During the 1990s and early 2000s, Israelis were considered gurus in technology, research, and innovation. While the dot-com boom infused the offices of San Francisco with color, creativity, hope, and foosball tables, Israelis were hard at work in a fairly strict environment creating and developing digital infrastructure, inventing new approaches to network security, and leading the field in hardware-oriented projects.

There was a myth that Israelis were not very good at creating consumer-facing products. Notwithstanding their creation of ICQ, Israelis were known as engineers and researchers who did well within the confines of a lab but not so well when reaching out to end consumers. Over the last couple of years, though, the high-tech industry in Israel has gone through dramatic changes.

Previously, many Israeli startups had hired or outsourced their marketing efforts to the US or Europe, while keeping the R&D departments in Israel. However following the dot-com bust of 2000, and given the recent economic downturn, companies in Israel can no longer rely on off-shore offices and expensive staff. Moreover, more and more local companies are feeling confident and even excelling in handling their own marketing, sales, business development, media outreach, and content.

The stars of the Israeli tech scene were once companies like Comverse and Amdocs. Now, we're seeing an influx of great Web 2.0 media and social startups, such as:

  • FoxyTunes, the Firefox plugin that allows users to control iTunes directly from their browser, and which was acquired by Yahoo for a reported $30 million;
  • MyHeritage , the world's largest family network, which has already documented over 330 million family members and is reportedly bringing in some of the highest revenue of any Israeli Web startup;
  • Kaltura, an open-source platform for the creation and consumption of rich-media Web applications, whose clients include Wikipedia, Universal Studios, Coca-Cola, and Pepsi.

So, what's in store for Israel's startup world?

Israel succeeds by blending the old with the new. The country will continue to exploit its innate talent for research and development and continue to make inroads with social media applications, all the while sticking to intensive, customer-driven products.

A few Israeli newborns to keep your eyes on:

  • SimilarWeb, an intelligent add-on that sits in your browser and provides easy access to websites with similar content;
  • Boxee, a cross-platform freeware media center with social networking features and a 10-foot user interface design for the living-room TV;
  • CamSpace, a new interface for computer games that uses innovative computer vision technology that allows everyone with a webcam to play games Wii-style;
  • Vetrina's, a virtual window-shopping platform that transforms the online shopping experience.

The glue holding this generation of Israeli startups together is that while the companies are now all consumer- and media-related, they have a more technological edge than can be found in companies elsewhere. You can take the engineers out of the lab, but you can't take the lab out of the engineers.

Guest author Ayelet Noff is one of Israel's most renowned bloggers. She is also the founder and CEO of Blonde 2.0, a full consultancy firm whose mission is to help brands understand how to use social media tools (social networks, the blogosphere, and social software) effectively in order to carry their messages across the globe.