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Annus Mirabilis
Margo Lipschitz Sugarman
They may not be extrovert and effusive. They certainly don't look happy. But they are ultra-smart, extraordinarily determined and supremely innovative. And that's how these three twentysomethings from Tel Aviv have made hundreds of millions of dollars from their Mirabilis Internet company, and turned themselves into Israel's hottest high-tech story.
Sefi Visiger dropped out of school in 11th grade. "They wanted me to come every day," he recalls, horrified. "And some days, we had to be there by 7. I just couldn't function that way." Infuriated by his frequent unexplained absences, his Herzliyah high school, he says, 'encouraged' me to leave."
Visiger's friend Arik Vardi is also a dropout, and looks it: Light brown curls hang halfway down the back of his threadbare T-shirt; his shorts are tattered; his Birkenstock sandals have seen better days; his goatee doesn't quite seem to have happened yet. Vardi left high school in Tel Aviv the summer after 11th grade. He mumbles that he was bored, he'd "had enough." These days, he's living part-time in a cheap flat in the Village in New York.
Sad story of Israeli kids who went wrong? Sadder, because Vardi had a chance? After all, his businessman father gave him a computer when he was 12, along with a book on Basic, and by the next day he'd programmed his own game, Mastermind. And now, a promising kid like that.
Now he's worth $60 million.
And so is Visiger. And their friend Yair Goldfinger, who (poor soul) actually graduated college. And oh, yes, Vardi's dad Yossi, who invested the original few hundred thousand dollars to allow the scrungy twentysomethings to set up Mirabilis Ltd. two years ago.
Soon after that investment, they started handing out their revolutionary ICQ Internet communications software for precisely nothing - a business strategy that might appear somewhat questionable. Except, Internet giant America On Line has just bought Mirabilis for $287 million, in a deal whose final value could hit $407 million as long as the company keeps growing - likely, since ICQ (pronounced "I Seek You") is hands-down the most popular program on the Net, and is swelling its user base by a million every 22 days.
Fact is, the computer world likes untutored young free-spirits. Steve Jobs dropped out of Reed College to start personal computing in a garage, and the lack of his diploma from Harvard hasn't damaged Bill Gates's net worth. The nonconformist, nothing-but-a-crazy-idea streak is a proven formula for success in high-tech. And no one in Israel has applied it more successfully than the Mirabilis crew.
Starting with an idea that popped up during a ping-pong game in 1996, Vardi, Visiger and Goldfinger created ICQ in just under two months. The program allows Internet users to know which friends are on-line and communicate with them directly (see box, facing page).
Then they started giving away the service, along with free technical help in using it. This frankly revolutionary approach leap-frogged the hurdle that usually stops Israeli software firms - marketing internationally - as users were drawn in, won over, and enthusiastically spread the word. By early this summer, they had over 13 million people signed up, having hardly spent a cent on marketing, having made not a cent in revenue. They didn't even sell ads on their Website.
But there was method in the madness. They'd always concentrated on building a huge user base, confident that ultimately they'd be able to make money from it. And because their product was so attractive, had so many people signing up, and thus offered such tremendous potential for Internet advertising, they caught the attention of several Internet giants. Ultimately, in early June, they sold the firm to AOL and achieved multi-millionaire status. Not bad for three guys aged 26 (Visiger), 27 (Goldfinger) and 28 (Vardi).
In the weeks since the deal was announced, the leaders of Israel's economy have been singing their praises. Finance Minister Yaakov Neeman offered his personal congratulations, declaring that they could "serve as an example" to other Israeli firms. They "created a product, built it and sold it without any government assistance," he enthused, doubtless happily contemplating an anticipated $100 million in tax revenues. At June's annual conference in Zikhron Ya'a-kov of top economic minds, Yossi Vardi got a hero's welcome, and one participant printed up bumper stickers that consoled: "I didn't invest in Mirabilis either."
