The situation today is the same as it was a year ago. The basic principles have been established and the major players are in place but change will continue at a snail's pace always trailing behind the US.
The troubles of the Israeli Internet market seem so small and insignificant that they sometimes resemble the fall of a tree in a distant forest. Some of the assumptions under which this market grew up and operates have been long ago abandoned, while some remain unchecked. The Israeli net rolls on, practically from inertia.
The current wisdom says that the Israeli market was in its infancy until recently, that it has not yet gotten "there", and much time and money will be necessary for it to get "there." This kind of Internet logic explains away every mishap as a byproduct of an intermediate stage. This claim, however, has been heard for five years already, and should be quickly tested against reality.
The rate of penetration will rise - NUA's Internet survey thought that it had counted 500,000 surfers in 1999, but the META Group's data from March upset this over-optimistic estimate. Fourteen percent of households, constituting 300,000 persons, are hooked up to the Internet according to META Group, and the number is likely to rise to 400,000 only in 2003. This represents significant, amazing backwardness, compared with Europe and the US. The bottom line is that no one hurries anywhere from a meal.
The large players will inherit the future - The only ones to profit from their labors were those who issued: Walla! (in Tel Aviv) and Internet Gold (on Nasdaq), but that was short-lived. With the general downward trend in the markets, the first dropped by 50%, while the second is being traded very close to its issue price. The financial statements also show a sorry picture: in 1999 Walla! posted a loss of NIS 4.18 million and Internet Gold lost NIS 10.47 million. Israel Online (IOL) continues to sprinkle announcements of issue at varying values, but the timing never seems right. All the smaller players will apparently continue to dig in as private companies and lose lots of money. The bottom line: charity operations.
E-commerce will gain momentum - The large purchasing sites are beginning to form something resembling a market. According to IDC Israel, the volume of e-commerce in Israel in 1999 was $55 million, of which $35 million was in B2B. That means that the monthly volume of online consumer buying (B2C) is $1-2 million. A reasonable assumption is that this sum is gradually rising. Still, IDC predicts that the volume of e-commerce in 2003 will be $1.2 billion, of which $750 million will be in B2B, which is to say $38 million per month. That is an impressive rise. There are more pessimistic forecasts - META Group expects only 160,000 households, or a third of today's surfers, will ultimately shop by Internet. The bottom line: Steimatzky is feeling the heat, but quite possibly for no good reason.
Only two to three leading portals will remain in the end - The situation today is the same as it was a year ago. There are Walla!, IOL, Nana, and Tapuz. MSN-Israel didn't really manage to upset the balance. The web site of "Yediot Ahronot" daily is apparently preparing an explosive development, but it remains to be tested under field conditions. To these can be added the vertical content sites, and the Israeli surfer continues to accumulate bookmarks. What does that matter, though, if they all greatly exaggerate the number of viewed pages, while no official measure exists. The bottom line: there are many eager to be a big fish in a small pond.
Prices for being hooked up will fall - The leading providers are coming out with more and more seductive special price offers. NetVision offers "If you don't surf, you don't pay", and Internet Gold offers surfing for $0.50 a day. In a wonderful demonstrations of the system of checks and balances, however, Bezeq has adjusted this situation upwards with its latest price rises. The bottom line: Don't believe it.
Broadband affairs - Promises and demagoguery, not regulated in any way. Each party continues to claim that it is not the bottleneck holding up high-speed Internet in Israel, and that it has wonderful plans in store, which are only being held up by regulatory limitations. The bottom line: Wait for the minister and for downloading the pages.
The targeted content will be transferred to additional platforms besides the PC - Here it is already possible to list iCellcom, Orange BU, and Pele-Phone-Next. Israelis were never afraid of cellular phones, which may explain part of the penetration problem. A possible scenario is that cellular content will enter by the window and open the door to the PC. Digital TV is still a vision that is hard to test. The bottom line: for some, it is more blessed to receive.
The quality of content will be higher quality with the growth of competition - High quality sites and known writers have entered. An examination, however, reveals that most of the writers, who are not celebrities, are doing it for love. How could the sites possibly pay them? It isn't the competition that given the content a push, but a whole stratum of writers feeding the network at half price, in the hope that one day they will be able to make a living out of it. The bottom line: "Part 2 of Internet Slaves."
On the basis of all this, one gets the impression that it is futile to await the coming of age of the Israeli Internet market. The basic principles have been established: the main players have taken their positions. Changes will continue to be slow, and will always trail behind those taking place in the US. Problems will remain as they are, as will the promises.
It seems that Walla! is not going to acquire the Children's Channel. This is not the US, and the local Cinderella will not become anything you haven't seen before. Each of the parties: the access providers, the regulators, the portals, and the users will all continue to suffer its own miseries.
Published by Israel's Business Arena on May 4, 2000