BloGiza

The Government Rides to the Rescue (?)

The last couple of years have not been particularly kind to the local high-tech industry. Although Israel was spared the worst effects of the global crisis, the local economy and especially the local tech-based economy has had to deal with knock-on effects of the general meltdown.

Specifically, we have seen a dramatic reduction in capital available for both VC funds and startups. Since the beginning of 2009, only one VC in the local market has managed to raise a new fund, and this was Sequoia Israel who could leverage Sequoia’s international positioning.  Many of the local VCs who had managed to raise new capital prior to the crisis are working with smaller-than-planned funds.

Unsurprisingly, this has affected that amount of new money flowing into startups here, which is at one of its lowest points in a decade.

Over the past few weeks, the Government has unveiled a number of new initiatives which Prime Minister Netanyahu and Finance Minister Yuval Steinitz hope will help save Israel’s high-tech economy. Steinitz, working with his Director-General, Avi Shani, and a Knesset subcommittee dedicated to the issue have come up with a number of ideas designed to address the problems of Israel’s high-tech sector at all levels.

The measures that have been announced are: 

1. Encouraging local institutionals to invest in VC funds instead by providing a financial safety net
2. Provide tax benefits and breaks for investors in seed-stage companies (the so-called “Angel Law”)
3. Attempt to establish Israel as a leading center for the development of technology geared towards the global financial sector, in the same way that Israeli high-tech companies became leading players in the Communications space over the last 15 years
4. As part of this repositioning, encouraging multinational financial institutions to establish R&D centers for financial technology within the framework of the CSO
5. Encourage Israeli companies to grow instead of selling themselves out early. The idea is to provide tax incentives for medium- and large-size local tech companies to acquire smaller tech companies and in this way to establish themselves as large growing concerns.
6. Create additional exit opportunities by encouraging companies to go public on the Tel Aviv Stock Exchange
7. Focus government R&D spending towards specific areas of interest
8. Improve the quality of science and technology teaching at the high-school levels by creating programs to train teachers in these subjects, re-training ex-high tech employees as teachers, and encouraging current high-tech employees to teach on a part-time basis in the schools
9. Encourage additional sectors of society (e.g. the ultra-orthodox and Israeli Arabs) to participate in the high-tech economy by subsidizing part of their salaries in high-tech companies
10. Encourage academics who have left Israel to return by providing tax breaks from future earnings based on technology that they develop

It’s an ambitious plan and one that addresses a lot – if not all – of the main problems facing Israel’s high tech sector. Whether or not it will work is another question.

My gut feeling is that the plan will be only partially successful at best. Without going into a point-by-point critique, some thoughts:
 
Regarding incentives for local institutional investors to invest in Israeli VC, this is one of these “yes, but…” things. On the one hand, Israeli institutionals are indeed an untapped source of LP potential. This is increasingly important, since institutionals in the US and Europe are both more hesitant to invest money in the asset class and more inclined to put their money in funds targeting other emerging markets such as India and China.

However, the local pension and insurance funds are not currently geared for significant investments in VC and it would take significant incentivization on the part of the Government to get them there. Even then, the amount of money that they could theoretically put into the asset class is limited. This by itself won’t solve the funding crisis for local VCs looking to raise new funds.

Regarding the re-focusing of Israel’s R&D efforts towards financial technology, again “yes, but…”. Other emerging countries, for example Taiwan, have had success in steering their high-tech industries towards government-defined areas of interest such as semiconductors and biotech. I have two issues here, one philosophical and one practical.

On the philosophical side, one of Israel’s great strengths as a high-tech superpower has been in the creativity of our entrepreneurs and technologists. If a large portion of government and specifically OCS funding is directed towards financial technology, might that not stifle a lot of this creativity that might lead to other large opportunities?

On the practical side, encouraging the establishment of R&D centers, as well as the other components of the plan based on providing tax breaks and benefits are all great in theory. However, they all have a good chance of falling apart in the execution phase especially if the tax authorities are not re-tooled to handle these changes.

After all, the government already provides tax incentives for high-tech today but it makes companies and investors go through 12 levels of bureaucratic hell in order to enjoy them. If this continues to be the case, will multinational financial institutions feel that it is worth the hassle of setting up R&D centers here?
 