There's no reception area at Mirabilis HQ in northern Tel Aviv. Gray industrial carpeting curls up around spartan steel table legs. The walls feature cheap posters -
"Seinfeld's" Kramer and "Toy Story" among them - and the shelves are scattered with computer parts and tacky toys.
Seventy staffers are spread over a floor-and-a-half. If you're lucky, one of them might glance up from a screen and greet you. Working all hours of the day and night, developing new products and servicing ICQ customers, they share with their newly rich founders the red-eyed, pasty look of people who don't get enough fresh air.
The average age is 25; Visiger laughs that he's starting to feel like a grandfather. Anyone over 30 is referred to as a dinosaur.
Though they might be expected to be excitedly reveling in their success, eagerly lapping up media interest, the Mirabilis trio turn out to be determinedly reticent. Two of the three, indeed - Goldfinger and Visiger - are, if not downright glum, resolutely introvert, evincing virtually no joy in their newfound success and prosperity. They've refused all TV interview requests and most print media calls, and are spending time with The Jerusalem Report, they say, only because we spotted them early - writing a short profile of the thenunknown young company in August last year.
Goldfinger, tall, skinny, and soft-spoken, does most of the (reluctant) talking, albeit frequently interrupted by frantic requests from the staff for help; Visiger, who ambles in halfway through and grabs the nearest computer, is clearly far more comfortable addressing his keyboard. We make contact with Vardi later on, in Mirabilis's New York office - Broadway and 4th - where he's working into the night, replacing a staffer whose U.S. visa ran out and had to fly home to Israel.
Originally, says Goldfinger, the trio was a quartet: Amnon Amir left the company in its second month to go to university (see box, this page). "We all met," adds Vardi, "while working together at Zappa," a Tel Aviv software firm that was designing three-dimensional graphic tools for the Internet.
Goldfinger had arrived there after completing his BA in computer science at Tel Aviv U, following army service in the artillery corps. Visiger, post military service ("I wanted to join Army Radio, but they put me in artillery, and I had to spend a year and a half in Lebanon"), had bounced from job to job, doing some graphics work here, film editing there, before joining Zappa as an animator. Vardi was a freelance programmer, with a resum_ that included a stint as a security selector - one of the young men and women at Ben-Gurion Airport who ask passengers who packed their luggage - and as a programmer at Adir Communications, a firm offering cheap international phone calls.
By mid-1996, for reasons they won't discuss, they'd all quit Zappa and were unemployed, hanging out together - a gang of Internet enthusiasts trying to think of something original to keep themselves busy. "We spent a lot of time playing ping-pong at Amnon's house," recalls Goldfinger, "and it was around the table that we came up with ICQ."
No one's taking sole credit; there was no flash of inspiration, just an idea that formed slowly: an Internet program that would let you build a list of people you like to talk to, tell you which of them was on-line when you were, and then help you communicate. AOL, they'd later find out, already had a similar, but less-sophisticated program for its subscribers called Buddy List; the Israelis, says Goldfinger, hadn't heard of it.
Goldfinger had misgivings, but was outvoted. "I made a bet with them - I said that if we ever got more than 5,000 users, I'd take them to dinner. I haven't paid up. But that's only because we haven't all been in the same country once since we passed the 5,000 mark."
If Goldfinger was wary, Visiger was optimistic from the start, and Vardi realistic: He says he felt that "ICQ was something we could do, and that could work."
The key to the product's success, Gold-finger now recognizes, "is that it's no good to you unless you pass it on to your friends." As a result, the program generates, virtually by itself, a massive number of users. And all of them are linked, whenever they use it, to ICQ's own network - making them potential targets for on-screen advertising. It's that quality that was to pop up dollar signs in the eyes of AOL executives.
The three are hesitant when asked why it is that they've succeeded where so many other start-ups have failed; what unique team chemistry has given them the edge. Pressed, they cite complementary technical skills rather than personal traits. Goldfinger specialized in the Windows programming critical to creating the ICQ software. Vardi was an expert in UNIX programming, which runs the servers that connect ICQ users. And Visiger took charge of the graphic design side.
