Some 2.5 years ago, I prepared a Powerpoint and pitched numerous times to a couple of senior politicians and bureaucrats on the need to invest in Israel's internet infrastructure. I figured if Shimon Peres hyped and promoted the wonders of nano-technology in Israel --which produced nano returns-- and raised lots of money around that, the politicos and incentive givers should invest in the internet which has delivered hits such as Shopping.com, PictureVision (full disclosure: I was an investor and board member in both) and ICQ. I made the case that we needed to invest in bandwidth, both transatlantic and the last mile. We needed to invest in education, training scores of programmers in the arts of internet programming. Israel needed to build programs to attract the big internet companies to expand development centers here, in the same way that Intel, Microsoft, IBM and National Semiconductor did in the last wave of computing which was an early step in launching Israel's high tech economy. Needless to say, my plan fell on deaf ears.
The good news is that Google and eBay are here, one because it was strategic and bought a small company (irows) and is opening development centers everywhere and has a robust one in Israel. The other, eBay, is here because it bought Shopping.com. The bad news is that Israel is woefully under-resourced in many areas and it is hurting business and investment in this new economy tht could otherwise spawn a tremendous cottage of businesses in outlying areas much as it is doing in Eastern Europe and parts of rural America.
The bad news though is a much longer list:
1.
Israel's bandwidth is woeful: I pay for 5 MB in to my home. In reality, I get 500Kb. I spoke to a couple of my entrepreneurs a couple of weeks ago who confirmed the same experience. This is actually a common complaint of entrepreneurs and work-at-home employees in Israel. Underwater bandwidth is worse which further compounds the problem. This means that in early stages in a company's life, you cannot put your hosting facility in Israel near your R&D because you cannot reliably service customers due to the bandwidth constraints. It also stifles innovation into new applications needed in a high bandwidth world because we do not have high bandwidth service!
2.
Speaking of hosting providers, the carriers and hosting companies here provide substandard service. One of my companies monetizes using Google's adnsense. Google inquired as to why once a week the ad revenue seemed to go down. Oh that, said my company is our hosting provider in Israel shutting down for maintenance. Last week, they discovered a technical problem in the data center that the hosting provder denied for months. Hosting in Israel is substandard in terms of both service and bandwidth.
3.
We have a shortage of internet programmersIsrael is amazing at mobilizing resources when it makes something a national priority. When it doesn't, our very small country ends up under-resourced. We have way too many lawyers and way to few internet programmers. Ironically, even in our programmer class we have too many of the wrong programmers. This is partly due to Microsoft's amazing work in the developer community here. We have a high percentage of .NET programmers and hence a lot of websites built in .NET which is certainly not the worldwide flavor of choice for scalable internet apps. Ruby on Rails programmers and experts in LAMP and Java are harder to come by. Bringing in more of the bigger internet companies like Google and Yahoo with incentives would help solve this as would public/private partnerships that would invest in educating and retraining people in computer engineering and programming.
Israel is perfectly positioned to be a global internet leader. Many groundbreaking technologies were developed and popularized here such as IM (ICQ), Chat (Ubique), VOIP (Vocaltec), Photo Sharing (PictureVision) and of course security. Israel is also timezone advantaged for a global business such as the internet since we are 7 hours from Beijing and 7 from New York and close to Europe and Russia's exploding internet markets. We have a multilingual population that can service many countries.
So what to do:
1.
The government should reduce taxes on Israeli internet companies to zero and put incentives in place.
Internet companies are highly profitable and hence can employ and train lots of people. There should be one caveat to the zero tax rule: the companies should either have to contribute some small % profits to a worker training program to create more programmers or commit to grow its workforce at some minimum amount. The government should match the contributions to the worker training/retraining plan.
This is much better than providing grants for people to put iron and metal in the ground for semiconductor and hardware companies that is in line with Israel's current government incentive policy. This is about reinforcing successful companies and industries rather than propping up unprofitable ones and it is also a forward looking strategy.
2. Bandwidth should be a national infrastructure project.The Government should commit to invest in increasing underwater bandwidth by 10X in the next 2 years. Additionally, we should have a national project to increase actual bandwidth to all homes and business by a minimum of 4X. Korea has done it so why can't Israel? They should enforce standards on carriers who promote their service by measuring effective bandwidth to homes and fining the carriers for not providing that bandwidth.
3. Building the next generation Internet should become a national priority at all levels. This includes attracting international internet leaders with incentives, worker training, funds for research into next gen infrastructure and applications and wiring 100% of the homes and schools for high speed access. We can generate innovation this way and generate even more jobs and opportunities for earning an income.