The relative lack of large-scale local tech companies has been a key concern for the better part of a decade. We have talked endlessly about whether Israel needs or can establish more “Israeli Nokias” to stand alongside Amdocs and Teva, and the complexities involved. I’m not sure the current plan offers strong enough incentives to do so.

The idea that you can encourage medium size Israeli tech companies to grow into large size tech companies, and large companies into global leaders all by helping them acquire smaller companies is at the very least out-of-the-box thinking. However, it still doesn’t address the main reasons that lead medium-large companies to and M&A exit before they can become large.

Companies usually sell out because they have funding concerns. Either they start to run into cash-flow problems or else are need a relatively large amount of financing in order to ramp up into major-size IPO-able international leaders.

The current government plan as formulated does not provide real solutions to this issue. Encouraging more IPOs on the TASE is nice. However, the TASE is a relatively small exchange with some liquidity issues. The plan might help companies that would ordinarily be sold for the low tens of millions IPO for mid-ten to millions. But in order to IPO in a manner that can establish a large sustainable company, you need to go public on NASDAQ.

Which brings us right back to the funding issue. As Giza’s Managing Partner Ori Kirshner noted in this piece on The Marker TV, one of the real problems facing Israeli VCs and startups is the lack of available late-stage funding. Israeli funds are relatively small in global terms, and those funds who have the capital to invest will look just as actively at investments in India and China.

The issues of reversing the brain drain and improving the quality of technical education in the schools are both good ones, but they will struggle if not handled in the broader context of problems facing Israel’s education system as a whole. (Which is a whole other blog post, if not a series of blog posts). Short version: in order to provide a more educated and effective high-tech workforce, it’s not enough to concentrate on high-school science training. Israeli students need much better training in math, science, and English from the elementary school level onwards.

I’m not saying the government plan is a wash. It addresses a number of key social concerns (especially the low participation of large sections of the work force) in a logical manner. And, if the plan doesn’t get mired in a bureaucratic morass, stands to introduce a bit more flexibility into the local high-tech market and perhaps even end up as a net gain for the Israeli economy.

But without a significant increase in the amount of capital flowing in from overseas – both from LPs and global venture funds – the local high tech industry will continue to face serious challenges, despite the best intentions of the government.

Soluto Takes Tech Crunch Disrupt

We are very proud that Soluto, one of Giza’s portfolio companies, took home first prize at Tech Crunch Disrupt which was held this week in New York. Disrupt was an unusual event, a web conference/startup-competition geared at companies providing disruptive technologies.

Soluto emerged victorious out of a pack of 20 competitors and garnered the support of much of the audience.



Soluto is pioneering what they term as “anti-frustration software”. They are developing a solution to tackle the myriad annoyances that are a daily part of the PC experience: slow boots, freezes, blue screens, etc. The team has an intricate knowledge of the workings of the PC OS and they are leveraging a crowdsourcing approach to see how different processes clash with each other in order to resolve them.

The win at TC Disrupt is at the same time surprising but also a natural, depending on how you look at things. I say surprising since it flies in the face of a lot of conventional wisdom that Israeli startups simply “cannot do” consumer products for whatever reason.

But it seems to me more of a natural win. Compared to some of the other competitors at the event, Soluto comes with a very clear value proposition which answers a very real and very widespread pain. And that is the real definition of a winner.

Beyond Good and Evil

 

Once upon a time, a group of early Google employees got together to try and codify the company’s core values. What they came up with was the company’s snappy unofficial motto:“Don’t Be Evil.”

Although unsaid, it was pretty clear who the Evil entity was that Google intended to set itself apart from. “Evil” on the Internet, and in the world of computing in general, resided in Redmond. Microsoft had for years gained a reputation for its aggressive practices, leveraging its monopoly position on desktops to strong-arm developers and trample potential competitors such as Netscape.

How far we’ve come in less a decade.

Looking around at the state of the contemporary Internet world turns up a number of major players, all of whom – in the Google motto sense of the word – could be described as “evil”.

Let’s start with Google itself. Whether or not the company believes in its old motto, it became clear years ago that nobody else buys it. Probably about the time that Google first acquiesced to the Chinese government’s censorious policy with regards to the Internet.

GOOG has become “evil” in the eyes of its detractors by becoming the Internet’s resident mega-octopus: huge, with a hand in just about anything that moves. Whether it be search, online advertising, video, or Web-based email, Google pwns major chunks of the 21st century online economy. Additionally it has a stake in a vast gamut of other things from mobile handsets to DNA testing.