Visiger was also the organizer, the one who made sure that practical concerns, like renting office space and hiring workers, were taken care of.
Seeking initial funding, they went to Vardi's father, Yossi, one of the key figures behind the 1995 Amman economic conference, and a founder of Israel Chemicals. "They were so secretive, they wouldn't even tell me what the idea was," Yossi Vardi laughs. But having faith in his son and his friends, he gave them the seed capital. (And later, when they needed more, he helped them raise a reported $3 million, from a small group of private investors including Osem's Dan Propper, who had a 0.6-percent share, worth $2.4 million at the buyout; and Arison Investments, owners of the majority share of Bank Hapoalim, with a 1.6-percent chunk, worth $4.5 million.)
Within weeks of Vardi's initial investment, they'd given themselves the company name Mirabilis - after a hallucinogenic flower whose name means "miraculous" - and developed an early version of ICQ. "I was blown away," Yossi Vardi exclaims. "It was the best product I'd seen in my whole career."
"Yossi started predicting exactly how many users we'd have at the end of various periods," says Goldfinger. "We didn't believe him, but so far he's been spot on."
By September 1996, ICQ was ready to run. Amir had dropped out by now, and the trio decided to leave for California, where it would be cheaper to get Internet access. "We entered what we call our submarine period," says Goldfinger, smiling for once. "All we did for three months was work." Short of cash, they rented an unfurnished three-room apartment in San Jose, in which they placed three Salvation Army mattresses and a radio. "We even took our own computers over to the U.S., so we wouldn't have to spend money on new ones," says Goldfinger. "In fact," he muses, "those computers are still being used somewhere in the company."
"The whole of San Jose closes down at 8 at night," he goes on, "so we had nothing else to do besides getting the program up and running on the Internet, and testing it. The only place open till 11 was McDonald's, so we ate a lot of junk." To get around, they bought an old Datsun for $300, which they had to push-start on rainy days. There was no floor on the passenger side - just a view of the asphalt speeding by.
To set up their server, they rented a room in the office of another Israeli in Sunnyvale. When they got the program going, they gave the software to 40 of their friends; the enthusiastic response, and exponential growth, were instantaneous.
Their lease expired in January 1997, so they moved to New York. "It was a lot less boring than San Jose," says Goldfinger, "and it was closer to Israel." Again, they rented a room in the offices of an Israeli company, on Broadway and 4th Street, where their servers still sit, and lived in an East Village apartment that made the one in San Jose seem spacious.
That apartment remains their New York "home." "Rent in Manhattan is so expensive," laments Vardi. But, yes, he laughs, they have moved up in the world. "We have a TV, with cable, now."
Barely had ICQ hit the web, says Yossi Vardi, than it began collecting "eyeballs" - the industry term for users. A worldwide ICQ community began to coalesce. "ICQ gave people a sense of association," says Michael Eisenberg, of the Israel Seed Partners high-tech funding company, an early convert. "It fed on itself, and people wanted to belong."
"Mirabilis put out precisely one promotional brochure," says Yossi Vardi. "We printed 500. And we still have 400 left."
They emerged tentatively from the submarine, but they were, and are, still working like dogs. Mirabilis moved to New York, Visiger was dispatched back to Israel to set up offices, where the center of R&D; and mana ge"In the first year and a half," says Visiger, fiddling with computer cables, "we had no life. But we loved it. Nobody minded working through the weekends. There was this hysteria to get ahead." Now, he adds wryly, "we don't work the whole weekend, and we don't work all the way through holidays."
By May 1997, the initial 40 had exploded to 850,000 ICQ users. By last July, there were 2 million - all communicating via Mirabilis's UNIX computer in NY, all using the same gray window on which the trio could have, but didn't, put ads. At times, 100,000 people were using the program simultaneously (now, that's risen to over half a million - ahead of any other Internet link).
