Internet messaging software

It would be farfetched to say Israel is an advertising powerhouse, but here and there some entrepreneurs are trying to find Internet solutions for this classic revenue channel. Two start-ups are taking center-stage in this field, at least judging by the fireworks they are sparking off into the air.

iWeb is the older of the two. It has an investment from international advertising agency giant Young & Rubicam (Y&R), and a claim to a more sophisticated and advanced system. The other company, Adwise, was founded several months ago, was given a check by US investment company Emicom (set up by Memco graduates), and claims it attracted extraordinary interest at an international exhibition.

Back to iWeb: Kobi Samboursky, 31, graduated from the Intelligence Corps and worked for Infogear, which was sold to Cisco. He then decided to set up a start-up. He looked and looked, and the idea suddenly clicked: old school advertising does not exploit Internet capabilities. About 95% of Internet advertising revenues come from the ten major sites and this structure sabotages better exploitation of the Internet as an advertising medium. Moreover, advertising through banners does not focus on a target audience and is limited as an advertising tool. Samboursky turned to Alon Girmonsky, 29, a member of the same corps, and the two young men set up iWeb.

They built a new advertising model. According to Samboursky, the new model brings in a new player to advertising: ISPs (Internet Service Providers). iWeb says ISPs bring advantages and disadvantages. The advantage is that they have information about their customers that can help advertisers pinpoint target audiences more precisely. The great disadvantage works to iWeb's advantage, since the ISPs need additional revenues to widen their thinned out margins.

ISPs are therefore iWeb's primary target market. The company developed software enabling ISPs to become focused advertising providers for various forms of advertising. Instead of using only banners, the software facilitates the use of a lead banner that moves across the screen, or a video that runs while downloading is underway. The system also allows for goods or services to be purchased through a single click on the advertised item.

All this takes place irrespective of the site the surfer is visiting. In other words, the tap for the stream of advertising is not on the site, but in the hands of the ISP. One clear advantage of the system is that no installation is required on the part of the surfer. The ISP's ability to identify a target audience turns the advertising into a sort of direct mail, i.e. a new Internet advertising media.

Girmonsky says that ISPs can choose a number of models. The system enables them to cut operating costs through the service, or provide surfers with free surfing time in exchange for the exposure to advertising. iWeb currently has several customers, mainly in Europe, the market iWeb chose to initially penetrate. These include a number of respectable names: firstly, Britain's largest ISP FreeServe, World Online and Planet Online. iWeb started to make efforts to penetrate the US market at the beginning of the year, and to date, has no customers there.

If ISPs are iWeb's customers, its partners are the advertisers. iWeb's major partner is none other than international advertising giant Young & Rubicam (Y&R). The business ties were forged by the start-up innocently shooting off arrows in all directions - and hitting the bull's eye. Girmonsky: "We approached them, offering cooperation in advertising content. They were enthralled and decided to invest."

The ties ripened into a $3 million investment in September 1999. The start-up gained a prestigious general manager, Bruce Spencer, who wasY&R vice president for technology strategies and had formerly been in the same position in Sony Music.

Girmonsky says that Y&R's investment is a strategic move on the part of the giant. It includes a joint venture aimed at bringing the company's current off-line advertising flow onto the Internet. He says that until the Israeli company appeared, Y&R had not found exactly the right model it was seeking for this goal. Yet the investment does not grant Y&R any sort of exclusivity, according to Girmonsky.

iWeb's business model involves granting ISPs free technology in exchange for a share in profits. In principle, the share would equal that of the ISP, and be adjusted to whichever party is responsible for providing the advertising content. Nevertheless, iWeb does not rule out selling the technology.

Y&R's investment is in fact the company's first financing round. The seed-stage round, when the company was founded, totaled $500,000. Following dilution after the initial financing round, the private investors who first showed faith in the company, hold 40%, almost the size of the entrepreneurs' share. iWeb currently has a staff of thirty, in three offices: R&D facilities in Herzliya, an office in New York, and a branch in London.

Competitors? A US company named STPI "does great things with a completely different technology", says Girmonsky, which needs to be installed by the end user. Another competitor, NetZero is an ISP that requires its surfers to install a special browser through which it transmits advertising and content. 24/7 Media is a leading Internet advertising company. In the Israeli sector, there's Adwise, which "from the business aspect is doing similar things", according to Girmonsky, "but technologically, it's twelve months behind us. I presume they will compete with us in the future, if they improve." That leaves Adwise, which may respond in this column in the future.

Published by Israel's Business Arena on 17 April, 2000