TheMarker.com, March 24, 2003
A Must For Every Desktop
| Babylon and Atomica are two prominent dot.com companies that climbed out of Israel's Silicon Wadi.
|Like ICQ, which America Online bought for $400 million cash, the products of these two companies are built on "virtual distribution" - the ability to convince surfers that the product is "a must for every desktop." Both started out when the word "revenues" was indecent, and they behaved accordingly. Since the beginning of 2001, however, both have been forced to think in terms of profits in order to survive. Although they do not admit it, Babylon and Atomica (formerly GuruNet) operate in the same market, offer similar solutions, and face similar challenges. At this point, it seems that Babylon is in a better position to achieve its goals. Atomica was founded in early 1999 by Bob Rosenschein, the founder of Accent, a developer of a desktop dictionary. This technology formed the foundation of Atomica's solution, which lets users point at words on their screen and get a translation. Very quickly, however, Rosenschein realized he had missed the boat. Babylon, founded in September 1997 by Avner Ovadia, was offering a similar solution and was taking over the market. That is why Atomica began headed in a new direction - not only translating words, but also providing information about the word, in an attempt to deliver the exact meaning required by the user. In an interview with Haaretz in September 2000, Rosenschein said that in order to expand its database, the company had invested a few hundred thousand dollars on some 200,000 descriptions of movies, 300,000 descriptions of music disks, and 1.3 million descriptions of books from a company in New York that provides a similar service to Amazon. Babylon liked the idea of Atomica's expanded service and began offering something similar, albeit more concisely.
Babylon is considered the most prominent name in online translation. The company offers 22 dictionaries in 13 languages as well as 1,600 glossaries and dictionaries contributed by its user community, which provides translations and explanations of professional terms in hundreds of categories. Babylon is managed by Alex Azulay, who joined the company in May 2001, just three months after the company laid off half its staff of 50 and was on the brink of closure. Azulay changed the company's business model and began charging Israeli, Swiss and Austrian surfers for its services. "I chose someone from my department who seemed suited to sales, and gave him the task of selling our product," recalls Michal Frenkiel, Babylon's vice president of marketing. "Now we have eight sales and customer service personnel." In November 2001, Babylon launched its new business model throughout the world. "We underwent a total revolution, from a company that wasn't selling anything to a company that has to sell all the time in order to survive," says Azulay. "This meant that we could no longer release products with bugs, that we had to give proper technological support, and that we had to think about money 24 hours a day." Babylon also turned to the organizational market. "Babylon's vision is to provide the user with all the information he needs with one click of the mouse," says Azulay. This included offering Babylon's search engine mechanism to organizations and big companies so they could access all the information on their employees or products by simply clicking on a worker's name or a product's number. Babylon charges 25 euros (NIS 115) for an annual subscription or 50 euros (NIS 235) for a lifetime license to the current version. Azulay says the company has 300,000 paying surfers, including 100,000 web surfers and 200,000 organizational users whose companies have bought subscriptions for them. These companies including Coca-Cola, IBM, CA, EDS, Oracle and Motorola. One company paid $100,000 for 4,000 subscriptions, while another paid $70,000 for 2,000. "The potential of the organizational market is enormous and has not been exhausted," says Azulay. The switch to the paying model is slowly bringing Babylon into the black. In 2001, the company recorded revenues of NIS 5 million and net losses of NIS 10 million. Last year revenues grew to NIS 15 million while losses shrank to NIS 5 million. Marketing and sales efforts increased company expenditures from NIS 15 million in 2001 to NIS 20 million in 2002, but Babylon will finish the first quarter of 2003 with a positive cash flow. Babylon has raised $11 million, and is happy to be independent of venture capital funds, which would have closed the company down long ago, says Azulay. Babylon shareholders include the Formula Group (25%), the Monitin Group, which is controlled by Eliezer Fishman, and company founder Ovadia (16%). Aiming for profitability
Rosenschein founded Atomica in January 1999 after a short conversation with Yossi Vardi, the father of desktop applications. Vardi said that while the desktop dictionary Rosenschein had developed was nice, a dictionary that could translate directly from the screen would be even better. Rosenschein heeded the advice and began raising capital, including $50,000 from Vardi. The impressive list of other investors included Goldman Sachs, America Online, and Guy Kawasaki of Garage.com, who said that GuruNet's software would have "a greater effect on the Internet than Netscape, making every text interactive." Atomica has raised $23 million, and it is clear that the company's major investors, who have their own problems, are not planning to invest any more cash. Rosenschein quickly realized this, and in May 2001, dismissed 30 employees at Atomica's R&D center in Jerusalem. At the time, Atomica had about 100 employees, 75 in Israel and the remainder in the United States. Today, the company has only 15 employees. "We changed our business model in 2002 and decided to provide a solution to large organizations that combines our software with their internal databases so that their employees can get internal information at the click of a mouse," says Rosenschein. The software has been installed at IBM's headquarters in Boston, in a Canadian electric company, in a few American government ministries, and in a large microchip manufacturer. Last week, Atomica launched version 4.0 of GuruNet, which is designed to ease life for surfers. The enhancement of the previous version has been somewhat neglected due to the company's focus on the organizational market. The new version is now available for $39.95 for a lifetime license. "The reason for our renewed focus on surfers is the fact that many of the organizations that heard about our organizational solution did so after being impressed by the software distributed via the Internet," says Rosenschein. He does not deny the similarities between Atomica and Babylon, but emphasizes that the goal of Atomica's products is to provide much more comprehensive information than that offered by competitors. "Babylon's emphasis is on translation. At Atomica, translation is just one of 39 options," says Rosenschein. If a surfer clicks on the word Paris, for example, he or she can obtain information on the city's history, today's weather report, entertainment sites and more.