Popular, they undoubtedly were; rich, they were not. "The company," says Yossi Vardi succinctly, "couldn't continue to provide service to so many users without having any income."
The trio had toyed with various options for bringing in cash, including advertising on their site or the ICQ window, or perhaps developing a more sophisticated version of ICQ to sell. But, in consultation with Yossi Vardi, they agreed that the sell-the-store option was the best. Several big Internet companies were expressing interest, but Virginia-based AOL was the only one with experience in dealing with hundreds of thousands of simultaneous on-line users.
Details of the deal are guarded with a tenacity that would make the Mossad jealous. (AOL demanded that all parties sign a confidentiality agreement.) Visiger says only that "we were ecstatic when it was offered to us. Not because of the money, but because of the potential for the company." Requests for further details are referred to Yossi Vardi, who won't even say when AOL made the first approach. The trio won't even disclose whether they popped champagne when the signing was done.
Visiger does allow, however, that he celebrated by buying a small sink-top dishwasher - it holds four mugs - for the rented apartment he still shares with a flatmate in the Sheinkin area of Tel Aviv. ("We hate washing dishes," he explains, with his first grin of the conversation. "I come from a working-class background, so the small things are enough for me.") Vardi seems nonplussed by the suggestion that might he might have thought of treating himself to anything. Goldfinger took his motorcycle to be fixed.
Vardi says proudly that his wardrobe contains not a single button-down shirt, and that he has no intention of becoming "a suit." A T-shirt, he notes, was good enough when he was negotiating with AOL: "I'm a software engineer, so it's legitimate."
Changes in life style? They do find a little time these days to slip out and meet friends in the early hours of the morning. Fortunately, notes Visiger, "my friends are as crazy as I am, so they understand." And Vardi, in Manhattan, has occasionally explored some of the city's eating establishments, in the company of other Israeli expats. Goldfinger is so protective of his private life that he shuns all attempts to get talking beyond business.
Today, $287 million later, the atmosphere at Mirabilis is still pure start-up. And there's a reason for the frantic pace. The deal provides for the founders to continue running the company (they've actually given themselves titles now: President Visiger, CEO Vardi and Chief Technical Officer Goldfinger), with a powerful incentive: AOL will pay the shareholders up to $120 million more, beginning in 2001, in return for further growth and development of products.
Visiger says there are no plans to move or upgrade the premises - even though the trio have only two cramped offices between them. "Fancy rooms won't improve the product," he says dryly. "Any renovations will be done on the personnel side."
What the buyout gives them, they all insist, is the cash to make ICQ the standard for all Internet communications products. They are working to expand their services, adding new chat groups and networks according to different subjects, like news, sport and business, for ICQ subscribers.
During a recent visit by a high-ranking AOL official, says Vardi, "I told the staff to buy in some food and drink." Evidently, they share their founders' Spartan ethic. "They splashed out on two bottles of soda and a few packages of chocolate brownies."
Fortunately, AOL didn't buy the company for the refreshments. When the deal was announced, users worried that the free ride was over, and that they would be required to pay for ICQ. One user sent in an E-mail threatening to kill his own dog if the contract was signed, laughs Yossi Vardi. He doesn't know if the execution ever took place. In Holland, he adds, users declared an on-site day of mourning.
Apparently, they need not worry. Yossi Vardi says that AOL's revenues will come from advertising on users' screens and on the Mirabilis Website - not from subscription fees. Mirabilis's own surveys show that 92 percent of ICQ users would prefer on-screen advertising to a subscription fee.
The number of ICQ downloads hasn't slowed at all since the deal was announced. On
The founding trio all insist they're happy to keep on toiling away, for the time being at least.
"Our vision is that, one day, every Internet user will have our system," says Goldfinger. "That's what I'm working towards. When I no longer enjoy doing that, I'll look for something else."
Maybe, though, he and his pals will manage to schedule a bit more time for socializing. Potential mothers-in-law may not like their hair, their T-shirts or their high-school records. But they are making a living.
1998
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