Dov Moran gets back on the horse

After falling head first with modu, the inventor of the DiskOnKey, talks about his latest start up - smart TV app developer Comigo.

From the window of his office in Yarkona, Dov Moran sees an orange and lemon orchard. Spring has brought the aroma of new promise, and Moran too, after a hard winter of lost dreams to create a multibillion dollar company around the modu mobile device, is full of enthusiasm about his new project: Comigo Ltd., a smart TV start-up, is the next chapter for the serial entrepreneur.

A synopsis of his previous chapter includes the brilliant invention of the DiskOnKey (DOK), which was sold as part of msystems for $1.6 billion.

Far from the steel and concrete buildings of high tech, with a basketball in the yard, some friendly dogs that extend their heads to every passerby for a pet, and a juicer in the kitchen - it would be a shame not to have one with the orchard outside - sit Moran and his longstanding loyal team, many of whom have been with him since the days of msystems and through modu.

"Last year's storm at modu drove out the weak," Moran told "Globes" in an interview. "It left the better, stronger, and more loyal people behind. Amazing people. We love each other."

These people told Moran, we're with you in your next venture. They are now all as enthusiastic as children at the application that throws tomatoes at a friend watching a basketball game.

Moran is the most enthusiastic of all. His eyes light up when demonstrates Comigo's capabilities on a large television screen in the kitchen. Comigo is a platform for smart television over the Internet, which can also be hooked up to tablets and smartphones. It offers various viewing options, transfer of content between the different kinds of devices, and most of all, a lot of social interaction via chats and social networks, such as Facebook and Twitter.

The product targets the market that is taking shape around IPTV, which will enable new operators, such as mobile carriers, to enter the field and offer viewers a cheaper option than current cable and satellite carriers. As he demonstrates the surfeit of options, Moran says, "Look, we've made magic."

"Globes": It really looks smart, charming, and pretty, but you are far from the only person working on smart TV. Every multinational technology giant is working on it.

Moran: "First of all, it's fun to compete against the giants. Secondly, it only looks the same."

Please explain.

"We're very focused on the social interaction between the users. Secondly, our customer is different. Google TV and Boxee (an Israeli IPTV start-up) target the end user. Our product targets the IPTV operator. I'm focusing on the operator so it can offer more things to the end user."

Nonetheless, the competition in the field is intense.

"That's why it's necessary to do something different, unusual, special, and better. I really think that we've achieved magic. I dont pretend to be Steve Jobs, but in 2007, the year everyone said that there was no chance of bringing a new telephone into a telephone-saturated world, Jobs brought a telephone with magic and conquered the world."

Jobs had means, money for development, and an army. Comigo has a few million dollars of your own money and 30 people working on it.

"But I have a great commando team, the best people in Israel. An amazing programmer is not equal to ten reasonable programmers. It's true that Apple has big guys, but I dont know if in the whole of Apple there are as many amazing programmers as I have."

But you're not pinning Comigo the hopes you pinned on modu.

"Comigo lacks the growth potential that modu had. Modu had the potential of a company with billions of shekels in sales. Comigo isn't in a market that will enable it to reach such a size."

Is aiming small a kind of wising up?

"There's no wising up here. I failed at modu, I couldnt do a modu 2. I have to change, do something else. I also assume that in view of my lack of success at modu, the market won't let me raise the capital needed for a big company, and justifiably. I first have to get back on the horse at Comigo and other companies I'm establishing. It's also suits me better after modu to go with smaller things, both in the financial risk and in the reward."

modu's errors

Although Comigo was founded 16 months ago, Moran still lives the drama of modu and in his every fiber - the promising start, the critical delay in development, the failure of the IPO, the firing of 130 employees, the loss of the $120 million invested in the company, and the receivership. "During modu's last year, we knew that we were hanging by a thread," he admits. "But even now, I believe, in all honesty, that had we crossed the threshold and raised the money we needed in the IPO, modu would have succeeded. The basic concept was good, and it's now happening on the market. Asus is launching a similar product, Microsoft filed for a patent on modu's concept in 2009, and Google bought our patents (for $17 million from the receiver). They didnt buy them for no reason."

