Microsoft, Amazon Eyeing Israeli Cyber-security Firms as Potential R&D Centers

Move would cement Israel’s reputation as global hub for information security, and could be the first of many buys in the field.

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In closed-door meetings, senior officials at Microsoft have recently expressed their intention to buy at least one large Israeli cyber-security firm as a major investment, TheMarker has learned. Also, Internet retailing giant Amazon has put out feelers about buying one too.

Officials for the U.S. high-tech giant have been said to refer, in their private talks, to a 2013 deal in which IBM bought the Israeli information security firm Trusteer for $650 million and opened a special research and development center here, a model Microsoft is now apparently seeking to emulate. The acquisition or acquisitions that Microsoft is expressing interest in would provide a foundation for a new cyber-security R&D center for the company here. It would also give the company the capacity to create a critical mass of employees to work at the center. When contacted regarding its plans, Microsoft declined to comment.

In October, Amazon announced plans to establish marketing and customer support offices in Israel. In addition, several months ago the company conducted a round of discussions with a number of relatively new cyber-security firms here, with the apparent intention of making an acquisition in Israel and use it as a base for an R&D center here. The firms contacted by Amazon are involved in the field of information security particularly related to cloud computing – the technology through which data is stored remotely rather than on the user’s own computers. No response was forthcoming from Amazon as of press time.

Sources involved in the field believe that other companies are seeking to take similar steps in Israel, including FireEye, Palo Alto Networks and CA Technologies, which is apparently considering expanding its already existing presence here. “Cisco, CA, Trend Micro, Huawei – we’re seeing all of them coming here hunting,” said an official from one of the cyber-security firms founded in Israel in recent years.

An expansion of the number of research and development centers of this kind would complement those already here in Israel, including General Motors, General Electric, Cisco, VMWare, Deutsche Telekom and Lockheed Martin. Those firms followed on from other multinationals that were here even before that – companies such as RSA, CA Technologies, PayPal and McAfee.

According to the Jerusalem Venture Partners venture capital firm, over the past five years $2.3 billion has been spent on the acquisition of Israeli cyber-security firms, by 18 multinationals. Last August came the news of IBM’s purchase of Trusteer, a company founded in 2006. It was IBM’s largest acquisition here to date.

After IBM snapped up Trusteer, it announced the establishment of a new cyber-security laboratory in Israel, slated to have a staff of more than 200 developers from Trusteer and IBM itself. The acquisition of Trusteer could make a substantial contribution to solidify Israel’s position as a global information-security center, Trusteer CEO Mickey Boodaei predicted, following IBM’s purchase of his company.

In October, Microsoft appointed Michal Blumenstyk, who came to the company from RSA’s Israeli operations, as a senior director of its global operations. She had served as CEO of Cyota, where she replaced Naftali Bennett (now Israel’s economy minister), after the startup was acquired by RSA. Among her current responsibilities is finding companies that would be an appropriate base for Microsoft’s Israeli operations.

In announcing Blumenstyk’s appointment, IBM noted her expertise in the cyber-security field and that she would be involved in leading the company’s activities in the field of cloud computing in Israel and abroad.

Of the 11 purchases that Microsoft has made of Israeli companies, only one major acquisition has been in the information-security field: Whale Communications, for about $80 million in 2006. The following year, Microsoft bought Secured Dimensions for about $10 million. The multinational’s research and development center in Israel employs a staff of about 600, but only a handful are involved in information security and cyber security.

Microsoft's R&D center in Herzliya.Credit: Tomer Appelbaum
A package leaving the Amazon website packing line.Credit: Bloomberg via Getty Images

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