One of the fastest growing Internet companies in Israel, which has become in recent years one of the leading companies in the country offering free software installation and managing large advertising networks, has remained up to now under the media radar. For the first time, Israeli daily Calcalist exposes iBario. The company, which made its first steps in the industry promoting products on the Web, has at present among its assets a software installation engine and an advertising network, and is developing software of its own.
In the seven years since it was founded, iBario has had no reason to get out in the limelight. Its five founders — Emil [Paz] Pozaylov, Yefi Gureni, Felix Leshno, Pavel Sandler and Mike Peters — have never set out on a fundraising campaign or a recruitment campaign — the two main motives that usually prompt startup companies to seek exposure in the media. However, far-reaching changes in the software installation market, along with certain business moves, which are yet to be revealed, have induced the five to go public in the media, and thereby expose one of the largest Internet companies in Israel.
According to estimates, iBario has an annual turnover of $90 million, and its net revenues reached $10 million last year — certainly a nice achievement considering that the company has gone through some turmoil over the past year: It doubled its workforce to 60 employees and launched several new product lines. And, with the transition to the mobile era, it is facing a financing challenge — which virtually all large free software companies in Israel have to cope with.
iBario engages in a long list of diverse, and seemingly unrelated, activities. Its managers admit that few are aware that these activities are all run by the same company, under one roof. Its biggest revenue generator is the free software installation engine InstallBrain, which competes in the market against similar software installation engines of other Israeli companies, like Somoto or installCore. It is estimated that, in its early years, the installation activity of iBario produced about 50% of its revenues. However, this activity currently accounts for no more than 20% of the company’s revenues — this, following the crises the industry went through (in particular, the tougher regulation imposed by the search giants Yahoo and Google, which has drastically limited the ability of toolbars to override the search engine settings of users), as well as the change of business focus decided on by the company. In fact, the activity related to InstallBrain is not presented by iBario, but is rather registered under an address in Portland, Oregon.
Another major product of iBario is the advertising network RevenueHits, which is estimated to account for about 30% to 40% of its revenues. The network vies with other Israeli advertising networks such as that of the Matomy Media Group, DMG and Marimedia. RevenueHits offers performance-based ads (performance-oriented display advertising) — that is, ads that yield revenue only once the user has performed a certain action or transaction.
What’s more, the RevenueHits advertising network allows iBario itself to run controlled tests on each of its advertising channels. The data it thus collects allows it to optimize its advertising network in real time and improve its software products. It is a unique feature that can rarely be implemented by a single company, which acts as the advertising agent, the advertising network and the advertising platform at one and the same time.
RevenueHits used to rely in the past on advertising-free software, such as that of Babylon and Conduit, but recently it has shifted to advertising mainly casual games, insurance products, financial services and dating sites.
Producing everything from content to PC maintenance products
In recent years the five founders of iBario have developed a network of sites that offer various services — each in a different field. The goal is twofold: The company seeks to reap revenues from the distribution of its own software, and not only from the distribution of the software of others. Inter alia, the company is developing PC maintenance products under the super brand PerformerSoft; it is creating hundreds of casual games under the BeGamer brand, using the platform developed by a small Slovak Studio for video games, which iBario acquired; and it is the company behind a series of content sites — among them the Mayajo recipe website and the question-and-answer website eAnswers.
Another site through which iBario has consolidated its foothold in the field of free software downloading is the free software downloading site Softango, which offers, for instance, anti-virus software and PDF converters, and competes against major downloading sites like Softonic and Download.com. Softango has about 20 million to 30 million unique visitors per month — an [impressive] figure that has won the company, according to its founders, top ranking as fourth among all downloading sites worldwide.
On the bottom line, the actual profit made by iBario is even bigger, as the group is operating along the lines of a near-autarky. It starts with the algorithm-based smart purchase of advertising spots, and continues with the attraction of new visitors [to the company’s downloading sites]. While downloading software, the latter are exposed to still more advertising or are prompted to install additional software and applications. Some of those users are directed by iBario to its other websites. The company thus generates revenues from a number of channels simultaneously — advertising, the sale of products, subscription-based premium services, downloading products, coupons and commissions for promoting products offered by other stores on its sites.
