Voquette: Telling you what you want to hear

After years at Israel Aircraft Industries, Avner Divon founded Voquette because he felt like doing something to help people. At first, he planned to design a memory chip that would personalize radio broadcasts. Later, he created software to download Internet content for business analysts, doctors, and others.

The global conflict between the competing streaming media formats of Microsoft and Real Networks took an interesting turn two weeks ago. Real Networks users were informed that their software would now support the format of the hated competitor from Redmond. That same day, Globes met with Voquette founder Avner Divon, who until recently served as the start-ups Senior VP of Product Development.

Divon worked at Israeli Aircraft Industries subsidiary Elta Electronic Industries, designing complex radar systems. He created Green Pine and other technologies that paved the way for the Phalcon early warning plane. Divon says, I didnt like the way the company was managed. When you need people, they force workers on you; when you want to buy computers, you have to go all the way up to the IAI director general, who also has to sign off on every trip overseas. I couldnt live with it. I tried to change, but it is impossible to be free in the era of unions and committees. The pay structure was also distorted; it was the last socialist bastion in which bureaucrats and engineers received the same salary. In short, Id had it.

In 1995, Divon founded Voquette and began looking for potential partners among his colleagues. Under the Israeli everyone knows everyone system, he met Gidi Barak and Asaf Mohr, who had earlier worked together at DSP Group (Nasdaq: DSPG), where Mohr was VP Marketing and Barak was CFO. After investors demanded that Davidi Gilo close down the Israeli R&D center, Gilo set up DSPC as an alternative development center and Barak returned to Israel to run it. DSPC later went public.

What is the concept behind Voquette? Divon says, The era saw the flowering of the Bulletin Board System (BBS). They were text-based networks that stored data for everyones benefit. One day I sat down and thought how could I make something to help people after working for years in the defense industry. I suddenly felt I wanted to develop something to benefit people. People are stuck in their cars from Kfar Saba en route to work in Tel Aviv, a journey that can take an hour. They are effectively a captive market; they have no choice. I wanted to be able to receive alternative content while driving. The penny dropped, and I began thinking about personalized radio.

The first idea was to go to the radio stations themselves, i.e. to create a kind of service based on radio frequencies that could be somehow personalized for each listener. When Divon realized the astronomical investment needed to do this, especially if he wanted to provide the service in the US, he dropped this approach, as well as the possibility of using satellites.

Divons solution was based on his defense work. A pilot takes off on a mission carrying a kind of chip a diskette or memory chip which he inserts in a slot in the cockpit. The chip then provides him with all the information he needs. Divons goal was to use EEPROM (Electrically Erasable Programmable Read-Only Memory) reusable chips. At precisely the same time, M-Systems Flash Disk Pioneers (Nasdaq: FLSH) developed volatile memory chips, leading Divon to think he was onto something.

Divon, who was interested in using DSPs technology to transfer audio content to these chips, takes pride in being the first man in the world to patent a system for listening to information downloaded onto memory chips. The method is similar in principle to MP3. The first goal was to develop an ordinary cassette tape that would integrate EEPROM chips and radio broadcasts. The listener would listen to broadcasts which had been prerecorded onto the memory chip of an ordinary cassette player. A US company is now manufacturing a similar product, although Voquette originally developed the idea of installing an additional transmitter onto the steering wheel, enabling the driver to control the cassette directly. For now, were not reacting to the apparent copyright violation of our patent, but we may very well sue the company the moment they turn profitable, says Divon.

We discovered that the US market for audio books reaches $2 billion a year. We think this is a suitable market segment for us. The idea is for your PC to wake up in the middle of the night, go online, and download and record predetermined audio content or books that you could later insert in your cars cassette player, explains Divon. Divon and two engineers developed a product, after receiving initial financing from Barak, Mohr and other private investors. The seed financing round totaled just over $5 million.