Google’s gorilla status means that it can also quickly and effectively kill other companies. Companies that find themselves on the GOOG blacklist see a sudden sharp drop in revenues and face a protracted, often futile fight, to get back. Similarly, companies that live by online advertising can suffer tremendously every time that Google tweaks its ranking algorithm.

Second on the current Evil List is Apple. Yes, the same Apple that many felt embodied all that was good about high-tech: attractive devices coupled with software that works without a hitch.
I have a rather pronounced love-hate thing going on with Steve Jobs, so it’s been interesting to see him slide on over to the Dark Side lately. The case against Apple (laid out effectively here) can be summarized in one word: paternalism.

Apple offers a vision of a nice-looking, well-run world. But it’s a closed world that is getting closed-er by the day. Apple devices are locked down. You can’t tinker with the hardware and you can only use software that Apple approves of. So far so good. But since the release of the iPad, Jobs has taken the whole “closed garden” thing to the next level.

First, there was the SDK flap. It is now not enough that apps for the iPhone and iPad get Apple’s imprimatur. The new iPhone OS 4.0 SDK specifies the programming languages developers can use and, specifically, bans them from using cross-platform compilers. The new rules are part of Jobs’s crusade to wipe out Adobe’s Flash. But the end result is to piss off the developer community.

Also part of Jobs’s vision: ads. Ads controlled by Apple. Having bought Quattro, Apple plans to monetize online content running on its devices via a whole range of new types of advertising. These will include full-screen, non-blockable ads, that demand some kind of user interaction in order to make them go away.

As Slate’s Farhad Manjoo pointed out, “Apple has solved the problem of users finding today's small ads too annoying to click on by making it easier for developers to create bigger, more-interactive ads that we'll likely have no choice but to click on.” Yay!

Facebook is the third member of our revamped Axis of Evil. While Google tries to control the world and Apple stifles innovation, Facebook mucks about with the very essence of its users. As the platform of choice for transferring people’s real lives, interests, and relationships (not to mention drunken pictures) online, Facebook faces real challenges when it comes to privacy protection.

The recent announcement at the F8 Conference of its new Open Graph is both remarkable and not a little scary. For the first time, FB has opened its own walled garden to the rest of the Internet – or perhaps brought the rest of the Internet into its own walled garden – by allowing users to interact with websites, music, documents and other things while tying these interactions to users’ profiles.

There is, of course, a downside to all this. The new Open Graph encourages people to share more information. Which means an ever-growing issue of privacy. FB has not made life easy on privacy-minded users, changing its policy to opt-in all its users to having their data shared by default. Worse, their privacy policy does not make the implications of the new changes to the FB platform very clear. Nor is it very simple to change the default settings to increase privacy.

Facebook is playing a tricky game with its users, but clearly feels it can get away with pushing the privacy envelope for now. If they push it till it breaks, their evil quotient will rise spectacularly.

What’s most interesting about the Evil list is what company isn’t on it. Specifically, that same little outfit out of Redmond. Microsoft these days is viewed as a lot more benign, the company that puts out operating systems that are much better than they used to be and search engines that are not bad at all. Not to mention a company that generally plays nicely with others.

The whole notion that the Internet world is controlled by “evil” companies is less a reflection of the companies themselves and more to do with the Internet. The definition of “evil” here is really just large businesses acting like large businesses and trying to increase their revenue streams in the ways they think are best. In the end, it is a sign that the Internet has matured into a commercialized business sector rather than the province of amateurs

New Avenues in Seed-stage Fundraising

There is an old saying, many variations of which have appeared at various times, that goes, “One time is happenstance, twice is coincidence, three times is a pattern.” Based on this logic, I hereby declare the hot trend in the Israeli high-tech investment community to be organized very early-stage financing.  

Exhibit number one: a fascinating piece written by Bill Burnham called “The Great Abdication” in which he writes about the current challenge that Internet/Media/mobile apps startups face when trying to raise money these days.

“Anyone who has recently spent anytime fundraising for a consumer internet start-up in Silicon Valley quickly comes to an inescapable conclusion: there is effectively no Venture Capital available to Consumer Internet startups.”

