PALO ALTO, California − More than three years before Google paid hundreds of millions of dollars to buy the navigation app maker Waze, the Israeli high-tech scene was mesmerized by a more modest but similarly ground-breaking deal when Facebook bought Snaptu. The United States social media company reportedly paid just tens of millions of dollars for the company, which employed a mere 25 people − but it was Facebook’s first foray into the Israeli high-tech industry. Unlike most of the multinational tech companies snapping up Israeli startups, Facebook was a household name whose products were used by millions of Israelis.
However, a day after the announcement the enthusiasm over the sale was diminished by the news that most of Snaptu’s employees would be losing their jobs. In fact, the layoffs included everyone at Snaptu who was not a programmer, while the programmers themselves were being transferred to Facebook’s California headquarters.
To this day, the story of the Snaptu, which developed applications for low-tech cellphones, prompts bittersweet memories in Israel. In the view of many, the deal symbolized the ease with which multinationals can pull their operations out of Israel and take knowhow, technology and personnel with them. In the process, the Israeli economy comes out the loser.
Since the Snaptu acquisition, Facebook has bought two other Israeli startups that also disappeared into Facebook’s Silicon Valley headquarters. But last October the company changed its strategy toward Israel when it acquired Onavo for somewhere between $150 million and $200 million and turned the startup’s Ramat Gan offices into its first-ever research and development center in Israel.
Snaptu’s loss ultimately turned into the Israeli tech industry’s gain as Facebook established a foothold in the country. It could be a gain for many of the world’s poorest countries, too, as Israel emerges as a center for a Facebook-led initiative to widen access to mobile data to the least developed countries.
“Even before we started talking about being acquired, we knew we would have to move to Silicon Valley,” says former Snaptu CEO Ran Makavy, who was one those who packed up for Silicon Valley and joined the staff of Facebook. Of the 12 Snaptu employees who moved to Facebook headquarters in Menlo Park, 10 still work for the company.
As director of product management at Facebook and a member of its growth team, a group that is responsible for identifying impediments to people’s use of Facebook and eliminating those bottlenecks, Makavy is one of the highest ranking Israelis at Facebook. He also heads Facebook’s involvement with Internet.org, a project aimed at expanding Internet access to places around the world where there is none. The ambitious effort is said to be close to Facebook founder and CEO Mark Zuckerberg’s heart.
It was Facebook’s growth team that lobbied to buy Onavo and establish the development center in Israel. But putting together the pieces of the picture to understand what motivated Facebook to leave Onavo in Israel requires a look back to the time before Snaptu was acquired.
“When we started Snaptu we tried to find a better way to develop applications for cellular telephones,” Makavy explains. “All the phones then were feature phones [as opposed to smartphones], but just over a year later the iPhone came out, and we understood that the model in developed countries had changed and we wouldn’t be part of the game. We decided to become a solution for everyone who didn’t have an iPhone.”
One of Snaptu’s products was an application that could be run on a simple feature phone. Snaptu tried and failed to court Facebook, but after some time the American company was back at its own initiative. “Facebook tried to understand how they could grow in India,” Makavy recalls. “We were already big there − and in Indonesia. We contacted [Facebook] and they ignored us. They didn’t answer our emails − until they went to India, where they heard about us from everyone and began replying to us.”
Facebook realized that the user experience on cheap cellular phones was awful, says Makavy. Facebook could measure which app was the best, which generated the most status updates and which had the highest user retention rate. “We didn’t know it at the time, but we later discovered that our app did the best,” he says.
Since Snaptu was acquired, Makavy has worked on several projects for Facebook while also managing the Snaptu team, which has eight people. The team hasn’t grown since it was acquired, but the number of Snaptu’s users has risen three-fold to 100 million users as of last July. All the while, mobile users have been growing in importance to Facebook, with 75% of the social network’s users connecting via their cellphones. In its fourth-quarter 2013 results, Facebook said that 53% of its revenues were from mobile advertising.
Of the 10 Snaptu employees who still work at Facebook, about half have moved to other parts of the company. “In general, a Facebook employee who does good work for a year or two can move to any position he wants,” says Makavy. “You can go to the building next door, talk with a couple of friends and decide ‘I want to work on Instagram.’ They’ll tell you, ‘Go for it.’ Then you go to your boss, say thank you and you can move.”
Last August, Zuckerberg unveiled his vision of bringing Internet service to the unconnected masses of the world with cheap smartphones. To this end, he launched Internet.org along with telecommunications hardware, software and service providers Ericsson, MediaTek, Nokia, Opera, Qualcomm and Samsung. According to Makavy, instead of focusing on what prevents people from using Facebook, the social media company is concentrating on what prevents people from using the Internet.
The effort, known as the Alliance for Affordable Internet, includes three elements: Facebook is cooperating with cellular operators to address infrastructure bottlenecks, working to improve the efficiency of telecommunications networks, and creating new business models that will lower prices for Internet data packages.
“Cheap Android phones are beginning to replace simple cellphones,” says Makavy. “In practice, people who buy these phones have the exact same problems they had with simple cellphones: The user experience isn’t good and they don’t have enough money to buy Internet bandwidth packages.”
Makavy says a team at Facebook is working on solutions, including reducing the amount of data that apps need to download, which would enable them to operate at a faster speed. However, the team’s main focus is reducing the cost of web-surfing on mobile phones. To that end it is working with cellular service providers to create Internet data-use packages specifically for Android phones.
Facebook’s R&D center in Israel is slated to work on the Internet.org project and further developing Onavo’s product line. Onavo’s cloud-data compression technology will help reduce costs. “Originally, the goal was to solve the problem of the cost of web surfing not for the poor Indian, but for Americans traveling through Europe,” says Makavy. “But in practice, the same knowhow and technology can be put to use in emerging markets where people are now buying cheap Android phones.”
Facebook believes that there are billions of people who would use the Internet if it cost less to access. “We can provide a better than decent user experience on an Android phone that costs less than $10 a month,” says Makavy. “But still, it seems like it will be a long time before Internet data use packages will be cheap enough.”