When Meir Brand, the country manager of Google Israel, launched on Monday, tells me that he is unfamiliar with the details of Yahoo! Inc.’s (Nasdaq: YHOO) history in Israel, I tend to believe him. Brand is only 35, with a polished resume that includes a degree from Harvard and work at companies such as Excite and ICQ. He probably simply never had a free moment to hear about Tamir Eshel, for example.
A reminder: at the end of the last millennium, Yahoo!, then the undisputed superpower of the Internet, declared that it was entering the Israeli market. Eshel, a former correspondent at “Globes” and PR man, was appointed Yahoo’s representative in Israel.
In the days following the celebratory announcement, there was a lot of talk about a terrifying Hebrew-language Yahoo! portal, and other fancy ideas. But 2000 rolled around, and with it came the dot.com crisis. Yahoo! was forced to abandon plans for a Hebrew-language and other portals. The company fired its handful of Israeli employees, closed its offices in Ramat Gan, and moved its Israeli operations to Eshel’s home. Since then, and right up to this moment, Yahoo! has been AWOL in the Israeli Internet market. Although there has never been an official announcement of its demise, it is absolutely clear that it has not been around for a long time.
Whether they want to or not, Google Israel and Brand have to deal with the scars left by Yahoo! in Israel. Brand already knows this. “At first, I didn’t understand why everyone here was asking me if we had come to Israel to stay. But it now seems to me to be related to what Yahoo! did,” he says.
“Globes”: Can you promise that you’ll still be here in five years?
Brand: “We’ll be here, for sure, in five years. I’m convinced of Google’s (Nasdaq: GOOG) commitment. A month after my appointment, I met the owners [Google co-founders, president of technology] Sergey Brin and [president of products] Larry Page, and I know that they’re serious about business in Israel. Google has spotted unique potential in Israel, first of all among Israeli surfers, who are chronic users of web search engines, but also in the Israeli economy and its potential for local online advertising.”
Could it be that you represent a company that ballooned rapidly, and is simply looking for something to do with its money?
“I’m no analyst, but I have great faith in what Google is doing in the world, and what it’s going to do in Israel. I didn’t decide on my own to come here; the decision came from the top. Besides, I see things that tell me that this is serious.”
What do you see?
“Google is developing a fully-owned branch in Israel, which shows its intentions. There are other ways to enter new markets. It’s possible to cooperate with a local company, or bring someone in as your representative in the new market to handle the initial product penetration. We didn’t go for these solutions; we’re setting up a branch and hiring workers.”
How many workers?
“Google doesn’t break down its employment figures by country, but it now has over 5,000 employees, and the number is growing like crazy. A small group of elite employees is being formed in Israel, up to ten initially.”
How many employees will you have in Israel in two years?
“That’s very hard to say, but I’ll try to illustrate the direction with an example. I recently met my colleague who is responsible for Google’s activities in Britain. We shared experiences, and she told me how, less than four years ago, she sat alone in a room with a computer, like I do now. She now runs an organization with 120 employees.”
So you have something to aim for.
“It’s not only that. After all, Google, as a brand and a company that is changing the world, is much more than the sum of its employees. A 5,000-person company is barely a mid-sized company by US standards.”
Judging by the level of response to Google Israel’s online help-wanted ads, the company has aroused exceptional interest in Israel’s high-tech labor market. Brand says he’s received hundreds of resumes. It should be understood, however, that Google Israel will be an operation that will mainly convert existing products, and of course - sales, sales, sales. Anyone with dreams ought to look elsewhere. Everything will be the same, only in Hebrew.
For now, Google Israel bears a tripartite message: one is products for surfers; the second is Ad-Word, the placement of advertisements in search results, for advertisers; the third is Ad-Sense, context-sensitive advertisements on websites, with the revenue being shared with the website owners.
Google Israel will very likely change the face of Israeli Internet, but not in the breaking the boundaries sense that Google Inc. did in the US. Everything will be the same, only in Hebrew, leveraging Google’s global advertising platform. Grey, but apparently also very effective, rather like Brand, the man who was placed at the head of Google Israel.
How was your meeting with Brin and Page? What did they say to you?
“It was a very good conversation, and what was said will stay between us. It’s an open secret that Google’s owners are very interested in Israel. They have widespread ties with a great many people.”
Aren’t you worried that Google is rushing too quickly into international markets?
“The questions are what is ‘rushing’, and where you’re rushing to. Google is a company with a very clear vision. It wants to help surfers organize existing online information in a better way. To do this, the company acknowledges that it must get close to all markets throughout the world, and adapt its products to each market.”
Brin said Google would set up a development center in Israel.
“Sergei said that’s the intention, and I’m not the man to confirm or deny it. In terms of Google’s business philosophy, the company believes that it has to come to Israel, which has skilled software engineers, and not bring them to where the company is.”
What is Google Israel’s revenue target for its first year of operations?
“Google does not publish figures or internal guidance about revenue in local markets. Obviously, we expect a growth rate similar to the growth rate of Internet advertising in Israel, and as a subset of that, the growth rate of revenue from advertising on search engines, as part of the total online advertising pie.