To summarize his main points: There is a mismatch between the ever-shrinking cost of starting up a Web startup and the ever-growing size of VC funds who are looking to deploy larger – rather than smaller – investment sums   Many VCs don’t get the Internet/Media space and see success and failure as almost entirely random. (Not a joke – the number of times I’ve heard older VCs compare Internet investing to investing in movies)

Exhibit number two: IVC’s recent survey of investment activity in Israel (noted, among other places, here)  which shows a sharp drop in first-time investments by Israeli VCs from 2008 to 2009, albeit a slight increase in the number of seed-stage investments.  

The picture therefore is not necessarily a happy one if you are a very early-stage Israeli Internet startup, especially a B2C oriented one. Whether or not this is due to Israelis’ inability to create Internet success stories is a subject for a different blog post.  

So, what are the options for your average very-early stage Internet company? The obvious answer is angel investors, whether solo or as groups. This is your best bet to get enough money to develop your product/technology and get it to the proof of concept stage. The main drawback is that angels tend to make smaller investments, usually sub-$500K and may or may not bring any added value to your venture.  

Which brings us to Exhibit number 3: Robert Scoble has also noticed this trend and also notes the rise of organized groups such as Y Combinator and others which provide both investment, centralized services, and advice to puppy startups in order to get them to a point where they can raise a more substantial financing round.  

As of yet, Israel lags behind our friends in the States, lacking both an established Y Combinator and dedicated early stage funds such as Union Square Ventures or First Round Capital.  

The good news is that we are beginning to see a little bit of movement in this direction. In recent weeks we have heard of three different types of fund, all of which are geared towards helping out very early stage companies:

• Platonix Joint Ventures - Platonix offers business and technological development for entrepreneurs with interesting ideas in the world of software. Platonix works on the “sweat equity” model, offering their services in return for equity rather than directly making investments
• Yatir VC - Set up by Avi Domoshevizki (late of Battery Ventures) and Sani Sanilevich they offer technological and business mentoring as well as early stage financing
• Kima Ventures - Set up by Jeremie Berrebi and others, Kima is a Y Combinator-type micro fund looking to invest small amounts of capital in many early stage startups in Israel and Europe

I should take the opportunity here to mention Giza’s Ofek Program as well. Although we are looking for more developed companies than early-early stage, Giza is looking to invest sums in the $500K range as well as looking to syndicate with other investors for larger rounds in early stage companies.

Other funds have their own takes on early stage investing. We shall see where things develop.

Our Latest Internet Investment: WinBuyer

We were pleased this week to officially announce Giza’s investment in WinBuyer, one of five investments we’ve made this year and the latest addition to Giza’s Internet portfolio.

WinBuyer is one of the most interesting Israeli companies working in the e-commerce space, and a leader in the new and growing field of Onsite Comparative Pricing (OCP). The company’s technology enables online retailers to bring comparison shopping to their own sites.

E-tailers running the WinBuyer solution can then display competitors’ prices for a specific product on that product page. Buyers get the benefit of the comparison shopping experience without having to jump back and forth to Google or to external comparison shopping sites.

“But why,” I can hear you shout already, “would any online merchant possibly want to display competitors’ prices on their own sites?” A legitimate question. The answer, counter-intuitively, is that by doing so they actually increase conversion to sale and average cart size.

OCP helps online retailers by increasing transparency and creating a greater sense of trustworthiness. And this works even if the retailer displays prices cheaper than his own. The WB application allows e-tailers to define how many results to show, and whether to lower prices from competitors as well as higher ones.

Psychologically, many consumers want to know that they are getting a fair deal rather than the absolute cheapest prices.

By increasing price transparency, WinBuyer’s solution can actually help e-tailers step back from an increasingly destructive spiral of price-cutting and help consumers focus on other aspects such as service and reliability.

And because e-tailers receive part of the affiliation fees if their users jump to one of their competitors’ sites from the WinBuyer widget, it also allows e-tailers to monetize part of the traffic they would have lost in any case.

Online retailers increase their revenues, users get a better e-commerce experience. A classic win/win.

To date, WinBuyer has deployed its solution on more than 200 sites. Most recently, Overstock.com, one of the major online retailers in the US, has adopted WinBuyer in many of its product categories including books and electronics.

WinBuyer is led by a terrific team, including Founder and President Miki Balin, CEO Dan Clarke, and Founder/VP R&D Alon Weinberg. We are looking forward to great things with these guys.

