Why IoT’s Future Rests In Israel

Just like every hurricane has an eye at the center that feeds the whole storm system, it’s not entirely inaccurate to suggest that the explosion of tech development over the last two decades from places like Silicon Valley follows a similar pattern. With pioneers like Wozniak, Gates and Jobs coding away late at night in Bay Area garages comes multinational corporations doing much the same at a much larger scale.

However, while Silicon Valley may still lay claim to the center of the personal computing and app-based commerce worlds, the ever-growing industry around the Internet of Things is being driven from the other side of the world.

Israel, to be exact.

According to Innovation Endeavors, Israel, a country of roughly 8 million people, boasts about 330 startups focused exclusively on developing IoT software or devices. Though these companies represent just 5 percent of Israel’s more than 6,000 startups, 40 percent of IoT businesses in the country are in initial revenue phase, and a further 9 percent are seeing revenue growth.

Given that IoT has only really been a potentially lucrative market for startups and the retail partners they sell to for a handful of years, this kind of rapid progress hasn’t gone unnoticed by larger, acquisition-happy corporations in need of a foreign tech injection. On Tuesday (Jan. 26), Sony shelled out $212 million for Altair Semiconductor, an Israeli mobile phone processor designer geared toward low-power IoT network operations. Investors, too, have turned their gazes on startups across Judea. IoT cybersecurity firm ForeScout recently raised $76 million from U.S. venture capital groups to push its overall valuation to more than $1 billion.

How did Israel’s startups find themselves at the forefront of IoT, a movement experts across the globe agree could be the next fundamentally disruptive technology to hit the worldwide market? Part of it is simply a matter of good timing — a crop of educated, young professionals becoming eligible to enter the workforce just when IoT is making it big. However, Ido Aharoni, the Consul General of Israel in New York, explained in a lecture at Cornell University that Israel’s skeptical nature might also contribute to the growing number of startups that excel in an innovative and disruptive segment.

“In the [Israeli] military there is a loose structure but a tight social network,” Aharoni said of Israel’s compulsory military service. “It is one big family. There is a ‘can do’ attitude. Whether you are a Colonel or Major – the team goes with whomever is best equipped to solve the problem. And Israeli high tech takes this same approach.”

“We always give permission to ask questions,” he continued. “When I was growing up, after a lesson in school we were taught to ask our teachers, ‘So what?’ In Israel good teachers encourage that spirit.”

While Aharoni’s explanation might elicit many of the same ways pundits invoke examples of American exceptionalism, there might be some weight to Israel’s military and the speed with which the country’s IoT startups have grown. Eyal Bino, partner at ICONYC Labs, explained in a Forbes column that during each Israeli 18-year-old’s two- to three-year period of service, he or she is exposed to methods of cybersecurity, machine learning, predictive analytics and more on an industrial scale. Though the Israel Defense Forces aren’t in the business of training the country’s next tech mavens, at the very least it helps foster an environment where the potential of IoT isn’t locked away in a Silicon Valley development lab but is instead front and center in their daily lives.

So while Israel’s uncertain political situation might result in turmoil at times, the double-edged sword of process also means that it’s given rise to a culture of natural innovation with an eye toward the Internet of Things. However, Aharoni is quick to dispel any aura of invincibility around Israeli startups, even those attracting foreign attention. Israel might be the leader in IoT, but there are no guarantees in the startup world.

“After all, 85 percent of startups fail,” Aharoni told Cornell. “The nickname ‘Startup Nation’ doesn’t tell the history of the brand.”

For more news on what’s happening in the IoT space, check out the latest edition of PYMNTS’ Internet of Things Tracker, released today.