Many people doubted that modu's concept would work.

"The most annoying people are those who say, I knew it wouldnt succeed. Who needs it? Both the media and people in the industry said this. These are guys who dont understand, who think that modu was just a telephone you stick in a refrigerator."

So modu isn't a telephone you stick in a refrigerator, but a tiny telephone, a 3.5G phone with a touch screen, and which can function as part of a larger device, such as a tablet or television, and when the minimum size is needed, such as during a run or at the beach, it is detached. The name modu was derived from modular. Moran is annoyed by the analyses which claim that he missed the trend, or that people were not looking for the smallest phone, but preferred smartphones. He rejects the criticism, saying that had modu survived, it would have become a smartphone. "That's part of a company's evolution," he says.

Once and for all, what happened to modu?

"We made tactical and strategic errors. The first idea wasnt to make a telephone at all, but to buy one and the company would design the surround, the jackets. The hardware was supposed to be acquired from one of the industry giants, while we handed the software development to a company called Sky MobileMedia.

"In August 2008, Sky, with which were working on the number 1 module, went bankrupt. So we made a terrible tactical error, and we said that we'd carry on; we'd buy the software, which was incomplete and not working, for millions of dollars, and finish it. The result was a black hole that swallowed energy, people and money. Despite all the energy and effort, the product was delayed by 18 months. Today, I realize that that was the beginning of the end, because the moment it happened, the wind went out of our sails, and we missed the market."

But at the time, you didnt perceive the delay as critical.

"No, and afterwards, I and my guys wracked out brains to figure out what happened, and I have a psychological analysis of what went wrong. Sky's bankruptcy occurred shortly after we raised money, after very hard efforts, in 2008, and not necessarily from suitable investors. We all feared in our hearts that if I told investors that we were cancelling the project and moving to the next generation, they'd say, then we're cancelling the investment, give us back our money. So I couldnt stop the project, I rushed ahead and fooled myself. I told myself, "Wow, this looks hard, but it will be all right.' I took one step after another without realizing how deep I was in the mire. That was the serious tactical mistake which hurt the company."

What was the strategic mistake?

"That happened during the company's first month. I left SanDisk at noon, crossed the street, and said, let's start modu. We need to raise money. But it was easy for me to raise money, all the venture capital funds were standing in line. I said, lets take $20 million, and pop, there was $20 million. So I didnt even bother to prepare a serious, proper business plan. Why should I? They just gave me the money.

"We thought $20 million was a lot of money, but to build a big company, you need a lot of money. We said, we'll raise it when we need it. Then, in mid-2008, raising capital became a mission almost impossible. The market was dead. So we were forced to raise capital from unsuitable sources, which lacked the wherewithal for follow-on investments. We found a little here, a little there. That's not the way to raise money."

What should you have done?

"We should have said, 'We're going to build a big company, with potential sales of $1 billion, maybe $2 billion, and we'll need a lot of money until we can operate independently. I should have made a comprehensive business plan, approached private equity funds like Silver Lake or Blackstone, which could make follow-on investments in larger amounts during the company's life. The business would have taken off, not like a fledgling, but like a Boeing 747."

The media's Schadenfreude

Moran, who until then enjoyed the media's adoration, quickly found himself the target of unremitting criticism. "When we failed, there was real joy among journalists," reminisces Moran. "When you raise money from venture capital funds, you have to make noise because that's part of the process. Outside Israel, this noise was positive, and even now I meeting operators who say that that was an innovative company with an amazing product. It's amazing how the level of readiness to give credit where it's due outside Israel is so different from the level in Israel."

How do you explain this?

"We erred in our media conduct. We gave an exclusive interview to one paper, which instantly creates eight haters. We were not alert to this; to these nuances. I've had some unpleasant incidents with the press."

You were quoted as saying that Nokia didnt have a chance in view of your competition, and that they should go to church to pray.