Surfing on a Wave of Marketing Problems

Over the last couple of weeks, nearly everyone in my social network who has any connection to the tech world has begged (sometimes desperately) for an invite to Google Wave. This is reminiscent to the kind of excitement that GOOG managed to generate a few years back when it first started handing out invites to Gmail, but greatly balloon-ified.

Going by the hype being generated, it seems clear that Wave is destined to become the next big online thing.

Or is it?

I’m not entirely certain. (Full disclosure at this point: I am one of the sad proles still waiting to try out Wave. The opinions contained herein are based not on what Wave is, but what it appears to be, which is just as crucial).

Google has launched and killed more than its fair share of applications and services over the years without too many issues. But I think what we’re seeing here, at least in the short run, is the company’s first high-profile product marketing flop.

There are a couple of reasons IMHO:

1. Overselling the undefined - For all the techheads desperate to play with the shiny new toy out of Mountain View, I’m not sure how many would be able to describe what Wave actually is in two sentences or less. Google has done a pretty bad job explaining it so far.

Take the lengthy accompanying video (see above). It paints the new technology as an amalgamation of all the online communications tools available today, but redesigned to fit the needs of the 21st century. From this has arisen much talk that Wave is the ultimate email/blogging/chatting/Twitter/whatever killer.

The reality of the matter is a bit more prosaic. The main use case appears to be online collaboration. But collaboration tools are not mainstream consumer applications. So does this mean that Wave is more for businesses? And if not, then what can regular people do with it better than what they can do with email/chat/Twitter/whatever?

I would imagine that all these issues will become a lot clearer once Wave starts growing its user base. But in the meantime there will be a lot of disappointed people thinking they are going to get some nebulous-but-nonetheless-super-nifty Thing A and instead get Thing B which doesn’t suit their needs.

2. Rollout tripping on early buzz – At the moment, not a lot of people have gotten their paws on Wave. This is unsurprising, seeing how Google is rolling it out slooooowly in order to ensure proper scalability and stability.

However, many among the lucky few who have used Wave are less than thrilled with it. Most notably Robert Scoble, who wrote a sharply worded entry on his first impressions. Scoble paints Wave as being both cluttered and a productivity timesink.

Scoble is joined by numerous other early adaptors in talking down the new product. And this combination of slow rollout + negative early publicity gives potential Wave users plenty of time to read the rotten reviews without trying out the application for themselves. Not the optimal combination from a marketing perspective.

3. Privacy issues – Even assuming that Wave manages to overcome the above problems, it is still likely to run into a number of other thorny issues, primarily in the realm of privacy. On the one hand, the collaborative nature of the application allows anyone to see what you are writing in real time, which I suspect will turn a lot of people off.

Then there are the continued questions of just how much of our personal and business information Google has access to. Wave will only make the debate thornier.

None of this leads me to conclude that Wave is heading into the land of epic fail. Google has enough money and enough time to fix all but the most horrifying mistakes. However, for a company that has managed to become the Web’s reigning monster without too much vocal opposition, this is an uncharacteristically high-profile boo boo.

Bridging the “Why Hasn’t It Happened?” gap

Last week, I had the pleasure of attending a talk given by New Media guru Mitch Oscar, who is in charge of televisual applications at the global media agency MPG. (Props to AdsVantage for organizing the event).

In his presentation, Mitch focused on how the world of interactive TV is taking shape. Interactive TV is part of the general media industry which is comprised, as it has been always, of three major components: content producers who create the content, advertisers who essentially fund the content, and distribution platforms which bring the content to the end users.

The biggest changes over the last decade have come primarily on the side of the distribution platforms. Where once there were basically two distribution mechanisms (network TV and radio) today there are nearly 20 different and sometimes complementary platforms with which users encounter content. This includes everything from digital television to satellite radio and includes the set-top boxes and interactive episode guides that power the experience.

The explosion in distribution has fragmented the industry and created internal media silos. Different media agencies and content creators deal with different distribution platforms in different regions. Each one has a different piece of the puzzle, but no one is able to put it together from above.

The lack of communication between the different silos has been one of the key factors keeping New Media (or interactive TV or whatever term you want to give it) from achieving what should be nearly boundless economic and cultural potential.

In this way, interactive TV is a lot like mobile Internet: it should be much bigger than it actually is. You have the technology to drive new media consumption experiences (be it on handhelds, on the Web, or on the TV in your living room); you have what appears to be a critical mass of users receptive to consuming media in new ways; and you have the advertisers who are receptive to the new media and distribution types.

