AOL and Google Gobbling Israeli Startups

The past few months have been fruitful for Israeli startups. Several U.S. and European tech giants have made high-profile acquisitions. Foreign VCs are making massive capital injections. Now local publications such as Calcalist and The Marker are filled with rumors of upcoming purchases.

Israel has traditionally been a stomping ground for international heavy players thanks to a confluence of factors. Industry heavyweights such as Google and Yahoo operate large R&D labs in Haifa and Tel Aviv, while Intel has large facilities in both Jerusalem and the southern town of Kiryat Gat. Israeli firms also make a habit of opening American offices as soon as their funding allows — a habit shared with their colleagues in the similarly politically contentious country of Taiwan. Lastly, longstanding ties exist between Israeli start-ups and U.S.-based heavy players: Israeli emigre coders and VCs are commonplace in the American tech scene.

The trend of foreign companies gobbling up Israeli start-ups is causing, ironically enough, some consternation in the country's tech scene. As the Wall Street Journal's Sara Toth Stub notes, “a tendency has emerged whereby the majority of successful [start-ups] are acquired by or merged with larger foreign companies. This occurs before the Israeli companies have the chance to grow into substantial independent firms that can provide local jobs and encourage the development of management skills.” 

5Min Media, an Israeli-American video startup, is the most recent acquisition. AOL bought the company for an estimated $65 million on September 28, with chairman Tim Armstrong praising 5Min for helping to complete “our end-to-end video offering from content creation through syndication and distribution.”

In other words, AOL is going to raid the hell out of 5Min's video library of 200,000-odd shorts and make use of both their (considerable) API development and existing syndication partners. 5Min comes to AOL with a robust library of content. The firm inked previous content-sharing agreements with CBS, Hearst and Scripps to convert existing programming into bite-size “how-to” videos. Additional video content comes from other media providers, which is then augmented with crowdsourced footage.

AOL's purchase of 5Min follows on the heels of content-sharing deals the Israeli company recently signed with both Dailymotion and Answer.com. 5Min's video content now powers Answer's “Video Answers” functionality, while 5Min's videos were fully integrated into Dailymotion's archives. AOL has a long history of purchasing Israeli firms: Prior acquisitions include ICQ developers Mirabilis, Relegence (financial services), Yedda (crowdsourced questions and answers) and Quigo (search engine marketing). Meanwhile, AOL subsidiary Adtech just opened their first Middle East office in Israel this past summer.

Google has also been diving headfirst into the Israeli purchase blitz. An estimated $10 million was spent to acquire Quiksee, a Herzliya-based firm that developed a method of integrating personal video into Google Maps. The deal was announced on September 14.

Quiksee is Google's second acquisition in 2010; web widget/gadget manufacturing house LabPixies was picked up in April for approximately $25 million. Israeli firms have done well selling to Google; the state is tied with the United Kingdom for the highest number of companies Google purchased abroad in 2010.

Employees at Quiksee will be working with the Google Geo team; according to local paper Haaretz, “the firm's technology is regarded as the missing link in Google's Street View service (used by both Google Maps and Google Earth), which allows users to view photos along numerous streets around the world”. Quiksee's technology could hypothetically enable Google to add Interactive Street View videos to Google Maps.

The two purchases follow on the heels of a number of summertime Israeli acquisitions. Storwize, which specializes in data storage, was purchased by IBM on July 29 for $140 million. According to Brian Truskowski of IBM System Storage and Networking, Storwize's technology helps “clients compress their primary data while preventing storage sprawl and lowering power and cooling costs.” Video development firm Optibase sold the bulk of their business in July to France's Vitec Multimedia for $8 million following several quarters of losses; the remainder of Optibase's Israeli business is shifting exclusively to real estate.

Other Israeli firms have been lucking out thanks to large contract and investment deals. Mobile advertising developer Amobee Media just entered the German market after inking a deal with regional giant Gruner + Jahr Electonic Media Sales to handle billions of ad impressions per month this past August. Amobee's move follows on the heels of their acquisition of British advertising agency RingRingMedia earlier in 2010 for an estimated $15-$20 million.

Face.com, who manufactures facial recognition software technology used by Facebook and others, received $4.3 million in funding in September. Investors include Yandex, the most popular search engine in Russia and the world's eighth largest. Yandex, which enjoys a massive user base in Russia, the former Soviet Union and the Russophone diaspora, offers Flickr- and Picasa-like photo-sharing features. However, Face.com has been criticized by online privacy activists due to the firm's API, which allows developers to build their own facial-recognition apps. Although processor-intensive, Face.com's API could potentially allow employers and government agencies to search through any anonymous pictures uploaded to the internet.

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