“In the US and UK, search engine advertising revenue is now 40% of total online advertising revenue. The estimate in Israel is 15%. We intend to close this gap within three years.”
What is this optimism based on?
“First of all, on the characteristics of the Israeli surfer, who adopts new technologies faster than other Western surfers, and has a higher level of education than them. In addition, we believe that we’ll change the Israeli market with Google’s philosophy, which says that advertising isn’t a kind of payment by surfers for consuming information for free, but is designed to provide added value in line with the purpose of the search at that moment. Advertisements must be relevant and not intrusive.”
How will your entry affect advertisers?
“They’ll realize that we’re giving them the best-paying deal. When a surfer is exposed to advertisements that are relevant to his or her search results, the conversion rate rises. In other words, there is a much greater likelihood that the surfer will click on the ad and will buy the product. The percentage of clicks on Internet advertisements is currently only 0.1-0.3%. In contrast, the rate at Google is over 2%. In addition, for us, it’s very important to accompany the advertisers beyond the click. In other words, to offer them measuring tools that will enable them to know exactly how well a campaign is working, and correct and change it in motion.”
Brand, a marketing man, feels comfortable talking about online advertising. It’s his home court. Commenting on development at Google or in its share is a less welcome topic of conversation. Google’s entry into the Chinese market has aroused controversy, because of the company’s agreement to censor search results. Brand is willing to talk, but off the record. In other words, he has something to say, but he does not want to be reprimanded by his bosses for a faux pas.
Will the share fall? So what?
On the subject of click fraud - mercenary companies that are hired to click on ads so that the advertiser has to pay higher commissions to the online ad host, thereby jeopardizing Google’s business model - Brand says something that sounds like a recitation. “Google is a technology company, and, as such, it is very aware of the phenomenon. We’re constantly developing technologies that quite satisfactorily cope with the problem. As far as we’re aware, nothing has happened in the field that we’ve haven’t been able to handle at the technological level.”
Brand offers a similar response when asked about the fall in Google’s share, which recently plummeted over 30%. “I always say that if a business works on behalf of its target audience and builds the right business model around it, the business will ultimately succeed. Markets are now developing expectations, and company values change accordingly. Google is constantly creating innovative products that are the easiest and fastest to use…”
Hand on heart, do you think it’s logical for Google to have a larger market cap than companies such as IBM (NYSE:IBM) and Cisco Systems (Nasdaq:CSCO)?
Brand smiles, but says nothing. Is he maintaining the right to keep silent?
“I simply think it’s unimportant. What interests me is our influence, how we help surfers enjoy the growing world of online information, and to navigate in it,” he says.
But you were there. You experienced the great Internet bubble with Excite. You were at the center of developments, both when the bubble inflated and when it burst. Don’t you feel even a hint of deja-vu now?
“Not at all. Back then, the criteria by which Internet companies measured their activities were traffic and page views: in other words, criteria that were totally severed from the business model. Today, Google is the precise contrary example: its financial strength is derived from its business model, and the value it creates for its advertisers.”
Maybe this a new kind of bubble, in which excellent companies are making money, but are overvalued by the market.
“You’re basically claiming that the value of even the best company in the world can be more than its worth, regardless of how good it is. Fine, I’ll leave that to the analysts.”
Does converting existing products make a return on investment?
“Converting products is a critical part of our activities, it’s the paramount priority.”
So Google Talk and Gmail will get a Hebrew interface. Fine. The big question is whether you will launch Google News in Hebrew.
“Google Israel will announce new products only when they go online. However, since you’ve asked about Google News, as a product, it will obviously be a fascinating one.”
So Google News, which will aggregate news reports from all Hebrew-language websites, will compete against Hebrew-language websites like “Yediot Ahronot’s” Ynet and “Maariv’s” NRG?
“Google News is in no way intended to compete against Israeli content sites. Google News is a complementary product to them.”
But at all sites, surfers mostly enter only the homepage. Therefore, competition will obviously be created between your homepage and the homepages of leading news sites.
“We’re talking about completely different business models. A search engine website is designed to send you to where you want to go as quickly as possible, whereas a content site wants to keep you for as long as possible. There’s no conflict at all.”
So you expect cooperation, not threatening letters from lawyers.
“Sure, I expect full and fruitful cooperation from all Israeli content sites. In principle, anyone who doesn’t want to be in Google News can stay out, but interestingly, very few content sites choose to do so. We currently cooperate with 10,000 sites, and the flow of requests to participate is only growing.”
Who do you see as your competitors in the Israeli market?
“A business model like Google’s, which is based on cooperation, talks more about cooptation, in which our partners can also be our competitors. I really don’t see in Israel any companies we can mark as competitors. Look, in the US, Google cooperates with the Ask Jeeves search engine, which also competes against us. Borders are blurred. Theoretically, I see no problem with Google Israel cooperating with Walla Communications (TASE: WALA), for example.
Published by Globes [online], Israel business news - www.globes.co.il - on February 22, 2006