Yet everything remains mired in what I like to call the “Why Hasn’t It Happened?” gap.

Ad spend is still overwhelmingly directed to old media channels, primarily broadcast television and radio. New Media avenues (for example Hulu) remain a kind of sideshow with the relatively small ad budgets to show for it.

There appears to be a missing link here between the situation as it is and the situation that technology makes possible. In order for things to change in a meaningful way, content creators and advertisers will need the ability to provide what Mitch calls a “360 degree experience” based on the consumer and not the device

Interestingly, the key obstacles are less technological than they are worldview-related. Or, more to the point, they are technological but a lot less on the distribution side than one would expect. The real issue is how to provide a unified experience across multiple device types but done in a manner that the advertising agencies are used to dealing with.

Some of the key issues that need to be resolved:

• Measurability – getting reliable data across different platform types. This is a lot more non-trivial than you’d imagine. To give one banal example: When measuring television viewing, do you measure each separate set-top box in a household or the household itself?
• Standardization – This involves everything from standardized ad formats to the definitions of measurable ad spend units. For example: how do you translate a CPM model to interactive TV?
• Addressability – This is the holy grail of advertising, involving as it does the delivery of the right targeted ad to the right person at the right time.

All these issues, by the by, while not necessarily the most sexy part of the high tech world, present huge opportunities for the startups that can crack the code. From the investor side, IMHO this will be one of the most interesting sub-sectors of the overall Internet industry in the next few years.

Sergey @ The Garage May 15

We had the honor of co-sponsoring last Thursday's Garage Geeks event in which Sergey Brin came down to Holon to pay a visit to the Garage. Several hundred people showed up (apologies to everyone who asked me for an invite last week - space was really limited) to bask in the man's Google-y glow.

Sergey actually stayed for quite a while, close to two hours. At first, he seemed a little surprised at the rock-star reception he got. Either that or the poor guy was just trying to eat something while everyone mobbed him. But later in the evening, after some presentations by the Garage crew, he got up on stage to give a little talk and answer questions.

The Q&A session was also surprisingly lengthy. (Ayelet Noff has posted a video of most of it which you can find here). I'd be lying if I said that we heard some earth-shattering revelations from Sergey, but here are a few of the more interesting tidbits:

• When asked where Google is focusing its attention these days, Sergey mentioned both Android and RE>C (Renewable Energy Cheaper than Coal), Google's cleantech initiative. I'm actually kind of thrilled to hear this. Along with the proliferation of the iPhone and similar devices, the rise of Android may finally help launch mobile Internet as a mainstream application. Google is one of the few companies that can leverage its size and prominence to introduce new standards and paradigms for the mobile world, so all the power to them. And although Sergey claimed rather politically that Google and Apple are not competitors here, it will be interesting to see how the dynamic plays out.

• Someone asked Sergey if Google was planning on buying Yahoo, which led him to tell the story of the first time the two companies met. In his telling, it was in late '96 or early '97. He and Larry had put together a small company already and approached David Filo with an offer: Give us a couple of million dollars and we'll develop a good search engine for you. Yahoo passed on the offer. In retrospect, Sergey says he understands what Yahoo was thinking -- a couple of crazy kids with an idea come to you asking for a lot of money and it seems a bit ridiculous. But from such events is history created.

• Charmingly, Sergey brought along his parents. Which led Yossi Vardi, who helped bring Sergey to Israel, to point out that in the eyes of Sergey's mother, despite the fact the guy has gazillions of dollars he still hasn't finished his PhD. Sergey says that he plans to finish the doctorate one day.
  
  Now, being that we are all a bunch of provincials, someone had to ask when Sergey is planning on making aliyah. To which, a number of people in the audience shouted "after he finishes the PhD."

• Google's "70/20/10 rule" -- 70 percent of focus on the core business, 20 percent on ancillary businesses, and 10 percent anything-goes projects -- seems to actually track in real life.

• Sergey's favorite application -- Panoramio, an application over Google Earth which shows you pictures from any given place. Which is kind of like Flickr's geotagging feature that no one seems to use.

In short, an interesting evening and a chance to catch a bit of the magic. More on the event can be found here.

A few harsh words about the local Internet

Let’s talk about our local, homegrown Internet scene.

For those of you who might not know, Israel has over the last decade and a half developed its own Hebrew-speaking Internet industry complete with Hebrew-language portals, news sites, social networks, blogs, e-commerce, and marketplaces.