While iBario is deeply rooted in the business of downloading, and collaborates with most of the Israeli companies engaged in toolbar development and free software downloading, it differs in the business model it has adopted. Thus, iBario has been smart enough to develop a broader business model, which is based on a large variety of products, and therefore renders it more resilient. This advantage also allows it to dodge the marketing strategy trickily used by many toolbar companies, known in the industry as product bundling, whereby a user downloading some specific software actually gets a bundle of several software programs.
“As a strategy, we are entering some highly competitive fields, where we have identified an interesting business activity going on,” iBario CEO Emil [Paz] Pozaylov, 42, told Calcalist. “Using our technological capability and marketing strategy, we can move on into these markets in no time, whether under our own brand or by offering a product sold in turn under other brands.”
A partnership that originated in the dorms of the Israel Technology Institute
Unlike many companies in the field of free software, typically set up by a number of [young] ex-army buddies, iBario was established by senior high-tech professionals in their 30s, all of them with families, who had much to lose. The company was cofounded by ... Pozaylov, who had formerly served as senior finance manager with Intel at the company’s plant in [the southern Israeli town] Kiryat Gat, and Yefi Gureni, 41, who was at the time senior R&D manager at the Israeli development center of the German SAP.
The two first met as students when they shared a dorm room at the Technion — Israel Institute of Technology. Later on, after many years at the Intel offices, Emil came up with the idea of making money from the Internet, and the two joined forces once again. “In December 2007, it suddenly hit me,” Emil recounted. “Until then I thought Google was a philanthropic body that made it possible for users to perform organic searches, but then, all of a sudden I realized you could make money online.”
In 2007, numerous stories began appearing in the media about the “millionaires in pajamas,” those Internet experts who were working from home, promoting products on ecommerce sites (as marketing affiliates), and earning millions. One of the most prominent among them was Felix Leshno, 42, who went on to become a co-founder of iBario. He was regarded at the time as one of the big success stories of corporations like the online shoe shop Zappos.com. And in 2008, he broke his own record when he sold $25 million in shoes. Later on, he specialized in the sale of musical instruments and household goods, as well, and concurrently became the second major independent reseller of the mineral products of the Israeli cosmetics company AHAVA. And then, after uploading to his blog a check in the amount of $200,000 that he had received from Commission Junction, one of the largest affiliate marketing companies in the United States, he turned into a Web guru and a Mecca for anyone intent on learning how to do it from home.
His success did not escape Emil Pozaylov: “I said to myself that I, too, could promote products the way Felix did, buying advertising on Google, promoting another company's products, and making a profit from the commission. So, I bought traffic on Google for no less than $10,000, but unfortunately made no more than NIS 100 [just under $29].” The failure only prompted him to look for the technology that would automate the process of product promotion, and to consider the establishment of a company that would turn the mechanism into a thriving business.
Pozaylov and Gureni set out to develop a sophisticated automated system for monitoring advertisements on the Web, which, by tapping on existing advertising networks, would be able to measure the effectiveness of promotion campaigns, and characterize the situations conducive to their success. The two recruited Pavel Sandler, 42, an experienced R&D software manager with whom Gureni had become acquainted at SAP, and who is currently serving as chief technology officer of the company.
The company they set up, initially named MyAdWise, is known today as iBario. The product that put the company on the map was branded as PPC bully, and immediately upon its release, won huge success. The automated service for product promotion was targeted by the four to large companies seeking to know what was going on in online advertising in their field. Thus, for instance, they provided a certain diaper manufacturer with a service based on continuously collected information, which showed him how the advertisements of his competitors looked, on which websites they appeared, and to what extent they were effective.
In June 2009, half a year after the start of development, the company launched PPC Bully. Within the first 24 hours, it yielded the three founders $1 million in revenue. Visa Inc., which managed the company's credit account, was shocked to discover it. Its representatives were concerned about the possibility of money laundering, and decided to pay a visit to Emil and his colleagues. Once they realized that it was an Internet company that had nothing to hide, they agreed to release the money, but even so, only bit by bit, to make sure that the money was not transmitted to any third party.
The venture capital funds that had previously been reluctant to invest in the company were now standing in line, eager to take part in its success story. Alas, to no avail. Pozaylov and Gureni sought to leverage their success and use the revenues they had generated to fund the company's future operations, so as to maintain their control over the company.
