Israeli companies covering all the security bases

Israeli companies have a big stake in airport security along with a host of other security areas.Does that fellow sitting next to you on the plane look suspicious? What about that unattended suitcase in the airport waiting room? Should you …

Israeli companies have a big stake in airport security along with a host of other security areas.Does that fellow sitting next to you on the plane look suspicious? What about that unattended suitcase in the airport waiting room? Should you open that anonymous envelope? Is that e-mail from someone you know? Welcome to the new paranoid world. Individuals, companies and governments in the United States – and to a lesser extent the world over – have been asking these kinds of questions since Sept. 11. The search is on for the means by which to respond.

A sure place for security solutions is Israel. Since Sept. 11, everyone from high tech startups to old defense firms has been rolling out product announcements – and even, on occasion, an actual new product – by the day. The security divisions of the bigger telecom equipment makers, long ignored in favor of more glamorous civilian work, are back in favor.

“To say that opportunity is knocking in the security industry just isn’t sufficient. This is no mild knocking; in fact, it’s pounding on the door,” gush the authors of the report “Israel’s Security Industry: Opportunity Knocks, Marketing Fails” by Tel Aviv-based consultancy Trendline Capital Markets. “Some of this pounding will turn out to be only noise: agents and brokers looking to do a quick deal, investors looking for ‘the next sure thing.’ (However) we also expect to see meaningful long-term growth in the sales of security-related products and services.” In this security celebration, the only obviously invited guests to extend their regrets seem to be the country’s venture capital funds.

Israel’s centrality in the security industry is readily explained by the country’s unique and unbeatable combination: a half-century of experience coping with terror and fighting wars, alongside the high-tech prowess that a 21st century war on terrorism demands. Israel is one of the world’s largest defense exporters, with an array of state-owned and private-sector companies – including the Rafael Arms Development Authority, Israel Aircraft Industries, Elbit Systems and Elisra – making everything from tanks to small arms to defense electronics. The United States is reportedly interested in IAI subsidiary Elta Industries’ new airborne radar system for use in battlefields. A more recent arrival on the scene, developed by the Israel Institute of Technology incubator, is Steadicopter, a stabilized unmanned helicopter equipped with video cameras for various applications. And the smaller, closely-held MS-Tech has developed a novel explosive-detection system called Mini-Nose, which sniffs out explosives at a distance, eliminating the need for direct contact.

But the War on Terror calls for more than military hardware. With an enemy present as much on the home front as in the war zone, the security industry needs to respond with technologies that address a new sense of vulnerability. A helpful shopping list to cover the next 12 to 18 months of the War on Terror was prepared in October by the U.S. government’s Combating Terrorism Support Office. Figured among the many items on the list are automated speaker recognition, computer media analysis, face recognition, information integration systems, physical security, passenger screening for ports of entry, and detection of chemical agents and explosives. And those are just the government’s needs. Beyond the government, there are corporations and ordinary people who may not need to overcome hard targets in remote areas but nonetheless have their own fears and security concerns.

For the security industry, the catch is finding the technologies that will really stay in demand after the initial hysteria passes. A second challenge is picking the companies that have the management and the technology to make a go of a unique or novel idea. “You can look at security from many angles,” said Eli Opper, a 27-year veteran of the Israeli defense industry who recently joined the venture capital firm Giza Investment Management as a partner. “In all things connected to communications, computers and encryption, Israelis are very strong and this is definitely because of the (military) security infrastructure. There are a lot of startups in communications and security, but there are only a few dozen good startups.”

Typical of the rapid-fire response of Israeli companies to the new age of security is Snapshield, which makes point-to-multipoint encryption technology for telephone carriers. “After Sept. 11, we expected that the budget for security would be diverted to physical security and we expected to be hurt by this,” said Snapshield’s chief executive officer, Harry Yuklea. “We were in the States a few weeks afterwards and we discovered a very interesting shift in the way people were thinking about security.” Yuklea found that people were newly reluctant to travel to face-to-face meetings, even when sensitive business issues were involved. In response, last November Snapshield launched the new product SnapZone, which encrypts voice and fax communications, delivering to the corporate market what the company says is “cutting edge military-grade security.”

“Now the physical meeting can be a virtual one,” Yuklea said. The company’s next product, SnapCell, will encrypt calls made on the GSM cellular infrastructure.

Another example of a post-Sept. 11 shift is provided by NetLine, which develops technology for cellular-phone jamming. The company had originally positioned its product to prevent the ill-mannered from making and receiving calls in theaters, hospitals and other public places. But, even before Sept. 11, the company discovered that regulatory issues barred its technology in most places and the company was switching its focus to security and defense. “We selected this direction before Sept. 11, (but) the events of Sept. 11 refined the type of application we are going to focus on,” said chief executive Gil Israeli.

The company’s new focus is the nefarious use of cell phones as bugging devices or as transmitters of signals produced by electronic devices – a phenomenon known as “tempest,” which enables terrorists to detonate a bomb by calling a cell phone attached to an explosive. Launched in the wake of the terror attacks in the United States, NetLine’s C-Guard EXP is designed for use by bomb squads in terror attacks to prevent explosives from being detonated and to stop terrorists from communicating with each other. The briefcase-sized C-Guard EXP, which was scheduled to appear on the market in January 2002, can jam all or just certain cellular phones within a radius of up to 1,000 meters. “It’s a portable, multipurpose unit,” Israeli said. “One unit does everything. We haven’t seen any product comparable.” NATO thinks so: it was C-Guard EXP’s first buyer.

