good article from NY Times about Israeli Hi tech companies, tho no mention of memcf.
August 18, 1997
Israelis Turn Military Skills into
Software Export Boom
By JOEL GREENBERG
IVATAYIM, Israel -- Sharon Carmel and his old army
buddies used to work on computerized battlefield
simulations when they were in the service. Now heading their
own software company in this Tel Aviv suburb, they plan a
multimedia blitz on the Internet, hoping their software will be the
underpinning of a new generation of sites on the Web.
In Ramat-Gan, another of the suburbs ringing Tel Aviv, Gil
Shwed will not say much about where he served in the army, but
he does allow that he learned there about linking computer
networks with different levels of security clearance. Now he
presides over Check Point Software Technologies Ltd., a
software company that is the world market leader in creating the
corporate firewalls that are an essential element of Internet
security.
People like Mr. Carmel
and Mr. Shwed are the
reason why the
software industry has
boomed in Israel in
recent years, fueled by
the skills of
army-trained computer
engineers. Along with
Russian immigrants
and native Israeli
graduates of top-flight
schools, engineers
who learned their trade
in military jobs -- which
they won't discuss --
are bringing a combination of discipline, obsession and
anarchic inventiveness to a business that thrives in that kind of
environment.
Software is Israel's fastest growing export industry, the engine of
an expanding high-technology sector that in turn has powered
the Israeli economy's 6 percent average annual growth rate in
the 1990's.
And the software industry not only gets a good share of its
manpower from engineering divisions of the Israeli military; the
technology at some Israeli-run companies was developed in the
defense industry.
Sales figures for other American software companies with
Israeli roots -- a growing group that includes Net Manage,
based in Cupertino, Calif., Tecnomatix Technologies Ltd., of
Herzliya, Israel, and Novi, Mich., and Geotek Communications
Inc. of Montvale, N.J. -- have climbed over the past three years,
although their share prices have been volatile.
Software is still no rival to the largest of Israel's traditional
exports. (Polished diamond exports earned $5.2 billion last
year.) But high-technology exports as a whole are $5.5 billion,
more than a quarter of the $20.5 billion total Israeli exports in
1996, according to the Israeli Trade and Industry Ministry.
Software exports totaled $198 million in 1994, $287 million in
1995 and $413 million in 1996.
The software produced by the new Israeli companies ranges
from applications suited to new media games to highly
specialized software development tools. But no matter what the
product, it often owes its origins to the Israeli military.
For instance, Mr. Carmel and two friends from a high-technology
army unit formed their company, Geo-Interactive Media Group,
three years ago along with a veteran business executive. Mr.
Carmel says the bonds forged during military service have given
them a competitive edge.
"We have a soul, not only structure," he said. "We worked
together on the same projects in the army, often under pressure,
and we're very close-knit. We're very fast, and interest in our
products is accelerating."
Mr. Carmel, 26, and his partners also gained vital expertise
during their army service in a unit that specialized in simulations
of combat zones.
After their discharges in 1993, they went into separate business
ventures but joined forces in 1994.
They began by producing multimedia CD-ROM titles, working
out of an apartment in Tel Aviv. Later they used their knowledge
of data compression and transmission technology to create
software that would allow people creating Web sites to make
their multimedia features more easily accessible to the average
Web surfer.
Geo-Interactive nearly doubled its sales last year. to $1.4
million. Its 1996 public offering on the AIM London Stock
Exchange -- which specializes in small-capitalization issues --
brought in $19.2 million.
Geo-Interactive's flagship product is called Emblaze Creator -- a
program unveiled last March that enables people to send
interactive multimedia over the Internet that can be seen and
heard in real time with no more than a standard Web browser.
Video, animation and audio can be received directly without
downloading the materials or installing special software.
Other Israeli companies tend to follow the strategy of trying to
spot and mine niches not filled by large international companies.
Vocaltec Communications Ltd., also based in Herzliya,
produced the first Internet phone in 1995, making it possible to
conduct international and long-distance calls for the price of an
Internet connection. Its 1996 sales revenue, however, was still
less than $10 million.
Another Israeli company, VDOnet, based in Herzliya with offices
in Palo Alto, Calif., specializes in live video broadcasts on the
Internet. And earlier this month, the Microsoft Corporation
selected VDOnet to help it provide live video capabilities for
networks carried over cable modems or other broadband
delivery systems.
