Israelis to the rescue

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 America – and to a lesser extent the world over – have been asking these kinds of questions since September 11. The search is on for the means by which to respond.

A sure place for security solutions is Israel. Since 9/11, everyone from high tech start-ups 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. Even the government has jumped into the act with unaccustomed speed, setting up a security road show slated for February and March in New York, Chicago and Los Angeles.

“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.

Experience tells

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 (IAI), Elbit Systems and Elisra – making everything from tanks to small arms to defense electronics. The U.S. 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 (Technion) 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 12-18 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.

Virtual meetings

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,” says Eli Opper, a 27-year veteran of the Israeli defense industry who recently joined the VC 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 start-ups in communications and security, but there are only a few dozen good start-ups.”

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 September 11, we expected that the budget for security would be diverted to physical security and we expected to be hurt by this,” says 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,” says Yuklea. The company’s next product, SnapCell, will encrypt calls made on the GSM cellular infrastructure.

Another example of a post-9/11 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 9/11, 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 September 11, [but] the events of September 11 refined the type of application we are going to focus on,” says CEO Gil Israeli.

The company’s new focus is the nefarious use of cellphones 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 cellphone attached to an explosive. Launched in the wake of the U.S. terror attacks, 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,” says Israeli. “One unit does everything. We haven’t seen any product comparable.” NATO thinks so: it was C-Guard EXP’s first buyer.

Lawful interception

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,” says 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-9/11 atmosphere, the benchmark for what’s acceptable is changing. Due to 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 [September 11]. We are expecting that we will have more business,” Sperling says.

Infosys is planning to integrate into its systems a new speaker authentication technology developed by another Comverse subsidiary, PerSay. Using a previously recorded voice print, 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.

Airport defense

Aside from safeguarding communications, securing borders is an area Israel knows something about. Magal Security Systems, which trades on Nasdaq and TASE, designed and built the outdoor intrusion-detection system on the border between Israel and Palestinian-ruled Gaza and on the perimeter of Israel’s Ben Gurion International Airport. “What September 11 caused is much more interest in the kind of product we have,” says Magal’s president, Izhar Dekel. “As far as I know, no airports [in the U.S.] have electronic perimeter security.” In a project begun before September 11, Magal is currently installing a system at Chicago’s O’Hare airport. But because purchasing perimeter security is a hefty decision, Dekel is not expecting a rush of new orders. Meanwhile, Magal is investigating previously unexplored markets for perimeter security, such as water reservoirs, and the company has branched out with a new product, Jet Lock, which immobilizes airplane wheels to prevent unauthorized take-offs.

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 (SAN), which utilizes technologies such as storage virtualization, an area in which Israel’s ExaNet, StoreAge Network Technologies and SANRAD operate.

No-one wants to say "We lost the database"

“There is a saying in the disaster recovery industry – ‘It's not if your data is destroyed, but when.’  September 11 was a well-publicized wake up call to the world to be prepared,” says 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.”

Physical surveillance is another critical post-9/11 concern. Since October, Israel’s borders have been acting as the testing ground for biometric smart cards developed by the Biometric Access Control System consortium, to which On Track Innovations (OTI) belongs. The system makes use of contactless smart card technology, developed by Neur Markt-traded OTI, combined with hand geometry and facial recognition technology developed by the group’s other members. At border crossings between Israel and the Palestinian areas, through which as many as 100,000 people pass daily, the system can verify a person’s identity in a few seconds.

Other companies working in the field of biometrics include the recently established IQS, which is focusing on full-service biometric solutions based on fingerprint recognition; Starten, which is developing biometric data-collection systems for securing documents; and Wondernet, which is focusing on biometric signature authentication. Other products within the area of physical surveillance include ATS Systems’ anti-theft tags and detectors for tracking articles. The ElmoTech subsidiary of London Stock Exchange-traded Dmatek offers electronic monitoring systems to track people.

Machines that recognize people

Of the various areas within the security industry, according to Tel Aviv-based Partners500, a consulting firm providing a global screening service in information technology, the ones to watch biometrics, data storage and wireless local area network security. But within each of these areas, certain subspecialties seem more promising than others. Within biometrics, Partners500 considers facial recognition the most promising niche. Mike Beldie, manager of strategic partnerships at the firm, favors facial recognition because it doesn’t require the person being recognized to speak or perform any action. “I think this market is huge,” he says. Partners500 is now calling for Israeli entrepreneurs with relevant technological experience to build facial recognition start-ups, as well as start-ups in data storage and network security.

But most venture capital funds aren’t getting carried away by biometrics or any other 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,” says Sharon Gelbaum Shpan, a principal at the Pitango venture capital fund. For Pitango, even after 9/11, security remains an issue related to cellular infrastructure and handsets, to wireless and Bluetooth. Says Gelbaum Shpan, “I’m not a great believer in biometrics at this stage. We believe biometrics is a bit too far off.”

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 says. “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-9/11 upswing, Medved cites three – Business Layers, which develops systems for computer network access and e-provisioning; Cyota, which provides a secure system for on-line 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,” says Medved.

But concerns about access, says Eli Opper of Giza, have long been around, and 9/11 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 says. “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.”

Fear of flying?

While the post-9/11 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 has 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,” says 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 September 11, everything changed,” he says. 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 CEO. 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.

GS³ is focusing on all parts of the industry, from airports and airlines to airplane manufacturers, covering everything from the reputation and training of scanning machine operators to airport perimeter fencing and cockpit door design. One critical aspect of the company’s services will be recommending and formulating the integration of new technologies. GS³ is working with several Israeli partners, such as Magal Security Systems, which specializes in perimeter fencing; BuzzVC, which focuses on remote monitoring and video surveillance; and Encotone, whose expertise is acoustic encryption for secure remote access.

But 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 says, “We need to define and find a holistic solution.”

Looking for germs

The possibility of biochemical attack is one that has become far more real since September 11, with anthrax-laced letters presenting just one facet of the threat. Intelligene, which focuses on gene therapy, is using its biological know-how to address the threat. “We have a grant from DARPA [the U.S. government’s Defense Advanced Research Projects Agency] for the development of rapid early diagnostics of biological warfare agents,” says Yaron Tikochinkski, chief scientific officer of the Jerusalem-based company. Intelligene first approached DARPA three years ago and has been working on the security challenge ever since.

Tikochinkski won’t say much about the technology itself, except to describe it as a “unique system, different from other approaches.” Intelligene has already shown DARPA some results of its work, but further development is needed. What form, exactly, will the diagnostic device take? “It’s up to them how they use it,” says Tikochinkski. “We are just the molecular biology [side].”

Similarly concerned with biological and chemical warfare, researchers at Ben Gurion University of the Negev recently announced a biosensor to detect chemical agents in water. The bioluminescent optical fiber probe, developed by Robert Marks of the university’s Institute for Applied Biosciences, uses bacteria genetically engineered by Shimshon Belken of the Hebrew University to react to toxins. The sensor is a self-contained dip-stick coated with bacteria on one end of an optical fiber. When the probe is dipped into water containing toxins, the bacteria glow, and the light travels along the optical fiber to a photodetector.

“The bacterial bio-reporter can be designed to be specific to a large group of chemicals or specific to one chemical,” says Marks, who has been working on the project for two years. The research is ready to come out of the lab. “We have done the proof of concept and [made] the first generation of a field-operable fiber-optic photodetector.” A state government in the U.S. is already interested.

Companies

OTI
Contactless smart cards
www.oti.co.il

Camelot
Network security
www.camelot.com

Business Layers
Access and e-provisioning
www.businesslayers.com

Cyota
Remote transactions
www.cyota.com