"Even now, people remember statements I never made and could never have made. Even if I was woken up drunk at 2 am, I would never have said such a thing, because it's against my nature. Even now, when I meet Nokia people, they seem hostile. Now everyone says that Dov Moran is a braggart."

With all due respect to the magic powers of the press, there must have been other troubles besides its attitude.

"One of the reasons modu failed is that it didnt find a suitable outlet in Israel for the product. It's astonishing; you'd have expected one of the mobile carriers would adopt and push a telephone that sells for NIS 300."

Why didnt that happen?

"Because of the carriers' cold calculations. This telephone would not have put enough money in their pockets from revenue per user (RPU), because they want to sell massive amounts of content. For them, the right thing is to sell these services to users who will pay more. When we showed them the modu T, someone thought about it and said, 'How much money will we make from this? It's not worthwhile for us.' It's better to sell a phone for NIS 3,000 so that people will consume a lot of content services, and let them press the Internet access button by mistake, they could be charged for the time online."

You personally bought 6,000 modu phones for NIS 3 million from the receiver. Why?

"Because there was no buyer. I gave them to Guy Edri of Exit Electronics, and if he manages to sell them, he will repay me my expenses. It would be a pity to throw the phones into the garbage. This is an excellent phone. People buy dozens to hundreds a day from him."

Did the modu experience change you?

"I learned a lot. I'm more experienced, but it doesnt make me think that a big company shouldnt be built here. It should, and one day an Israeli will build it, but it won't be me."

"High tech is waning"

Is high tech still Israel's growth engine?

"Not really. I'm one of the old men of Israeli high tech, and I've been analyzing the reasons for the lack of success for years. We've reached a situation in which Israeli high tech is on the wane, and its share of the economy is shrinking."

Please explain.

"Appearances are deceptive. We have a lot of start-ups, which creates the impression of bustle. But all these entrepreneurs are not even a fraction of a percent of the population. They are a few dozen wonderful guys, but that's not an industry. A start-up that is sold for ten or twenty million dollars creates ten more rich guys, and that's it. I dont deride this, and I'm happy for anyone who succeeds and sells. But why has no start-up arisen here that continues to grow until it employs hundreds of thousands?"

Why not?

"Because of the structure of the Israeli capital market. A high-tech company has life stages. First a bud, then a start-up, the stage at which venture capital funds come into the picture. But what happens when a start-up becomes a company with $10 million in sales? That's the stage at which the company needs money to continue its growth, and in Israel there is no one to invest the amount needed in mature companies - tens of millions of dollars. This leaves the company with just two options: collapse or sell, which is why they all aim to be sold. I know many very successful companies which were sold, not because they wanted that, but out of fear that if they grew too big, they'd collapse. The natural thing at this stage is private equity type investment, but Israel has almost no funds of this kind."

Why not?

"Because financial institutions, provident funds, and the like are supposed to establish these companies, but to make such investments, you have to invest in a team of experts that will analyze, read prospectuses, and conduct in-depth investigations. This costs money. A big insurance company that manages NIS 100 billion and charges 1% on it, prefers the cheaper alternative - get a few people who arent the best, who when they hear about a bond of a big company with an owners name they recognize, they buy it. But if you have to decide about the share of a high tech or other company, that requires thoroughness, understanding, and the reading of prospectuses, and not only arent the companies built for this, they dont have the time for it. The result is that savers' returns are 2%, but the company keeps a profit to give bonuses to the CEO and executives while keeping the owners happy."

In short, the institutions are to blame?

"Obviously not. The CEO of an insurance company knows that his job is to maximize profits for the shareholders. He doesnt see Mrs. Cohen from Hadera, but his shareholders, who completely rationally and legitimately want to see the firm's profits."

"So who is to blame?"

"The blame is on the Israeli legislator, who for years has accepted that the income is a percentage of the money managed, regardless of performance and returns. I dont want them to lose money, I want them to share in the profits of their savers. That's how I manage my own money, though people who are part of the success, and I set the criteria of success according to indices - Nasdaq and so on. But this country does not ensure that the money managed on my behalf by pension funds is managed in this way. You know why."