By and large, everyone in Israeli high tech (the main, overseas-facing high tech industry anyway) ignores the local Israeli Internet. The world of .il seems uninteresting and irrelevant. I have often attempted to buck the trend and gone off spelunking into the Hebrew Internet looking for undiscovered gems. Just as often, I have come back disappointed and I think I am now about to give up altogether.

The latest impetus came a few weeks ago at the Comvention. As with every year, it was a two-day event. The first day featured talks held in English with numerous guests from overseas. The second was conducted in Hebrew and focused on the local Israel-centered industry.

Very few of my colleagues showed up on the second day. In fact, very few people I knew showed up on the second day, even though the convention center was packed. I would estimate that the overlap in the crows between the two days was less than 10 percent. And this is but one indication of the problem at hand. Simply put, the local Israel-facing Internet is small, provincial, disconnected from the outside world, and two or three years behind everybody else.

One of the panels on the second day of the Comvention was entitled “The Israeli Internet – Sleeping Beauty?” To which Gadi Shimshon, a prominent local Internet pioneer, snorted, “Sleeping Beauty? More like a fuggo in a coma.”

He’s right I think. There are a number of dispiriting issues at play in .il:

• Attack of the Blinky Ads –The average American web site has 14 ads on it. In Israel, the average is closer to 100 (I’m not making this up). Click on any major Israeli Internet site. Now shield your eyes. You are immediately assailed by a wide variety of intrusive Flash ads, popups, video clips that start playing automatically, and every other manner of annoyance you can imagine.
  
  While annoying in and of themselves, blinky ads represent a deeper problem: the immaturity of online advertising in Israel. At the Comvention, Kfir Pravda gave an interesting talk about new trends in online video monetization. He talked about viral campaigns and interesting product placement technologies, among other things.
  
  The crowd – which was comprised mainly of ad agency employees – lapped it up. At the end of the presentation, however, a number of people stood up and said that while they would love to introduce more clever and effective advertising online, their clients the advertisers won’t hear of it. Local advertisers don’t want something new and subtle. They want the same old annoying hard-sell with the same old easily measured parameters.

• Firefox? Not here – I challenge my readers to come up with one major Hebrew-language website that renders properly in Firefox. YNet is about the only one that comes close and even then gets tripped up with embedded video. Hebrew sites don’t do Firefox. And I won’t even mention Safari or Opera, heaven forbid.
  
  To some degree, this represents very successful missionary work on the part of Microsoft which for years has actively nurtured generations of local .Net programmers. But it also indicates a real disconnect with the outside world. The main non-IE browsers now account for nearly 25% market share. But you’d never know that here. Local developers ignore alternative browsers because they never encounter anyone who uses them. It’s a closed loop.
  
  The same goes for all them fancy new Web 2.0 services such as Twitter or Digg or De.licio.us. If there isn’t a homegrown version, then nobody knows what you’re talking about nor sees the need.
• Lack of Internet culture - In general, Israel does not have a civilized Internet culture. On the one hand you have the often-hateful “talkback” environment wherein portals and content sites are shot through with ugly user-generated slander. On the other hand, you have Knesset members constantly coming up with new laws whose main purpose is to censor the Internet. Either that or demonstrate that the people in charge of the Internet in this country don’t understand how it actually works.

In short, situation not so good. Somehow, the same country that can produce Internet successes like Yedda and FoxyTunes craps out when it comes to producing homegrown fare.

So, why do I care? I focus on companies which are by definition outward-facing. So, why waste 1000 words on the irrelevancy of the local scene? Because as long as Israel cannot produce local Internet sites that are connected to the world at large, we limit the pool of talented local developers and entrepreneurs who could build the next great outward-facing Internet property.

Does anyone have any ideas what can be done?

The online year that was

As today is the last day of 2007, it’s a little hard to resist looking back at the past year and trying to sum it up. So, I won’t resist. Unlike last year, 2007 is hard to summarize with one handy tag such as “the year of online video” or “the year of social networks”. There was a lot of activity in a number of different areas, the rise of a major player in the social networking space, and the rise of a new form of communication.

So, herewith a few highlights IMHO of the online industry in 2007

Story of the year: The consolidation of the advertising industry
Y’all thought I was going to say Facebook, right? Now, while the rise of Facebook is certainly the most hyped story of the year, my vote for the most significant development  (not to mention the biggest source of M&A activity) is the rapid consolidation of the online advertising space.

