Long in the Bluetooth
If I only had a time machine, I’d go back to the mid-1990s to Ericsson’s (NYSE: ERICY) offices in Sweden. “Where’s Jurgen?” I’d ask. “Which Jurgen?” the alarmed clerk would ask. “The Jurgen who invented Bluetooth,” I’d tell her. “Tell him I’m still waiting.”
I haven’t got a time machine, and although I have already set eyes on Bluetooth products, it’s not the mass market we were promised back then. The main cause of the delay is the price. The initial estimates of much lower prices for hooking various devices up to this technology proved to be impractical, falling victim to the vicious circle of slow demand-high price, high price-slow demand.
Moshe Lerner and Gideon Barak didn’t wait for Bluetooth; they founded RFWaves in late 1998. Barak is an inveterate entrepreneur who has been involved in over 10 companies at various levels. Russian-born Lerner, who emigrated to Israel in 1991, later founded UNISOR Multisystems, which engages in engineering projects, but “he’s an inventor at heart,” says RFWaves CEO David Ben-Bassat. “He’s an inventor in every sense of the word. The huge store of know-how he has acquired over the years enables his brain to come up with creative solutions for every problem. Like all inventors, he stops at the prototype stage and lets others take over from there and work on the commercial aspect of the matter, while he, of course, proceeds to his next invention.”
Barak and Lerner managed RFWaves until mid-1999, when Ben-Bassat took over the CEO chair. Ben-Bassat, an Israel Institute of Technology (Technion) graduate and ex-member of the Israel Defense Forces academic reserve, who spent his regular army service in the Air Force, got a phone call from his friend, IXI Mobile CEO Amit Heller, who told him, “There’s someone you must meet,” meaning Barak. Barak and Heller had already joined forces in Bluetooth development company Butterfly, which was sold to Texas Instruments (NYSE: TXN). Bluetooth can be described as a wireless protocol that competes with what RFWaves is doing. “Barak and I hit it off right away, and I started off right away as the company’s VP development. I was appointed CEO six months later,” says Ben-Bassat.
Plenty of protocols
There are several non-cellular wireless protocols. 802.11b and its successors, 802.11a and 802.11g, which are expected to raise data communications speeds from 11 Mbps to 50 Mbps, are used for wireless home and office networks. Bluetooth is suitable for shorter ranges and is used for personal networks – a wireless link between standards like cellular telephones, electronic diaries, media players, and others.
What about the oldest of them all, HomeRF? “HomeRF, which preceded Bluetooth, has in effect lost its direction, perhaps because of marketing problems, perhaps because Bluetooth solved all of the problems its posed. In my opinion, it won’t play a role in future wireless communications,” says Ben-Bassat. “Even Intel (Nasdaq: INTC), one of the founders of the HomeRF forum, announced last year it wouldn’t invest any more in the field. This may be HomeRF’s swan song.”
”Globes”: You mentioned Bluetooth, your biggest competitor.
Ben-Bassat: ”Bluetooth isn’t suitable for everything. First of all, Bluetooth’s architecture is rather restrictive. It includes something called Pconnect, a sub-network with six or seven ports that constitute the actual basis for the technology and make it possible to connect a number of components supporting the protocol to a central point. The problem is that if you want a network to manage 100 devices, you have to construct three layers of the network just to manage it, which is too complicated.”
Another problem is that Bluetooth was designed for three segments: laptop computers, personal digital assistants (PDAs), and cellular devices. All these elements are charged every day or two. When electricity is so readily available, economizing on electricity is not exactly a high priority for the user, and is therefore omitted from the manufacturer’s plans. The hope that other components will one day become wireless cannot be fulfilled unless an electricity-saving solution is found. RFWaves chairman Avner Divon estimates that a mouse upgraded for Bluetooth can operate for a month with a regular battery, while it will last several years using RFWaves’ technology.
The price is also painful. Ben-Bassat: “If you read the analysts’ reports from 1998, you’d think the price of a Bluetooth chip set would be $5. Where can you find that? Even if you can get it for that price, you still have to add components to the set and connect them to the application. In short, it won’t stop at $5 – it might be $8, which means it will cost the end-consumer another $40. Would you pay another $40 for wireless capability for a mouse that cost $10 in the store?”
What is RFWaves offering? A short-range wireless module, based on radio frequencies that facilitates two-directional data communications, without the need for a line of sight. RFWaves also boasts that power consumption is minimal.
Divon is also an entrepreneur of long standing. Together with Barak, he founded Voquette, which dealt in digital media.
Divon: ”Instead of a $5 price in the future for Bluetooth, we offer our component for $2. The additional parts that have to be added to it cost only $0.50. We are in touch with the world’s largest manufacturers of computer accessories like scanners, mice, and keyboards. I am fairly optimistic that these components will receive wireless solutions smoothly. To show you what I mean, worldwide penetration of wireless mice and keyboards in 2000 was only 1.5%, while TFT screens had 15% penetration. What does that mean? That people are willing to pay $150 for a convenient screen, but organizations won’t pay for a wireless mouse, because the distance between the cubicles in which people work send the frequencies crazy. You need bi-directionality to sort out this problem.”
Ben-Bassat: ”These are the sort of products that you don’t bother repairing; you just throw them out, because the initial price allows you to do it. The price of a regular mouse from today’s production line is $1. If you want to make it wireless, you have to spend 10 times as much, on the basis of today’s components.”
Divon: ”The company will make a profit, and a big one. According to our work plan, our profit margin will be 50%. We also want to be major players in the home automation field: alarm sensors, lighting, and anything that can be operated without touching. These things have to be linked with wireless. If you want to install a wireless sensor system in a museum, with sensors attached to each painting, you can’t put cables on the walls. Here you can network the museum at a very low price, compared with the use of today’s solutions.”
RFWaves’ module already supports speeds of 1 Mbps simultaneously in two directions. The designated effective range is 20-25 meters, and trial sets have already been distributed for money for several months to potential customers. Divon reports that 10 kits per week are being snapped up.
20 employees work in the company offices in Or Yehuda and California. Ben-Bassat defines company growth as “linear and moderate.” RFWaves has raised $7 million to date, and plans to raise another $3-4 million soon to finance the beginning of mass production. A break-even point in 2003 is mentioned.
The list of investors includes an Israeli-American fund that wishes to remain anonymous and a number of Taiwanese funds. The only investor willing to be named is Sunplus Technologies, the largest manufacturer of micro-controllers in Taiwan. It was later learned that one of the investors in one of the Taiwanese funds that invested in RFWaves is Taiwan’s second largest manufacturer of micro-controllers. RFWaves also has a representative in Taiwan responsible for local business development.
There are many other potential markets in addition to those already mentioned: toys that receive wireless instructions, an audio system whose loudspeakers coordinate without wires, wireless cellular headphones, digital cameras, industrial automation, and webpads. In general, these can be divided into existing products that can be made wireless and products that are wireless by nature, but will not take off without a cheap solution.
Founded: December 1998
Founders: Moshe Lerner, Gideon Barak
Product: A short-range wireless communications module
Shareholders: Argoquest, Taiwanese funds, Sunplus Tecnologies
Previous financing round: $7 million, $3-4 million more planned
web site: www.rfwaves.com
Published by Israel's Business Arena on February 6, 2002