No. Please explain.

"Because we have a Knesset with MKs with no suitable education or motivation. They're main strength is one thing - their ability to get elected. They're experts at this, geniuses at getting on to the 14th place in a party list. They have no economic or business skills, neither the ability nor the strength to deal with lobbyists, which is why we look they way we do. It creates a situation in which we won't have big high-tech companies. For years, no company has been founded here with the potential of a few hundred million dollars, which is sad. High tech must not be a workplace for geniuses and engineers who graduated from the Technion. It should provide livelihoods for many people and pull the economy behind it."

Get in on the ground floor

Moran does not think that Comigo will be a huge company, but he definitely expects a lot from it. Like many others, he has marked IPTV and smart TV as the next big consumer change. His product is based on wireless digital broadcasting (Idan Plus set-top boxes), bypassing cable and satellite providers, at a much lower price with fewer channels.

Various companies will enter this field, including mobile carriers, which will use the Internet to provide more channels to viewers. Moran is counting on these companies being his customers because they will want to attract customers with Comigo's viewing experience.

Why dont you see HOT and YES as potential customers? They should also want an interactive viewing experience and social activity while watching TV.

"Both YES and HOT have very smart people. But these companies invested huge amounts of money in infrastructures and it will be hard for them to disconnect; to say, 'That's it, we're giving up these costly infrastructures and we'll play the new game.' Its much easier for a new player to come and say, 'There's Internet, and the investment isn't huge. I can become a competitor of YES and HOT.'"

So you are relying on operators that dont exist yet, which will enter the market because of DTT.

"Yes, or operators in other fields that are not television. For example, mobile carriers are natural candidates for establishing this kind of service. They already have customers and they can integrate the services. There are also other known players that can and want to create television over the Internet."

In other words, you're path is not an easy one, since you're relying not just on the success of your product, but on a change in the market and consumer taste, and on operators that are not yet in the market.

"A large part of a company's success is timing. To get in on the ground floor. When the market is a new one, there is always uncertainty and risk-taking."

The first product that Moran thought of was completely different. The idea was to create a telephone that talked with a television. "Then we discovered that there was no one to talk to," says Moran. "Smart TV and linked TVs (hook-ups to the Internet or other devices) are not really connected and not very smart. Everyone has a different standard, there's no connection between a Samsung smart TV and one made by LG or Sony. Each one works with a different interface, it's impossible to even build an application suitable for all of them. So we said that we needed something that would attach to the television and work with a telephone, and decided to work on this product. I could make this change for one reason: it is my money. I learned from modu that if you take money, you can't stop or change direction."

I assume that it was also difficult for you to raise money from investors after modu.

"That's actually not true. All the investors in modu (including Idan Ofer) except for one, were prepared to invest."

How's it going so far?

"I've just returned from the IPTV World Forum in London, where I got the impression that there isn't any rival product with a user experience like ours. After all, we're fresh in this market and we dont know anyone, so we came without scheduling meetings with any operator. After a few hours, people began turning up, after hearing that they must see Comigo. By the next day, we found ourselves scheduling 20-minute meetings with very important people, because there was no time."

When will you have customers?

"I hope to sell to operators and to have a launch with a serious operator during 2012. Next month, we'll begin a very broad trial with students."

Yet there is still a risk that the investment will be for nothing.

"So what? I lost $15 million of my own money in modu. I could have simply managed my money to keep multiplying it. But I doubt that I'd have enjoyed that. I can't eat four lunches a day, and my children work as waiters when they're on vacation from studies."

So why, then? What drives you to found more and more ventures?

"My faith that I should bring something of real value to the world. It's almost a religion with me. Can you imagine what an experience it is for me to sit in a plane, and a guy comes up to me and says, 'Your DiskOnKey - you have no idea how it has improved my life.' That's something incredible."

Published by Globes [online], Israel business news - www.globes-online.com - on April 16, 2012

Copyright of Globes Publisher Itonut (1983) Ltd. 2012

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