from the June 2012 issue

Facebook set to buy for $80-100m

Facebook is expected to acquire the Tel Aviv based face recognition technology developer. Facebook Inc. (Nasdaq: FB) is set to acquire Israeli face recognition technology developer, reportedly for $80-100 million, within days, after months of rumors about a deal. The two companies have collaborated for a long time, with Facebook using's technology to help users tag the faces of friends in pictures they upload on the social network with's Photo Tagger service.

Previous reports of negotiations between the companies never materialized into a deal, but following Facebook's IPO and the capital raised, the companies are apparently close to a deal. Russian business paper "Vedomosti" reported that's shareholder, Russian search engine Yandex, is in talks to sell its stake in the company to Facebook for cash and Facebook shares. Yandex invested $4.3 million in in September 2011, together with Daniel Recanati's Rhodium Ventures for an 18.4% stake. Yandex CEO Arkady Volozh joined's board as part of the investment. Other investors include Yaniv Golan, Yariv Gilat, and co-founder Eden Shochat. The Tel Aviv based company has raised $5.8 million altogether since it was founded in 2007. Market sources say that if a deal is struck,'s investors will make a handsome return on their investment. co-founder and CEO Gil Hirsch declined to comment on the reports, saying, "There is nothing new to announce right now."

Industry sources also declined to respond to queries about the deal, but said that they were familiar with the details, suggesting that there are serious behind-the-scenes talks. Hirsch, CTO Yaniv Taigman, chairman Moti Shniberg, and director Eden Shochat founded the company in 2007. Its early years were devoted to developing and upgrading its face recognition software, which is based on API (application programming interface) open code. The company charges licensing fees for use of its technology.

In January 2012, slightly changed direction with the soft launch of its first independently developed application. The iPhone KLIK app automatically tags faces via smartphone to identify friends from the user's Facebook profile. The app, which garnered widespread media coverage earlier this month following the public launch of its new version, has already had more than 100,000 downloads. is planning a similar Android app, as part of its mobile-based strategy. This strategy also interests Facebook, which has been trying in recent months to focus on mobile apps, as more than half of Facebook users access it via their smartphones.

In its prospectus, Facebook said that the mobile sector is its weak point; until March it had no mobile advertising applications capability. It has since hit the accelerator, acquiring several mobile app companies, including Instagam for $1 billion.

Many eyebrows were raised over the acquisition of Instagam, which enables friends on internal social networks to share pictures, alongside artistic filters for pictures taken via the application. More astonishment followed Facebook's decision last week to launch its own photo app, which does exactly the same thing as Instagam's app operating filters on photographs.

Industry sources believe that Facebook's acquisition of will enable the social network to embed face recognition software into its photo app. It will also be able to use the technology for other purposes in the future and maybe even monetize technology assets in ways that the Israeli company has not been able to do. is the second Israeli acquisition
If Facebook acquires, it will be Facbook's second acquisition in Israel, following the acquisition of Snaptu for $70 million in March 2011. Snaptu's app provides ordinary mobile phones (not smartphones) easy access to social networks, such as Facebook and Twitter.

Reprinted from the Israel High-Tech & Investment Report June 2012

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