (Sorry E-vrit, not enough units sold yet). Come on, iPhone, one of the biggest media innovations, landed here less than a year ago.
Amazingly, there is a huge gap between Startup innovation and portals’ adoption of technology.
So the Israeli media and internet is like Shakshuka – some great cutting edge media technology (eggs) floating in a sea of not extremely innovative portals (tomato sauce).

Culture
With technology less of an issue and winning product is the focus in the online and media industry – culture and media consumption habits become the key for creating a winning company. And, we don’t have the visibility of neither. Cause our local market is so different.

Is This The End?
Is this the end of Israeli startup industry? No. There are several amazing content and media companies here in Israel such as Innovid, Outbrain and many more.
But we need to start think differently. It is not like 8200 will start to create cool video players so Israeli innovation won’t die. But it might be that in the future these units won’t be as important in Israeli High Tech as in the past.

Possible Solution
We need a simple plan – and do the so unIsraeli thing to do- actually follow it. We should encourage Hot, Yes and the major portals to invest in innovation. It might be through tax incentives or other ways, but we should give them a reason to do so, cause they don’t have one now.
We should create special incubators for media companies with international media veterans. I have couple of names in mind.
And we should take into consideration that the market is going to change to the worse for us. As Michael said, we are definitely not competitive in price. If the current situation will continue, we will lose our technological edge as well.

What’s Wrong with this  Post?
If you know me you know that I love well established facts. Unfortunately I don’t have the numbers to back the claims here. It is based on personal experience and being in the industry for 10 years.
Would love to hear your opinion.

TWS 2009 – Join the Competition!

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Like last year, I am a judge at TWS 2009, Israel’s web start ups competition. Among the judges are Brian Solis, Meir Brand (CEO of Google Israel), Deb Schultz, Ayelet Noff , Jeff Pulver, and others.
Submit your startup by the 24th of June (yes! in two days!).

The event is taking place on the 13th of July.

See you all there!