During the last 12 months, Google bought out Doubleclick for $3B. Shortly thereafter, Microsoft acquired aQuantive for a staggering $6B. AOL bought out targeted ad firm Tacoda, as well as Quigo which. Yahoo acquired Blue Lithium, as well as a majority stake in Right Media. WPP bought 24/7 Real Media. And the list actually goes on.

The M&A hyperactivity in this sector is an indication of the fact that online advertising has reached a certain stage of maturity. Beyond that, the consolidation is likely to have long-term ramifications, especially in regards to the rise of Google as the behemoth of the information age as well as the development of new business models online. And that’s what makes this, at least for me, the biggest development of the year.

Phenomenon of the year: Facebook
Obviously, I couldn’t not mention Facebook which gained momentum extremely rapidly this year and became the go-to social network for those of us who aren’t musicians, 14-year-olds, or skeevy perverts. Facebook only opened itself up to the world outside the university sphere towards the end of 2006. I joined up early this year. Before long, almost every high tech-ist I knew (and many I didn’t) was on it. Lately, the sphere has expanded further and everyone, their parents, and their parents’ friends are connected. Clearly we’re on to something.

Of course, it will be interesting to see whether Facebook will be an ongoing concern for most people or just a passing fad. I like it for business purposes, as a tool for microblogging, and as the communications platform of choice for a number of my friends. On the other hand, I have a hard time answering those who complain that there’s nothing to do there. We shall see.

New technology: Microblogging
The rise of Twitter and its clones provided us with probably the only real new media form we’ve had in a few years, viz. microblogging. At first, the concept seemed a bit stupid. After all, why would I want to blog in tiny, one- or two-sentence bursts? But then you start getting into it and discover that Twittering (or updating your Facebook status, which I tend to do more) is a nice complement to blogging for those times when you have something small and/or clever to say but which doesn’t warrant an entire post. Plus, it’s the first Internet app that makes perfect sense for the mobile. It’ll be interesting to see who snaps up Twitter and for how much.

Interesting development in local tech: The renaissance of the Israeli internet scene
Three or four years ago, it seemed that the Internet industry in Israel was close to dead. During the days of the ’99-’00 bubble, the high tech scene was awash in Internet startups looking to be the next ICQ. Then the bubble burst and most of the companies went under. Worse, the VC industry was burned on the subject and it subsequently became almost impossible to get a new Internet startup funded.

As recently as two years ago I regularly had colleagues in the VC world lecturing me that Israel was incapable of producing Internet companies and, besides, these types of investments weren’t suited for VC anyway. What a difference a few years and a YouTube (and a Facebook) later make.

Once again, we are seeing dozens of new Internet companies each month. What’s more, there is a real feeling of an Internet scene here, helped along in no small part by Facebook, the work of groups like the Co.ils and the Geek Garage, and of course Jeff Pulver’s social activities. Let’s hope this continues to develop and mature.

Case of possible overhype: Online video
I’ll catch some crap from friends about this, but the online video space has become somewhat overhyped in the last year. Actually, that’s kind of unfair. What has happened is that in the post-YouTube age, online video has become ubiquitous. This has led to a lot of noise and a sense of, “Ok, what do we do now?”

Towards the end of last year, it looked like the field of mid-tail, independently produced video content (e.g. Ask a Ninja, Rocketboom, Ze Frank) would be the next big thing. As of now, that has failed to happen. There haven’t been any real breakthroughs this year. Even projects as big and as hyped as Joost have yet to take off as a mass-market application.

I still have big hopes for this sector, but it may have to wait until sometime in mid-2008.

Predictions for 2008
You’ve got to be kidding me. Only fools make predictions in this online age where what you write will forever haunt you. Still, I’ll make some safe and predictable ones for the upcoming 12 months:

• There will be a number of huge-size Internet exits that will have people scratching their heads
• The whole notion of privacy will continue to erode as Google finds out more and more about you
• Mobile internet will remain where it has for the last three or four years, i.e. tantalizingly around the corner as the Next Big Thing
• Some technology or company that you’re not thinking about will be the big story of 2008

So, for all my celebrating friends and colleagues out there, I want to extend best wishes for the new year and hope that 2008 brings health, happiness and success to us all.