“Half a year after launching our company, H&M opened its first branch in Israel,” Gureni recounts. “Our company's launch, which received far less media attention, yielded more money, and we were just the four of us in the company then. Yet, we had all four retired from senior positions in large high-tech companies, each with a substantial option package, and were determined to build something big.
“The launch of H&M demonstrated to us that we did understand a thing or two about the Internet; that we knew how to produce a large amount of data relevant to advertising campaigns on the Web. And we realized that the parties who had acquired that data from us were making the big bucks. So, we figured, why not be one of them, rather than helping other players to make money? Instead of giving out software to the Israel Electric Corporation, let’s be ourselves the Electric Corporation.”
Gureni and his partners knew they had something in their hands that almost no one else had. The advertisement search engine they had developed could accurately pinpoint the ads that were doing the job, anywhere in the world, in whatever language, and in any kind of ad creative, that is, ad designing. The next logical step was then to turn the company into an ad network, which would mediate between advertisers and content, shopping and news sites, and offer advertisers the most strategic spots for their network campaign. These days, the market is saturated, but in 2009, only a relatively few companies were active in this arena, first and foremost, Google.
With the algorithms they developed for their initial product, they advanced to a higher level of sophistication. They consequently reached a position where they could mediate not only between advertisers and websites, but also between various advertising networks, and thus act as an ad server themselves.
Given its RevenueHits advertising network, iBario had been the first to offer an advertising engine in Israel — years before PLYmedia of Ben Enosh and Avishay Raviv became a significant player in this market, and long before giants such as Yahoo's [ad exchange] Right Media and the New York City-based AppNexus took over the market. The uniqueness of RevenueHits could be attributed in part to the company’s ability to develop an automatic engine that could detect and create banners of non-standard sizes — a solution that no other player, including Google, managed to work out at the time.
“It was a naive decision,” says Gureni, “but in retrospect, it helped us make up our minds to become a major player. And the entire system was automated, so that, unlike the other companies in those days, we did not have to hire large numbers of employees.”
The business recovery specialist turned into a millionaire in pajamas
One of the prominent customers of RevenueHits was the millionaire in pajamas Felix Leshno, who had left a promising career as a business recovery specialist coming to the rescue of failing branches of the New Pharm network and went on to become a Web guru. One of the recipes for success he borrowed from the Amazon.com site: He used to implant notes next to products to indicate which other products interested customers were buying.
In 2010, tired of promoting the products of others, Leshno decided to start his own software company. To that end, he allied with Mike Peters, 39, with whom he planned to establish a new software company. Peters had many years of experience in the field: At the age of 13, he sold the first software he developed; at the age of 16, he rejected a job offer from Microsoft; and at the age 17, he became one of the first employees at Top Tier Software, Inc. of Shai Agassi, which was later on acquired by the German multinational giant SAP.
However, two months after the two jointly set up their software company, they received a more attractive proposal from iBario founders Pozaylov and Gureni. The latter had at their disposal an advertising network — which Leshno knew well from his work as product promoter — as well as sophisticated algorithms for identifying online campaigns. It was just what Leshno and Peters needed to kick off their business. Two minutes after submitting their bid, the five shook hands, and iBario embarked on a new path — for the third time in its existence.
Once Leshno and Peters joined iBario, the company shifted direction. Rather than focusing on its software installation engine and advertising network for dating products, video games and insurance plans, it turned into a company that develops online real estate itself. As to Leshno, instead of promoting the products of others, he assumed responsibility for transforming iBario into a network of content sites and a software development company.
To a large extent, the company’s growth plan, launched in 2009, is still running. It is essentially aimed at getting the company the edge on both ends. While the average company in the software downloading business opts for specializing in one specific field — be it the development of user software, or an installation engine or an advertising network designed to serve external parties — in iBario they have always sought to have it both ways.
“There is something in working for large companies like SAP or Intel that makes you think like a big company as you are building your own company,” says Gureni. “In SAP, which is a German company, we built products that must never break down. Those products had to serve utility companies, for instance, electric companies, and they thus had to be 100% reliable and withstand breakage, even if hit by a missile. Clearly, our success derives, at least in part, from this way of thinking, which we adopted at the time.”