Israel hopes to cash in on the world's cyber insecurity

Israel has become well known as Start-Up Nation, led by Tel Aviv, the innovation hub second only to Silicon Valley. Now Prime Minister Benjamin Netanyahu is marketing a new brand: Cyber Nation.

From Stuxnet to the capture of 40 million credit-card numbers used at Target, recent attacks have established cyberattacks as a growing public threat. Everything from financial data to power grids to home appliances are vulnerable, and it doesn’t require a huge bank account to wreak havoc. A $150 piece of software off the black market can cause tens of millions of dollars in damage.  

Israel, as a country whose lack of natural resources and abundance of enemies has long driven innovation, is perhaps better positioned than most countries to tackle the emerging cyber threat. 

There is no guarantee of global success; the evolution of cybersecurity threats is unpredictable and hackers often outpace those pursuing them. But with Israeli military prowess in cybersecurity, significant government investment and incentives for multinationals, and unique collaboration between business and academia, Israel is well positioned to not only tackle one of the 21st century’s greatest challenges but turn it into an economic boon. 

“The big problem of the world can become Israel’s major economic opportunity of the next 10 years,” said Erel Margalit, a prominent venture capitalist and chairman of Israel’s parliamentary task force on cyber protection, speaking at the international CyberTech 2014 conference in Tel Aviv yesterday.

Israel’s cyber edge

The full extent of Israel’s cyber prowess, and its ability to leverage that into economic growth, remains to be seen. But it has invested heavily in becoming a global leader.  

At CyberTech, which was attended by 450 government and industry leaders from around the world, including a large contingent from the US Department of Homeland Security, Mr. Netanyahu yesterday unveiled a new cyber complex in Beersheva, named CyberSpark.  

A key flagship of Israel's commitment, CyberSpark is integrated with Ben Gurion University, which recently launched one of the country’s first cybersecurity master’s programs. A new advanced technology park next door recently opened the first of 20 planned buildings, and an adjacent Israeli military base for high-tech units is set to open in 2017. The close collaboration between academia, business, and the military has set the stage for a sequel to Israel’s boom in the telecommunications field over the past 20 years. 

“Now, we have the potential for a similar wave,” says Yoav Tzruya, partner at JVP Cyber Labs, a new incubator in Beersheva backed by Jerusalem Venture Partners, which manages a portfolio of more than $900 million. He cites the necessary venture capital to “kick-start” cyber innovation, plus the Israel Defense Forces’s investment in cyber talent over the past decade, which is bringing key talent to the market.

Israelis recruited by the IDF’s top cyber units can start training as early as sophomore year in high school, followed by three or more years of hands-on IDF training in dealing with cyberattacks – giving them a strong leg up before they even start college.

“You can’t train someone in cybersecurity at university, especially when you want to cope with advanced attacks,” says Yuval Elovici of BGU’s Cyber Security Labs. But when they come to a degree program with years of experience, in this case developed through military service, academia becomes much more fruitful for developing cyber know-how.

One of Elovici’s doctoral students, Mordechai Guri, recently discovered what BGU claimed was a “critical” vulnerability in the Knox security platform used by Samsung’s Galaxy G4 smart phone, though Samsung has since said the problem lies with Google’s Android system.

“Imagine if all Americans worked at the [National Security Agency] for five years then left and went to the open market,” says Professor Elovici, who also serves as director of the Telekom Innovation Laboratories at BGU. “I definitely believe Israel can be No. 1 in this domain. It’s already No. 1 in applying cybersecurity know-how … now we just need to turn it into business.” 

Standing on its own feet

One of the main criticisms of Israel's innovation economy has been its inability to develop companies that become global players in their own right, rather than being bought early on by a giant like Intel. But a key exception to that is Checkpoint, which was started by graduates of one of the IDF’s elite technological units, 8200.

Since releasing its first product – the firewall – in 1994, Checkpoint has grown into a company with more than $1 billion in sales annually. Today, it secures 100 percent of Fortune 100 companies.

Over the next few years, Mr. Tzruya of JVP says he expects to see innovative companies become category leaders, similar to Checkpoint.

One promising start-up, the first established at JVP’s Cyber Labs three months ago, is CyActive. It aims to undercut one of the main economic advantages of hackers: that they are able to tweak malware as new defenses emerge, thereby recycling it countless times at little additional cost while their victims and pursuers spend a fortune.

CyActive’s young founders Liran Tancman and Shlomi Boutnaru are essentially donning the hat of hackers and beating them at their own game.They have developed an automated process to come up with new variants of existing malware, well before the hackers do. That way, they know exactly how to defend their customers before an attack is even launched.

While Tzruya is clearly impressed with CyActive, he says it’s critical for even the most promising cyber start-ups to have the support of multinationals to help bring them to the global market. 

Multinationals are recognizing the value of Israel's emerging cyber companies. The value of recent mergers and acquisitions in Israel’s cyber sector has exceeded $2 billion and involved 18 multinational corporations, the Times of Israel reported this month. They're also recognizing the value of collaborating with each other, putting aside traditional rivalries to build a critical mass at Beersheva's CyberSpark complex.

“Companies that are killing each other in the marketplace have joined forces and it’s really amazing,” says Netta Cohen, chief executive officer of Ben Gurion’s Technology Transfer Company, which has facilitated collaboration between business and academia. 

Among those companies are information-management firm EMC and defense technology company Lockheed Martin, which signed a deal yesterday to create a joint cyber center in Beersheva, as well as IBM, which also yesterday announced a new center of excellence at BGU.

“We’re competitors but we understand together that to make an ecosystem … we as pioneers need to collaborate,” says Maya Hofman Levy, site manager of EMC, which was the first multinational to move to Beersheva. The government has wooed such multinational corporations with incentives that include up to 10 years of tax exemption and salary subsidies of up to 40 percent. (Editor's note: The original version overstated the level of salary subsidy.)

“I think our army units, and the fact that government put this as a top priority, drives the best people to achieve this goal of being the leader of cyber globally,” says Ms. Hofman Levy.