A streaming media portal

Divon then launched operations in the US, joining up with Philip J. Monego, the first CEO of Yahoo! and a well-known angel in his own right, who had invested in eBay. Monego was enthusiastic, and invested in the company. He ran the idea past AOLs management, which was enthusiastic but preferred to wait until Voquette completed its product development process.

At the same time, Monego sold NetChannel, which had been founded by AOL and would eventually become AOLTV the companys interactive television division. Monego was between companies, and decided to join Voquette as CEO and chairman, while Divon became vice president. In March 2000, Voquette raised $17.5 million from several sources, including Philips, Citibanks Century 21 Fund, and MP3.com.

Voquette began offering three service models: A hardware chip called NetLink Adapter; a program called Voquette Media Manager; and an expanded portal version of the program.

The NetLink Adapter hardware chip is installed on the computer next to an erasable mini-disk player, which is sold to consumers. Philips also sells the system through a cooperation agreement with Voquette, in a package deal that includes a Philips mini-disk player.

The second service model, Voquette Media Manager software, can be downloaded free from the companys website. The user imports streaming media, including live broadcasts, recording them on hard drives, CD disk writers, MP3 players, etc. The user can also download content from the websites with which Voquette cooperates.

In the third model, essentially an extension of the second, Voquette wanted to build a portal that would concentrate streaming media in one location. The content providers would implement a profit-sharing arrangement. Voquettes technology would take content designed for Microsoft or Real Networks players, and convert it into a single format, such as a CD disk writer. Even before the systems development was finished, it was necessary to obtain the cooperation of recording companies, which was relatively easily arranged.

For a very long time, our message simply wasnt working, says Divon. We realized the consumer model had collapsed, it was necessary to constantly invest in partners and recruit more content providers. Then the Napster affair blew up. Although this didnt affect us directly, it created a debate about online music. We were considering another financing round at the time, and we didnt want to hold it when we werent meeting consumer sales forecasts.

Voquettes activities are now enterprise-oriented, especially toward economy-oriented enterprises such as Morgan Stanley and Merrill Lynch. Voquette provides systems that facilitate orderly information gathering from a wide variety of content providers to research companies, who can disseminate the information using the method of their choice - conference calls, lectures, press conferences, etc. We pay the content providers either in cash or through profit-sharing agreements, while our customers generally pay according to the number of users.

In the US, we also operate voice services that provide our customers with content over the telephone. In other words, we operate as an external distribution system for companies. Merrill Lynch creates 500 pieces of audio and video content a day that has to be disseminated both internally and externally, to their customers.

The next sector Voquette wants to penetrate is healthcare, where there is an immense amount of information that companies want to distribute among their sales staff. We are also offering dynamic website (websites that are constantly updated) pop-up boxes that would be adapted to their users personal preferences.

Globes: Can Voquette stay independent over the long term ?

Divon: Recently, there were rumors that Comverse (Nasdaq: CMVT) was interested in acquiring us. I want to take the opportunity to say we were very flattered. We could definitely help Comverse with their voice portal operations. There is also talk about Microsoft and Real Networks, which is quite natural when you see their representatives at almost every relevant conference. There is nothing specific at the moment.

At the end of December 2000, Voquette closed its development center in Israel that had employed a staff of 10, after the center completed the development of a cellular telephony application. Voquette currently has a staff of 60 people, who are based in San Mateo, California.

Divon is no longer active in the company, but remains a member of the advisory board and has good relations with Monego. He has not lost the innovative spirit. Together with Voquettes former manager of development Uri Weinberg, he founded Memtex, which develops cellular systems. He also serves on the boards of directors of Hlan, which is developing a wireless network chip; and is also a director of Contact Now, which is developing a combined Internet-telephony network platform; and RFWaves, which is developing a bluetooth chip that integrates all the technologys relevant components.

Divon concludes on a personal note, My wife is also a start-up entrepreneur. The insanity runs in the family.

Published by Israel's Business Arena on 28 March 2001

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