Regional Focus: Israel - Over the IT Horizon: Wall Street Looks to Silicon Wadi

By Pete Harris, President Americas/Editor at Large, A-Team Group

Israel’s high tech industries, developed from its military capabilities, are making a huge impression on the world’s banking, telecoms and even pop music industries. So what is the secret of what the West dubs ‘Silicon Wadi’?

Last December, a friend of mine from Credit Suisse emailed to say he was heading to a conference on the Next Generation Datacentre, to present on virtual appliances. I clicked the link he provided and glanced at the programme, which included other topics, including Service Oriented Architectures, Grid Computing and latency. Noting other presenters included NYSE Euronext CIO Steve Rubinow, and representatives from Bank Leumi, Gigaspaces Technologies and Voltaire, I wondered whether I should attend. Then I looked at where it was taking place … no, not New York City, San Francisco or London, but Tel Aviv, Israel.

And this wasn’t a Middle East instance of one of those ubiquitous Linuxworld events, either. Rather, this annual conference – hosted by the Israeli Association of Grid Technologies, or IGT – acts as something of a showcase for Israeli-based technology companies and emphasizes the world class IT strengths that have developed in a country that’s barely 60 years old and which has a population of just over seven million.

According to IGT general manager Avner Algom, the lure of the IGT conference – and more widely of Israel’s high tech industry – is down to a couple of things. “Israel is a great place for international networking,” he says, adding that it is responsible for “many innovative technologies that compare to those from US companies. And for M&A deals, most of the time, you can get a better price for the same technology [in Israel].”

Others confirm Israel’s technology expertise. Speaking last year on his first visit to Israel, Oracle CEO Larry Ellison commented: “What’s really different about Israel compared with other places we do business is the number of partners we have in the technology area. Israel has always had a wealth of intellectual talent.”

For its part, IGT bills itself as a non-profit, vendor neutral organisation for vendors, ISVs, customers and academia to share knowledge and experiences in the areas of Enterprise Grid, Virtualisation and Cloud Computing. Its more than 40 members include Israeli-based software companies, as well as those of Israeli heritage, and global companies – including Advanced Micro Devices, Google, IBM, Hewlett-Packard and Sungard – whose Mint and Decalog product lines came from its 1999 acquisition of Oshap Technologies – that maintain significant research and development facilities in Israel.

Also a member is the Israeli Defence Forces. For just as the Internet of today originated as a 1960s US Department of Defence project to build the ARPANET military research network that could survive – and form part of a response to – a nuclear strike, so Israel’s high tech credentials were established with the development of technologies for military use, but which have since been spun out (along with their creators) for commercial purposes, with considerable success. As such, high tech has become a major contributor to the country’s exports, representing 36 per cent of the total in 2006, according to Israeli government statistics.

Today, Israel’s high tech industry is located mostly along a coastal strip known as Silicon Wadi, with the strongest concentration in and around the city of Tel Aviv, including the nearby centres of Ra’anana, Herzliya, Caesarea and Haifa. The Jerusalem area has also become a magnet for high tech firms. Out of this region – which claims the highest concentration of high tech startups outside of California’s Silicon Valley – in recent years have come several major technology products, including Intel’s Core Duo multiprocessor chips, the ICQ instant messaging service (acquired by AOL) and the ubiquitous open source PHP web scripting language.

A common evolution for Israeli high tech companies is to establish their research and development operations locally and then later set up corporate presences in the USA, where access to capital, and a large marketplace, are to hand. Says IGT’s Algom: “Israel is like the 51st state,” referring to the similar business culture and the close strategic relations between the two countries. Indeed, last November, Nasdaq and the Tel Aviv Stock Exchange formalised relations with a goal of establishing stronger trading links. At that time, Nasdaq listed some 70 Israeli companies, with a combined market capitalisation of $60 billion.

For sure, a wide range of technologies is being developed by Silicon Wadi companies, such as: Jajah, which offers very inexpensive international telephone calls to/from standard landlines and mobiles; Primagrid, a stealth mode company marrying Grid and Service Oriented Architecture technologies; Crescendo Networks, focused on accelerating performance of online applications; and Tehuti Networks, developing 10 Gigabit Ethernet cards with on-board TCP/IP processing.

With a sole financial services focus, Actimize is an example of an Israeli company (founded in 1999) that now operates globally, offering trade compliance, anti-money laundering and fraud detection software. Acquired last year by fellow Israeli vendor Nice Systems (a developer of speech, contact centre and security products), Actimize counts eight of the top 10 US brokerages and six of the top 10 global banks among its customers.

Gigaspaces and Voltaire are two infrastructure companies of Israeli heritage that are also well known to the financial markets. Gigaspaces – which has developed enterprise data fabric and distributed application server products used by several Wall Street firms – runs its US operations from New York City, while maintaining an international office and a development centre in Herzliya.Also with a development centre in Herzliya is Voltaire, which offers a range of Infiniband interconnects deployed in Grid Computing, high performance computing and low-latency applications. Operating from a business HQ in Billerica, Mass., Voltaire has partnered with the likes of Reuters and IBM to provide a high performance network backbone for those companies’ respective trading system offerings.

This year’s IGT annual conference takes place on December 1st, with a focus on “Cloud Computing - Grid Virtualisation for On-Demand Scalability.”