In the area of
Internet security, Mr.
Shwed's Check
Point has about 40
percent of the world
market in internet
firewall programs,
which protect
corporate networks
from outside
intruders.
The secret of
Israel's software
successes,
however, does not lie entirely in military connections. The
country has a reservoir of skilled computer engineers and
programmers who have studied in schools like the Technion,
Israel's leading technology institute.
In addition, the arrival of more than 700,000 immigrants from the
former Soviet Union since 1990 has increased the pool of
computer experts. Another core of expertise is provided by
returning Israelis who have studied in the United States and
worked in Silicon Valley.
Israel has the world's highest percentage of scientists, with 135
engineers per 10,000 citizens, according to the Israel Yearbook
and Almanac. The United States has 85 per 10,000.
Israel's small size and population permit easier links and more
familiarity between people who can form working teams to
design software, while the Internet bridges the distance to
foreign clients, serving as both a marketing tool and technical
support system.
"Israel is almost exactly the right size," said Ed Mlavsky,
president of Gemini Capital Fund Management, an Israeli
venture capital group. "If a country's too small, there's not
enough diversity, and if it's too big, there aren't enough
connections between people. There's also an innovative attitude
here, a nonconformity in methods which in some senses is
undisciplined."
Mr. Shwed, who, with two partners, founded Check Point,
agreed that there was an Israeli tendency for unorthodox
experimentation.
"Israelis have a tendency to work fast, to improvise and find
solutions," he said. "That's the way the state was created here
from zero. There's also a lack of business culture here. People
don't do things by the book and they're willing to break the rules,
which can be an advantage. The lack of a local market has
forced people to think globally and create universal products."
Mr. Shwed's own story is a case in point. A computer whiz-kid
who during his army service set up and linked computer
networks with different levels of security classification, he
spotted a golden market opportunity with the growth of the Web
in 1993.
Closeting himself with his colleagues in an apartment for three
hot summer months, he worked with them to develop a
prototype of a firewall security program that served as a basis
for their company. In 1996, Check Point's sales totaled $32
million, Mr. Shwed said.
The software boom in Israel has its parallel in the growing Israeli
presence in the United States.
The Mercury Interactive Corporation, for example, an Israeli
company that makes automated software testing tools, has
located its corporate headquarters in Sunnyvale, Calif., while
maintaining research and development operations in Israel.
Aryeh Finegold, Mercury's founder and chief executive, divides
his time between Israel and Silicon Valley. The company
reported $54.6 million in sales in 1996.
Geo-Interactive has a U.S.-based subsidiary, Geo-Interactive
Publishing Inc., handling sales, marketing, distribution and
technical support, as well as advertising and public relations.
Check Point has its United States headquarters in Redwood
City, Calif.
One of the biggest of the American offshoots of Israeli
companies, Geotek Communications, is working with I.B.M.,
which announced in June it would provide $200 million in
equipment for Geotek's wireless networks and would jointly
market Geotek's services.
Geotek's specialty is communications software that allows small
companies with fleets of vehicles, like local delivery services or
even hotel chains with airport shuttles, to communicate with
drivers and track fleets using satellite tracking technology.
The products, which helped bring the company $93 million in
sales in 1996, are based on software licensed to Geotek from
Rafael, the research and development arm of the Israeli
Defense Ministry.
The reaction of American high-technology companies to these
emerging companies has been threefold: In some cases,
Microsoft and I.B.M. have invested in or underwritten their
technologies, in others, they have eclipsed Israeli companies by
coming out with competing products, and both companies now
operate research and development facilities in Haifa, Israel.
Marketing may be the weak point of Israeli software companies.
"The commercial successes of Israeli software firms are smaller
than they seem," said Nisso Cohen, who heads the Israeli office
of the International Data Corporation, which conducts market
surveys.
"Israel is a significant world player from a technological point of
view, but in revenues its share is very small," Mr. Cohen said. "In
20 years, virtually no Israeli start-up company has succeeded in
reaching $100 million in annual sales. They haven't invested
enough in marketing."
Related Sites
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Check Point Software Technologies Ltd.
Net Manage
Tecnomatix Technologies Ltd.
Geotek Communications Inc.
Geo-Interactive Media Group
Vocaltec Communications Ltd.
VDOnet
Microsoft Corp.
Technion
Mercury Interactive Corporation
IBM Corp.
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