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Internet security has become a bigger export earner than arms
Aug 1st 2015 | TEL AVIV
ISRAEL S arms exports fell last year. Cutbacks in the defence budgets of many
Western countries pushed the global sales of Israeli weapons systems down to
$5.7 billion, $1 billion less than in 2013. Unexpectedly, another
security-related industry took up the slack. For the first time, the country
sold more cyber-wares than arms. According to figures published recently by the
cyber-task-force in the prime minister s office, in 2014 Israeli companies sold
around $6 billion of internet-security software, equivalent to about a tenth of
the entire worldwide sales of such stuff.
A big chunk of that came from Check Point, best known for its ZoneAlarm
antivirus software for home computers, and a provider of a broad range of
online-security products for business. Its revenues last year were $1.5
billion. But Israel is also producing lots of cyber-security startups. Last
year eight of them were sold to foreign investors, for a total of $700m. In
September CyberArk, which specialises in protecting firms against attackers who
pose as system administrators and other insiders, had one of the year s biggest
IPOs on the American NASDAQ market, and its current valuation is around $2
billion.
The number of Israeli cyber-security companies has doubled over the past five
years to 300. Demand for their products has boomed, as businesses and
governments everywhere have come to realise often the hard way that they need
to protect themselves against hacking. And Israel has a good supply of
experienced software engineers. They come mainly from two sources: first,
employees of the 280 high-tech development centres in Israel owned by foreign
multinationals, who have begun to strike out on their own; and second, the
hundreds of people with suitable skills who leave the Israel Defence Forces
each year. The forces have for decades been developing their capabilities both
defensive and offensive in cyber-warfare, and this policy is now paying a
civilian dividend.
The many serious hacking incidents of recent years have shown that computer
systems can be infiltrated through all sorts of channels, for instance through
mobile devices, or by breaking into databases hosted by a third party in the
online cloud . Earlier software was able to detect known strains of computer
viruses, but the rapid evolution of malware has, among other things, given rise
to companies offering software that predicts where hackers may next attack and
provides defences against them. Some of Israel s cyber-security startups have
established themselves as market leaders.
Nevertheless, a few Israeli entrepreneurs worry that the cyber-startup boom may
be turning into a bubble. Every kid who leaves Unit 8200 [the Israeli forces
electronic-intelligence operation] thinks he s going to be a cyber-millionaire,
and then some of the startups are immediately evaluated at $5m without having
done anything, grumbles an Israeli venture capitalist. There is a bit of a
bubble vibe to what is happening, says Yigal Erlich, one of the pioneers of
Israel s venture-capital scene. There could be a limit to this cyber-market.
But on the other hand, for Israeli technology this is a perfect niche-market in
which local companies can become world leaders.
Gadi Tirosh, the managing partner of JVP, a venture-capital fund based in
Jerusalem and chairman of CyberArk, says that over the past two years his fund
has examined nearly 300 startup projects in the cyber field but does not
believe there is a bubble. What we are seeing is an overnight evolution, which
happened when the chief security officers of corporations around the world
suddenly realised how vulnerable they are, and that the cyber-attack can come
from anywhere, including from within That fear is only growing, and in the
cyber-industry, that fear means money. To tap into the reservoir of
technically experienced yet often financially na ve software engineers looking
to enter the industry, JVP has set up a campus in the southern city of Beer
Sheva, which serves as an incubator for startups.
The Israeli firms main competitors are, unsurprisingly, mostly based in
Silicon Valley, where the startup culture, and all the financing and advice
that goes with it, is far stronger and longer-established. But the boss of one
Israeli firm argues that it and its peers have a big advantage over their
American counterparts: the Edward Snowden factor . Since the former contractor
to the US National Security Agency revealed how much American technology firms
were co-operating with the agency, including putting backdoors in their
software to allow surveillance, clients around the world are looking for
non-American security for their data, the Israeli entrepreneur claims.
Notwithstanding the very close relationship between American and Israeli
intelligence, and the links that many Israeli cyber-security entrepreneurs have
with their country s armed forces, the cyber-boss reckons that in many cases,
Israel is their only alternative.