Google Inc’s US$1.03 billion purchase of Israeli navigation software maker Waze marks an important milestone for the country that affectionately calls itself the “Startup Nation.”
The acquisition is not only among the largest-ever purchase prices for an Israeli startup, it also cements a recent push by the local high-tech industry into the fast-growing consumer market.
“I think it’s a big step forward,” said Erel Margalit, a leading Israeli entrepreneur and opposition lawmaker in parliament. “Israel is no longer just a R&D center. It’s a creative hub.”
Waze’s popular smartphone application combines GPS navigation software with social networking features, allowing users to improve the service’s directions and traffic reports with their own data. This crowd-sourcing aspect enables the service to adapt to changing road conditions, such as accidents and speed traps, in real time.
After rumors that it was being sold to Facebook or Apple surfaced in recent months, Google beat out its rivals for Waze and its base of nearly 50 million users.
Israeli Prime Minister Benjamin Netanyahu telephoned Waze CEO Noam Bardin to congratulate him.
“You reached the destination,” Netanyahu said. “You have again put Israeli technology on the world stage.”
Faced with limited natural resources, Israel has fostered a vibrant high-tech culture in recent decades. The country is a popular destination for global venture capital funds seeking to capitalize on Israel’s entrepreneurial spirit, as well as expertise honed in universities and advanced technology units of the Israeli army.
Israel boasts one of the largest collections of companies traded on the NASDAQ.
The world’s leading technology giants, including Microsoft, Google and Intel, all have large research and development operations in the country. Israel’s celebrated high-tech creations include cellphone technology, Wi-Fi Internet, instant messaging and USB thumb drives.
According to the Central Bureau for Statistics, Israel’s official source of economic data, the tech sector accounts for more than a quarter of the country’s exports.
The bureau uses an internationally recognized definition of high-tech that excludes both biotechnology and Internet companies. When those are included, technology firms account for roughly half of Israel’s exports, a key reason why Israel’s standard of living is now on par with, and in some cases above, many European nations.
The Waze buyout is among the largest private company sales in Israeli history. In 2000, at the height of the high-tech bubble, Israeli startup Chromatis Networks was bought out by Lucent Technologies for US$4.5 billion. Lucent closed the firm a year later. More recently, networking giant Cisco last year purchased Israeli video software company NDS for US$5 billion.
Margalit, a mastermind of the Chromatis deal, said that until recently, Israeli tech firms focused heavily on developing innovations for major telecom firms and other global tech giants. The acquisition of a consumer-focused app like Waze shows that Israel’s startup culture is “alive and well,” he said.
“When Israel is also involved in building the major applications for consumers, it means other disciplines of creativity are entering the game,” he said.
One criticism of Israeli technology firms is that entrepreneurs have frequently looked to cash out quickly by selling their technology to larger firms. The result is a big payout for company founders that creates few jobs and little broader economic benefit, critics say.
The push into the consumer sector could bring a wider range of jobs to Israel and help foster more sustainable businesses.