This is something that i’ve been thinking of since the Database project and especially after speaking with some of the CEO’s of Israeli Open Source companies about a year and a half ago.
There are very few Israeli open source companies that have a product. Most provide consulting services in various areas. The numbers i’ve got are dated and are only a random sample of companies i’ve come across. However, the number of a random sample of Open Source companies worldwide, that have a product, compared to Israeli companies with their own product (by percentage) is alarming.
Out of 16 Israeli Open Source companies only 2 have a product, while, out of 65 Open Source companies worldwide (list of companies taken from the database project) , only 8 don’t have a product. 12% of the Open Source companies worldwide, that this small, dated, quasi-research checked, do not have a product compared with 87.5% Israeli Open Source companies that do not have a product (or only 12.5% Israeli Open Source companies have a product).
Most Israeli Open Source companies provide consultancy services, the problem is that without their own product they have a problem to scale up and become competitive world-wide. They are usually a one to five, max ten men/women show. They need a lot of funding to able to train new talented employees. And, while training takes time, once their employees are fully trained and experienced, they can easily open their own consultancy or join a different consultancy in the same area of expertise.
While large and famous consultancies have historically, developed their own processes of doing things, which differentiates them from their competitors (Bain for example, has a reputation for being result driven) Israeli Open Source companies are usually depended on the exceptional skills and reputation of their founder, and therefore are hardly able to scale up* (there is a limit to the amount of work one person is able to do).
One possible reason for this situation is funding. Israeli VC’s have only recently began considering investment’s in Open Source companies, and there aren’t that many, Israeli Open Source companies to be investing in.
There may also be a culture problem between VC’s and Open Source entrepreneurs. Each operates with a different set of values and priorities which are in many instances conflicting.
Open Source is about “reuse” of technology already out there and its also about organic growth. Open Source companies usually involve many stakeholders, such as community of users, customers and employees (which are in some instances prominent figures within the community) this involves a more democratized process then the one usually required from a start-up company. However seems that at-least this last attribute of open source companies will/is becoming part of many non-open-source companies attributes.
On the other hand, government funding programmes involve a licensing policy that conflicts with Open Source companies licensing programmes.
Seems that government funding at Israel has not yet discovered Open Source and the considerable economic benefits associated with FOSS.
For more figures about the economic benefits associated with FOSS refer to the EU Study “Economic impact of Open Source software on innovation and the competitiveness of the Information and Communication technologies ICT sector in the EU”, published on Nov 20, 2006 were Open Source is considered a power of growth for the EU countries.
Possible growing venues include, merging three to four, Israeli Open Source companies and creating one or two, medium size companies that provide a full solution to their customers.
And as for the future, it may be the right time to start considering the option of creating a fund that would not only provide seed money but also operate as an incubator environment for Open Source entrepreneurs that’s sensitive to their unique needs. This may allow Israel, in the future, to enjoy the many economic and social benefits of growth associated with FOSS activity.
*The exception being IT, were you provide a 24/7 service which requires a small group of experts and a large group of employees who are semi-experts. However such Israeli companies would only be able to provide services to their local market, and with Israel being a small market, thier ability to scale would be restricted.
Techbowl 
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