A lot of bigger Israeli companies with broader-based technologies are now looking more closely at their security-related offerings. Comverse Infosys, a subsidiary of U.S. publicly traded telecommunications equipment maker Comverse Technology, is a developer of intelligent voice, video and data recording equipment. Government and law enforcement agencies form a major part of the company’s business in a niche called lawful interception, an area that is also being developed by the Israeli company NICE Systems.

Lawful interception makes use of digital recording equipment, which stores, files, and analyzes images and sounds more quickly than analogue systems do. The equipment has largely been used in the financial industry and in airport control towers rather than in pure security settings. But what’s good for monitoring casino floors or keeping track of conversations at call centers can be also be useful in hunting down Bin-Laden types. “We can monitor data on multiple networks, wired and wireless, and multiple media, not just voice – all the means that the terrorist is using,” said Meir Sperling, managing director of Infosys.

If misused, some of the security equipment InfoSys and NICE produce could raise the hackles of civil liberties advocates. But in the post-Sept. 11 atmosphere, the benchmark for what’s acceptable is changing. Because of security constraints, Sperling won’t say whether the U.S. government already uses, or is interested in, Infosys’s solutions, but there’s no question that there’s more interest generally. “The trend is now increased pressure to allow more interception to take place. We have had reactions from several countries; there are now increased budgets and increased interest in our products as a result of (Sept. 11). We are expecting that we will have more business,” Sperling said.

Infosys is planning to integrate into its systems a new speaker authentication technology developed by another Comverse subsidiary, PerSay. Using a previously recorded voiceprint, PerSay’s Orsus confirms that a telephone caller is the person he or she claims to be. Because Orsus performs the authentication without a vocal password, the caller does not need to know that the process is taking place. Two other Israeli companies, Configate and SentryCom, also figure in this field.

In the data security field, Israel is already well known – Check Point Software Technologies leads the world market in firewalls. In addition, Finjan Software combats “malicious code” and Aliroo specializes in content-management assurance. Newer arrivals White Cell and CipherActive are developing, respectively, mobile-data protection and encryption for multiplatform communications, and technology developed by Camelot Information Technologies restricts access within enterprise networks. Another area whose value has been underscored by the collapse of the World Trade Center is data disaster recovery. Companies that had stored all their data in their World Trade Center offices without backup elsewhere lost everything. One solution is a Storage Area Network, which utilizes technologies such as storage virtualization, an area in which Israel’s ExaNet, StoreAge Network Technologies and SANRAD operate.

“There is a saying in the disaster recovery industry – ‘It’s not if your data is destroyed, but when.’ Sept. 11 was a well-publicized wake up call to the world to be prepared,” said Zophar Sante, SANRAD’s vice president for market development. “Economic times are difficult, but budgets are being re-allocated to emphasize building secure SANs and creating an architecture to insure continuous, uninterruptible data access. I don’t think any network administrator in any country wants to tell their CEO that they lost the database and weren’t prepared. And I don’t think a CEO wants to have that talk with his board of directors, shareholders or – even worse – customers.”

But most venture capital funds aren’t getting carried away by any pure security technology. “Israelis have always been great players when it comes to security. We have identified the security area as one in which we are interested, but we are in high tech, so we are not into parachutes for skyscrapers,” said Sharon Gelbaum Shpan, a principal at the Pitango venture capital fund. For Pitango, even after Sept. 11, security remains an issue related to cellular infrastructure and handsets, to wireless and Bluetooth.

At Israel Seed Partners, Jon Medved is skeptical that there is much in security than can meet the benchmark a typical VC fund sets for itself. “Most venture capital funds now have to separate what is fad from what is real and long term,” he said. “There are real fields, but you’re not going to build a Check Point from that. Many of these things are not going to generate a huge amount of investment. What we are looking for in terms of new deals are companies that address long-term fundamental issues.”

Of the companies in Israel Seed’s portfolio that could enjoy some post-Sept. 11 upswing, Medved cites three – Business Layers, which develops systems for computer network access and e-provisioning; Cyota, which provides a secure system for online credit card operations and banking; and Alchemedia, whose technology prevents insiders from stealing sensitive information. “Everybody’s concerned about access (now), that only the right people should get access,” said Medved.

But concerns about access, said Eli Opper of Giza, have long been around, and Sept.11 hasn’t changed Giza’s focus. “Everyone says that there’s panic, but people aren’t convinced that there’s a clear exit from (many of these security technologies), either an IPO or an acquisition,” he said. “The world hasn’t changed so much. We need to wait a little to see if there is a serious exit. (Security-related) companies may be selling a lot, but that doesn’t mean that venture funds will want to invest.”

While the post-Sept.11 fear of flying has left planes empty and fliers nervous, the fallout has been noticeably less pronounced at Israel’s state-owned airline, El Al. The airline’s tough security measures at check-in and behind the scenes have made its name practically synonymous with “safest way to fly.” Ofer Einav, the former head of El Al security, isn’t allowing this opportunity to pass him by. Together with a former El Al colleague, Offer has set up a consulting company to help the airline industry weather the storm.

“I grew up in El Al,” said Einav, who worked in various security positions for 15 years, including a three-year stint in New York. When Einav left El Al last summer, he was poised to indulge his dream of becoming a soccer club manager. But then the terrorist attacks occurred. “On Sept. 11, everything changed,” he said. Instead of embarking on his soccer career, Einav formed GS3 in October together with Brigadier General Yoel Feldschuh, El Al’s former chief executive officer and once the head of Israeli Air Force intelligence. Einav serves as GS3′s president, and Feldschuh as chairman and chief executive officer. Sitting on the advisory board are the former Israel Airports Authority chief of operations and the former general director of the Israeli Civil Aviation Authority.

More will be needed to restore passengers’ faith in air travel while avoiding lengthy queues and crippling budgets. Aware of the challenge he faces, Einav said, “We need to define and find a holistic solution.”