What will be the killer application of the cellular era? E-commerce? Games? Smut? What, you don’t know? That’s all right; Cash-U Mobile Technologies founders CEO Amir Peleg and VP business development Dr. Rann Smorodinsky don’t know, either. That hasn’t kept them from raising over $23 million in less than two years, though.
Peleg came to the Israel Air Force as a graduate of the Talpiot program and met Smorodinsky, who began his military career in the academic reserve. After they were demobilized, their ways parted; Smorodinsky earned a BSc, MSc, and PhD in mathematics, as well as an MBA, and did post-doctorate work at the Technion, while Peleg focused on the business world, joining an Elbit (ELBT) subsidiary in the US. He also earned an MBA, however.
The two met again in the summer of 1999 and began to discuss ideas for a joint venture. Their original intention was to develop cellular e-commerce projects, which gave rise to the name Cash-U. “We began with a narrower focus,” Smorodinsky tells. “It was clear that something was going to happen in the cellular world, and we had no intention of creating something that would compete with all sorts of satellite ventures and global communications networks. We started small. The way the field evolved made us realize there was no point in concentrating on a specific product; it would be best to stretch the boundary beyond the strict definition of e-commerce by creating the platform itself.”
Peleg: ”At that time, cellular was being hyped out of all proportion. You couldn’t read an article that didn’t mention m-commerce and the tin cans you could buy by telephone. We saw, however, that there was still no infrastructure for all these things. We ran into more and more people telling us that we were wasting our time – the market wasn’t ready yet; it took a long time for credit cards and smart cards to catch on. We saw the still unsolved problem between the two largest parties whose agreement was required: the cellular companies and the banks. We decided not to become mired in a field that had yet to create one uniform standard. It wouldn’t matter what technology we developed; those concerns would eventually determine whatever they wanted.”
Smorodinsky: ”Then we said, 'Perhaps we should try games.' On a trip from Lausanne to Geneva, we started developing a game. I came up with an idea, Amir finished it, and we began to fantasize about a company that would develop cellular games. We met a guy from a Scandinavian cellular company that same week, who told us to leave it alone. We were talking about games that would be ready in a few years, while his kids were already downloading icons and sounds at a dizzying pace. We also saw that everyone was looking to the young audience: Ericsson, Nokia, and everyone else. The combination of all those things persuaded us that the market was large enough to develop something that would include other applications.”
Instead of focusing on one of the future applications destined to make its way to our cellular devices, Cash-U decided to develop the platform on which the applications would sit.
Peleg: “Instead of making an action movie for video, we decided to develop a VCR.”
The company develops a kind of operating system that sits on the cellular company's servers, and is meant to facilitate e-commerce applications, community applications, games, and other applications. As long as every company developing cellular applications operates by itself, a customer with a bug in his game might not be able to get support from the cellular company's personnel, since they could not possibly be familiar with all applications. If everything worked on one operating system, as with Microsoft’s Visual Basic, the cellular companies, or rather, the cellular applications service providers, would find it easier to manage the applications.
Smorodinsky: ”We made two crucial decisions. We decided not to touch the telephones themselves. We wouldn't develop something that would require any developer using it to wait for a specific generation of telephone. The goal was to build a system through which games could be created that would work on any kind of phone and with all types of communications: WAP, I-mode, SMS, or anything else. We also decided that since no one knows what the killer application will be in various geographic regions around the world, we shouldn’t focus on one type of application.”
”Globes”: Wouldn’t it be more profitable for you to station a tech support person at every cellular company? Why confine yourselves to the shelf product model?
Peleg: ”We thought that if we could create a generic operating system for the field, we wouldn’t have to place a man in every organization. We could sell the system as a complete product. We built a developer’s kit, which will soon be available on our site.”
Cash-U encountered the software version of the chicken and the egg problem. How do you convince the cellular companies to buy a platform that no developer uses? How do you persuade the developers to develop a platform that has not been sold to a single cellular operator? The company decided to approach the developers first, and take advantage of the fact that they were the first in the market to offer a generic concept for developing applications.
”We spoke with several applications companies, some of which were Israeli. We got together a group of respected developers who expressed a willingness to operate on our platform. With that in our pocket, we went to the first operator. We convinced the operator that it would be much better in the future if all the applications fitted one standard, and we would be delighted if it was our standard.”
Today over 50 companies are on Cash-U’s list of developer-partners. The list of customers includes Cellcom, Omnitel Pronto Italia, and Mobile Solutions of Switzerland.
At the beginning of 2000, Peleg and Smorodinksy obtained $1.1 million in seed financing, of which $1 million was from Argoquest Holdings and the rest from private investors. Cash-U completed its first financing round in August 2000, in which Pitango and Chase Capital Partners invested $3.5 million. At the end of July, the company completed its second financing round, raising $18.5 million from Fidelity Ventures, Greylock Fund, Intel Capital, and Pitango. Cash-U currently employs 60 staff and is still recruiting more.
Wait a minute, though, how do you make your product a standard? Very simple – you set up a forum, invite the developers to a conference in Paris, where everyone meets to hear about Cash-U’s platform, just as if it were Sun Microsystems or Microsoft.
”Our goal at the conference was to give the impression that a great many cellular operators will use us. You could say they’ll be Cash-U inside.”
Cash-U inside? Aren’t you taking this too far?
”Look, our name is Cash-U. Our products are called Pecan, Pistachio, and Peanut Butter, so don’t be surprised if we’re a little nuts.”
Name: Cash-U Mobile Technologies
Founders: Amir Peleg and Dr. Rann Smorodinsky
Product: Cellular applications development platform
Previous financing round: $23.1 million from Greylock Fund, Fidelity Ventures, Argoquest Holdings, Pitango, and Intel Capital (Israel).
web site: www.cash-u.com
Published by Israel's Business Arena on September 3, 2001