I’ve got something to share before we get started with this week’s newsletter. You may have noticed that even though its goal is to highlight “what is happening” in Tel Aviv Tech, I can’t avoid riffing on the historical and cultural context of these events, or how they fit into larger trends.
Moving back to Tel Aviv after living in the SF Bay Area for almost nine years, I can’t help but constantly doing “contrast and compare” exercises in my mind. This leads to interesting observations sometimes (interesting to me at least), and I’m using this substack as an outlet for these ideas.
As such, I published a long form post last weekend on why I think of living in Tel Aviv as by itself being an “Innovation Forcing Function”. While I plan to regularly publish this newsletter - “Tel Aviv Tech Weekly” - on a, well, weekly basis, I’ll also be sporadically posting longer form write-ups to explore a particular idea.
And now back to edition #4, here is some stuff I ran into this week -
Waze, Wix and Founder Aspirations
Google plans to combine the teams working on its Maps product and on Waze, a mapping service that Google acquired in 2013. The merger comes as the search engine giant feels the pressure to cut costs and consolidate operations, reports The Wall Street Journal.
(from TechCrunch)
Full disclosure: I work for Google, and therefore avoid writing my thoughts about the company. There is another Israeli angle to this story though, that I think is worth highlighting.
Google acquired Waze for over $1B in 2013. This was considered a huge exit for an Israeli company at the time, and was celebrated as a moment of national pride to the extent that the Waze logo was part of the Israeli independence day ceremony in 2015. One of Waze’s founders was included in the list of honorary torchbearers that year. There is something else that happened that year, just as important, if not more profound.
In November of 2013, Israeli website builder platform Wix.com began trading on the NASDAQ, making it the first Israeli software company to go public since 2006. Even though the Wix IPO was not celebrated in any official state ceremony, I think it had a more profound impact on the Israeli tech industry.
The StartUp Nation book was published in 2009, singing the praise of Israel as a world class innovation engine. While this title was very flattering, some tech industry leaders were calling for Israeli companies to go beyond the startup phase. They were voicing concerns over the trend of selling the most successful Israeli startups, and calling it a success. For Large US Tech companies, acquiring an Israeli startup was, in addition to buying a successful product or technology, a way to access Israeli R&D talent.
To this day PayPal operates a risk management operation in Israel, which evolved from the acquisition of FraudSciences in 2008. Similarly, Facebook leveraged the Onavo acquisition into an Israeli Facebook branch in 2013, and Salesforce established an Israeli R&D center when it acquired Datorama in 2018.
Wix can be viewed as the pioneer of the “ScaleUp Nation” phase, proving that it is possible to build and scale a successful internet company from an HQ that is based in Israel. The Wix IPO “opened the gates” for a whole cohort of Israeli tech companies like CyberArk, Fiverr, JFrog and monday.com, who got listed on the NASDAQ and are continuing to operate and grow as independent companies.
Waze on the other hand might end up symbolizing the frustration that might occur when an Israeli founder clashes with US corporate culture. To understand this better, look no further than the post that Noam Bardin, founder of Waze, have published after leaving Google. It went viral in Israel back in 2021, eight years after the acquisition. While I am not going to share my personal opinion over the specific arguments he is making, this story might make other Israeli founders think twice about selling as opposed to continuing to grow their companies.
While Wix were never invited to light the torch in an official Israeli state ceremony (unlike the founders of Waze), they have indeed carried the torch of building large and successful Israeli tech companies that can make it on their own.
State of Israeli Innovation, 2022
The Israeli Innovation Authority (yes, it’s a thing) have recently published their 2022 annual “State of Israeli Tech” report. It is packed with interesting stats and tidbits, three of which I want to mention here.
First is the clear statement that “Tel Aviv is the undisputed high-tech capital of Israel”. You may have noticed that I often refer to both “Tel Aviv Tech” and “Israeli Tech” as essentially the same thing. This is why. Tel Aviv is home to 37% of tech companies in Israel, and growing. Jerusalem is a distant second with less than 7%.
On to another notable data point. The StartUp Nation book called out how back in 2005, Israel was world leader in the percentage of the economy that is spent on research and development. It was 4.5% at the time. Well, that figure has increased even further! R&D investments have reached 5.4% of GDP, even though Israel’s GDP more than tripled since 2005.
I suppose that is the result of the amounts of VC funds that have been flowing to Israeli companies (significant amounts when considering the small size of the country), as well as the Big Tech companies like Amazon and Microsoft expanding their Israeli R&D centers. While that seems encouraging, there are some challenges on the horizon.
The most concerning graph was around participation in tech. For a variety of reasons, the Israeli tech industry is dominated by Jewish men who are not ultra-Orthodox. While women still account for almost one third of tech employees, the dismal share of Arabs and ultra-Orthodox Jews, two of the fastest growing demographics in Israel, is a source for concern.
It’s worth noting that in recent years, the internal debate has already been heating in Israel around the impact of the successful tech sector on the rest of society. Critics have been warning that Israel might suffer from the “Dutch Disease”, and that the rise of Israeli tech is making a small part of the population ultra-wealthy, at the expense of hurting the rest of the economy. While Israeli techies have been pushing back on most of the criticism (I may expand on that in a future writeup), the concentration of tech around one city and one demographic might in fact result in a dual-class society, which makes it an important issue to address.
In addition to the economic equality considerations, Israeli companies have been complaining about shortage in talent. There could be a strong win-win opportunity here, if someone could figure out how to increase tech participation among underrepresented groups. Programs to provide training and support for both the non-Jewish and the Ultra-Orthodox populations are already being operated both by the government as well as through independent initiatives of large tech companies. The impact is yet to be seen.
Link to report (Hebrew version)
Personal Anecdote of the Week: The Israeli Handyman/Salesman
This experience felt like a page pulled right out of Robert Caldini’s “Influence”, the famous book that uncovers the psychological techniques employed by salespeople.
While it has been a few months since we moved back to Tel Aviv, we just finally bought a TV last week. Moving to a different country is a lot of work, there are still dozens of other tasks on our spreadsheet. I made the order and was happy to learn that it comes with free install. They even provide the wall mount. Several tasks I could cross off my list at once.
That was a very naive thought.
“The rule says that we should try to repay, in kind, what another person has provided us.”
While the people who came over were very professional, their main expertise seems to be in selling. They install the TV for free in order to invoke the Reciprocity principle, much like the way Hare Krishna devotees would offer a flower to strangers at the airport and then ask them for a donation. Having received a flower, which they are going to throw away in a few minutes, people felt obliged to do something in return.
It turns out that this is a common practice when buying electrical appliances in Israel. They do something for you - install your TV for free - and now they gained a foot in the door. You feel an obligation to reciprocate.
The things they are selling are as valuable as a random flower at the airport. First they compliment for the choice of television screen (somehow everyone end up buying “the best one”). Next they express concern over voltage spikes (don’t you want to protect the electronics inside the TV?), and offer a surge protector. They invoke Authority and Social Proof in order to convince you to buy the specific one that they’re selling (it’s the best one, everyone are buying it).
And on the story goes with an extended warranty (it’s 20% off only if you do it before we install, why should you pay a higher price) and upgraded wall mount (you paid so much for the TV, get the best brackets).
At least we have a TV now. Protected from voltage spikes. The installer said we got the best model.