Israeli Adtech Looks To Scale Up

Israeli startups look to America for inspiration, money and, of course, exits. But recent events indicate a change in course, at least for Israeli advertising and marketing technology companies that have quietly become global powerhouses.

“In the last five years, the number of Israeli adtech companies has tripled. This marked growth in the market, coupled with major acquisitions by the world’s biggest MNCs, such as AOL’s purchase of Adapt.tv for $405 Million, makes Israel an adtech hub to watch. That said, we are also seeing a new trend of Israeli adtech companies scaling up, going public, making savvy acquisitions and differentiating themselves from the pack. The top talent remains Israeli, headquarters remain Israeli and the Israeli start-up moxie makes their technology cutting-edge,” says Assaf Suprasky, the CEO of myThings.

The past year alone has witnessed several maneuvers that suggest Israel’s growing adtech ambitions.

Taboola and Outbrain, two dominant content discovery platforms, were both founded in Israel. In December, Taboola became the largest content discovery engine, with more than 1 billion clicks per month, and later in the month, they signed a lucrative multi-million dollar partnership with Die Welt, a digital publication owned by German media giant Axel Springer.

Last year, digital marketing company Matomy Media Group bought MobFox, an Austrian mobile-advertising company, for $17.6 million. In April, the company acquired a 70 percent stake in Avenlo, a Canadian performance-email-marketing company. In November, the Tel Aviv-based company bought Optimatic Media Inc., a New York-based video advertising platform, in a deal worth $25 million.

In December — continuing the Israeli adtech invasion — SimilarWeb, a traffic estimator tool based in Tel Aviv, bought Quettra, a mobile analytics and measurement tools provider.

Also in December, another Israeli adtech giant, Perion, took part in the shopping spree by acquiring Undertone, a New York-based adtech startup, for $180 million. And last June, the company bought Grow Mobile, a San Francisco-based mobile marketing company.

Perion’s CEO, Josef Mandelbaum, says the reasoning behind these acquisitions is to go from starting up to scaling up:

“When I joined Perion five years ago, I wanted to build a big company based out of Israel and not look for an exit like so many others. It is great that Israel is known as the Start Up Nation, and I am sure that will continue, but it is time for Israel to also be known as the Scale Up Nation. Obviously that doesn’t mean all functions have to be in Israel, in fact many won’t, especially as it relates to sales and marketing. However, the corporate headquarters, R&D, Corp Dev, Legal, Finance, etc. can be located here in Israel and we can compete on a global scale. Basically, we bought two companies — Grow Mobile and Undertone — that have a strong sales and marketing presence and that can’t be duplicated in Israel.”

In addition to enriching investors and shareholders, Mandelbaum points out that Israel, regardless of industry, needs big companies that employ locals, but suspects the urge to exit is still strong among startup entrepreneurs.

“I think companies like Teva, NICE and Amdocs have shown the way in their respective industries, but we need more,” Mandelbaum, says. “The Israeli economy needs more. To continue sustained GDP growth the country needs larger companies that can employ people. It will take time though as the lure of selling is still very strong and in many cases is the purpose.”

When it comes to adtech, Israel is banking on local growth.

Israeli R&D and technical know-how are usually harnessed to benefit multinationals like Google and Apple, but when it comes to adtech, Israel is banking on local growth.

“It is certainly happening much more now than in the past. Considering that some of the Israeli adtech companies have matured and positioned themselves among the leaders in their field, it is no surprise we now see such acquisitions,” says Assaf Dar, the CTO of CodeFuel, the engagement and monetization division of Perion.

While it might be premature to declare the birth of a new trend, Israeli companies are making moves that signal a more daring approach by focusing on long-term success instead of quick exits.

“I don’t know whether we can call it a trend already, but it certainly might happen more frequently now, given that the adtech industry is becoming more dependent on technology and innovation, “ Dar added. “This means that American startups can identify opportunities under such circumstances in terms of being acquired by or merged with a leading Israeli company.”

Ran Avrahamy, VP of Marketing at AppsFlyer, says that while much of Israeli tech success is attributed to skills learned at a young age — often during the mandatory army service — adtech draws its success from a number of sources:

“A majority of Israelis gain experience at a relatively young age solving complex problems quickly and with limited resources. What’s interesting about adtech specifically is that it brings all of these qualities together. As a data-driven industry that is moving at light speed, success in adtech requires an extremely agile operation. Such dynamism in which you try, fail, and then try again until a technological solution is born — and you do it all really fast — is unique to adtech and fits the Israeli mentality like a glove.”