Data communications fits the Israeli character like a glove. The Israeli military background, especially in intelligence, and development abilities in communications, software and hardware fields are the things which put Fibronics, Lannet, Ornet, NiceCom, Scorpio and scores of others at the forefront of this technology. Ironically, just at the point when this industry has grown to a scale of billions of dollars, it’s hard to find Israeli marketing success stories. The battle against the US industry giants is too difficult, and even Lannet, which sat at the top of the heap, chose the merger track.
Now RDC, BreezeCom (formerly LannAir) and WaveAccess (formerly AirAccess), three young Israeli companies, who represent the second generation of Israel’s hi-tech industry, that of wireless data communications, are charging ahead. These new players want to liberate communications from its bonds, and make the communications network infrastructure wireless. Their dream is to live in a cable-less world, and its fairly clear that it won’t come true, in light of the ever-increasing pace of communications network transmissions, such as Fast Internet and ATM (Asynchronous Transfer Mode).
But its clear to all the players that the wireless industry will grow very fast, reaching billions of dollars in annual sales volume. The key word is portability. Over one-half of personal computers sold today to business clients are portable, and its seems the desire to be free from plugging into a network, or even a workstation, is only going to increase as time goes on.
Our three representatives in the field are turning Israel into one of the wireless industry’s outstanding technology centers. Together, they make up a good percentage of all proprietary developers, in a field all agree has not yet taken off. Research firm Yankee Group estimates that overall revenues from WLAN (wireless local area network) sales in the US reached only $150 million.
This fact presents the three Israeli companies with the opportunity to become the world leaders, before their US competitors gather up steam and get too big for the Israelis to compete. The potential competition is AT&T, IBM, and others.
From the time of their establishment and until the end of 1996, the volume of private capital raised by RDC, BreezeCom and WaveAccess is expected to reach $31 million. As this is both a hardware and software industry, with ongoing investment in development and, in the future, marketing, its clear that one of the three will have to do another round of fundraising.
BreezeCom
BreezeCom was established by Michael Rotenberg, in 1992, as a Lannet spin-off. Rottenberg had up until that point served as research and development director for Lannet, and led the development of the company’s top-of-the-line LANswitch product, which brought Lannet, and now Madge, sales in a volume of hundreds of millions of dollars. LANswitch was also named the world’s top Ethernet switch. Lannet, for all its successes and failures, is still an excellent model for how to operate in the data communications field, and BreezeCom hopes the have learned the right lessons.
Rotenberg explains that BreezeCom’s goal is to become both the leader and de-facto standard in terms of infrastructure, access points and WLANs. "The lessons learned at Lannet convinced us that when the WLAN market hits big, the process will be similar to that of the Internet market, where adapters became a commodity, and then suffered from sharp drops in price and profitability. At the same time, the big money went into infrastructure, exchanges and switches, where technological preferences, determined by network operations, enabled high profit margins."
Rotenberg hopes that in the future, when industry standards are finally resolved and the horizontal market increases, customers will buy end-user products from one manufacturer and the access point from another, preferably BreezeCom, which hopes to dominate that market. "Don’t mess with us in infrastructure," he warns. "We will be the best and the cheapest in the field."
BreezeCom employs 40 persons. In market terms, the company is one of the leaders in Israel, but is focusing its marketing efforts primarily on the US. The company’s products were first released in October 1995, and sell at a rate of $500,000 per month.
BreezeCom is currently at a high point of a private placement, raising $5 million in addition to the $4.9 million already raised in the past. Company shareholders include Madge, Ampal, the Star and Mofet funds, Clal Venture Capital and the RAD group.
WaveAccess
WaveAccess, which was established in 1993, is the youngest in the group. Nonetheless, the company hopes to close the gap between itself and the competition. The company’s products will enter the market at the end of this year, and WaveAccess believes that, from a technological point of view, they are the best, in terms of system reliability, distance and speed - 3.2 megabytes per second.
CEO Menashe Ezra says right now the company is in the final stages of negotiation for cooperation with US marketing concerns. He explains that the company is concentrating on the US market, based on the assumption that, as in almost all other areas of technology, the US market winner will get the lion’s share. In his opinion, the company’s end of year goal is to close four cooperative agreements with American companies in the field, for use of WaveAccess technology.
The company also recently reported a cooperative agreement with US firm Telxon, which specializes in planning and manufacture of wireless and portable communications solutions for vertical markets, primarily to retailers. Telxon, which has an annual sales turnover of $500 million, will market WaveAccess products, and has committed itself to an order volume of $750,000. In addition, Telxon will invest $750,000 in WaveAccess, in return for a 10% share, with an option for an addition 10% share acquisition.
WaveAccess employs 17 persons, in the US and Israel. The company is primarily funded by the Teuza and Nitzanim funds, who have invested some $4 million today. The company intends to raise $5 million in additional funds, for investment in research and development, and in developing marketing channels.
RDC
RDC was set up in 1992 by Pinchas Romik and DCL Technologies. RDC was the first Israeli company in the field to come out with a WLAN product, launched in March 1995. 1995 annual sales were $1.6 million. During the first six months of 1996, sales reached $1.5 million. Uri Melamed, deputy CEO of DCL and, until recently, board chairman of RDC, said he estimates the company will end the year on $4-5 million sales turnover.
The figures are lower than those forecast by the company a year ago, due in part to RDC predictions of faster market growth. "We thought WLAN would rise more quickly, but we weren’t the only ones," says Melamed. "Its not clear we’ll ever attain a cable-less world, but there’s no doubt that wireless data communications will develop significantly."
RDC, which has 40 employees, is also the top fund raiser among the three Israeli WLAN firms. Since its establishment, RDC has been invested in by DCL, Israel Corp., the Evergreen and Etgar funds, Leumi & Partners, and Clal Electronics Industries. Clal became RDC’s primary shareholder in January, and holds 22%. All in all, these institutions have invested $12.4 million in RDC.
Melamed says until now most of the funds were slated for research and development, and from now on the emphasis is on marketing, mainly to the US. The company has had a number of impressive marketing coups in the Far East, Korea and Japan.