Audio-processing solutions for Digital Audio Workstations

Waves is a strange animal. After long years of ever-so-quietly making an excellent name for itself, with handsome sales among professionals in the sound industry worldwide, the company is now doing what the global music industry is doing: making giant strides toward the home consumer, with large contracts.

Equipped with algorithms and creative tools for making sound, the six year old company managed in the past year to do what few software developers have succeeded in doing: it signed an agreement with Microsoft to include one of its tools in Windows2000.

It's not that special skills or connections were required to close the deal, according to Waves joint general manager and founder Gilad Keren. Microsoft knocked on the company's small door in Tel Aviv, one fine day, and asked for a peek. Microsoft examined and re-examined, and found that Trueverb, the tool that creates effects of echoes in various spaces, and particularly suitable for multimedia games, was precisely what it was looking for.

That didn't prevent Microsoft from dictating, with a smile, the terms of surrender. But, for Keren and Meir Shashua, Keren's partner in founding and managing the company, it was of no importance. It's not every day that Microsoft comes to your modest office in a dismal building in Tel Aviv, seeking to turn the software you developed into an industry standard.

To take Keren's word for it, the move resulted in games developers knocking at the door too. They must also have the technology, to be compatible with Windows2000.

The agreement with Microsoft, signed several months ago, was an important milestone in the direction Waves has taken in recent years toward the consumer market, but certainly not its only impressive agreement in the field. And the company achieved all this with an almost worrying financial history: a Bank Hapoalim loan of only $1 million, in exchange for an option on 5% of share capital, on the basis of a $20 million valuation.

Let's start at the beginning. After completing military service in the Intelligence Corps, Keren (now 39) worked at Triton studios as assistant technician. "I loved dealing with electronics and adored sound, which was an excellent combination," he says. After a few years, he decided to study something, and earned a BA in mathematics at the Haifa Technion.

During his studies, Keren met Shashua (now 35), a sound amateur. The two decided to develop a tool named Coder, and a sound simulator. Keren purchased the required equipment overseas and the two would meet twice a week at Keren's home and work on development.

That is how their first algorithm was born. In 1989, when Keren completed his studies and Shashua his military service, they both decided to go to work in the US. "We considered setting up a company, but I wasn't yet ready, and Meir certainly wasn't. Producer Asher Bitansky told me to go overseas and acquire some experience first. It was excellent advice."

The pair found themselves working in a company with lots of venture capital financing and great hopes, called Audio Animation, which was engaged in sound for professionals. "We were known as the engineers from Israel, and we left the company much wiser and with much more technology."

In 1992, the company was dismantled. The two decided to set up a company in Israel, and call it Waves. In 1995, Keren established a marketing network which is currently deployed in seventy countries. "From an R&D company, we became a company with business units led by marketing and distribution, and our marketing expenses today greatly outweigh our R&D expenses," says Keren. The company has recently retained the services of three salesmen, experts in the field, one of whom they plucked from competitor Harmon. Waves also opened a representative office in the US, in Knoxville, Tennessee, where the company the two worked in was located.

The major turnaround started in 1996. "A friend of Meir's arrived and focused us on the problem of loudspeaker size - a solution was needed to produce better sound from smaller loudspeakers." The great loudspeaker problem evidently lies in the low, bass tones which require a large reverberation box. Shashua researched the matter of sound and discovered the "psychoacoustic effect", an illusion of sound, which could solve the problem.

It appears that, two hundred years ago, organ manufacturers discovered that while they could not produce a pipe with the required height for producing low frequency sound, for example 20 hz, by using two pipes of 60 hz and 40 hz, the human mind subtracted the frequencies and heard a 20 hz sound. (The lower the tone, the longer the required pipe, since the wave is longer.)

Waves turned this into an algorithm. This produced a tool capable of giving the effect of large loudspeakers even on much smaller ones, which use much less energy and are less expensive.

The product is called MaxxBass, and according to Keren, in effect it is putting the entire industry on its feet. Keren says, "It's our spearhead, an inspiration, the company's warhead." He says companies are pounding their doors, including big names in the automobile industry, such as Ford and General Motors which are excited at the prospect of enhancing their sound systems for less than it currently costs them.

Keren says there is potential for the technology to penetrate additional markets, since it is greatly in line with the global trend for flat and/or miniature loudspeakers, televisions and computer screens.

Waves has an OEM agreement with Motorola, and a distribution agreement with Tomen of Japan, which linked the company to companies such as Sharp, Sanyo, Toshiba and Pioneer. "There was no-one to whom we showed the technology who said he wasn't interested. We are in contact with scores of companies," says Keren. "To comprehend the potential, it should be taken into account that four billion loudspeakers are sold annually." To extend activity to the consumer market, Waves plans to raise $5 million in a private placement.

The friend who gave them good advice about loudspeakers, Danny Gluter of Intel, gave them another piece of advice. "Throw out the professional market side, and concentrate on the consumer market. That's where the money is." However, Keren and Shashua decided to disagree. "We invest 85% of our resources in the professional market. It's a $10 billion market."

"Globes": Why don't you give up the professional market? How can a company possibly manage such different markets?

Keren: "We have a defined plan for turning the professional market into annual revenues of $100 million."

Will you promote the same brand-name for the two sectors? Will you try to be a sort of "Dolby"?

"It's complicated. We plan to sell licenses for our technology to games and other content developers, and try to persuade them to display our brand name on their products. Besides that, we will try to persuade our existing professional customer base to place the logo on the albums they produce."

Did you persuade Microsoft?

Partially.

Can you still be called a start-up?

"If you are asking whether we are still in formation, then yes. Certainly yes. If you visit us at midnight, you will see people working. On the other hand, we have 80,000 registered customers, more than 250,000 people use our technology, and in the past year we had sales of $3.6 million."

What type of loudspeakers do you have at home?

"I don't have any at all."