AOL buys Israeli Net startup for $287 million to get software

JERUSALEM — The world's leading online service has turned three young Israeli software programmers and a venture capitalist into multimillionaires.

In the biggest-ever foreign acquisition of an Israeli software company, America Online announced this week that it would purchase Mirabilis, a small Israeli company that develops technology for the Internet, for $287 million in cash. According to the deal, Mirabilis could earn another $120 million after 2001.

Mirabilis is the manufacturer of ICQ — "I Seek You" — which allows users to chat or exchange files with friends all over the world. The program has become immensely popular on the Internet because it instantly notifies users when a friend comes online.

Yossi Vardi, a venture capitalist and the current chairman of Mirabilis, and the three programmers — who are ages 24 to 27 — founded the company with an investment of $3.2 million nearly two years ago. As a result of the sale, each of the four principle founders will receive approximately $60 million of the $287 million price.

Today, Mirabilis has 70 employees but no revenues since the program is distributed free on the Internet. But Steve Case, AOL chairman and chief executive, said ICQ has "one of the fastest growing and most loyal communities in cyberspace."

Indeed, Israeli technology analysts said AOL made the acquisition because it was able to "buy" millions of ICQ users, enabling AOL to use ICQ Web sites as a springboard for selling advertisements and offering new services.

According to Vardi, ICQ has been downloaded by nearly 13 million people since its launch in November 1996 — even though the company has not spent any money on advertising or public relations.

Vardi said the company never tried to generate revenues, and instead focused on increasing the number of ICQ users.

He said ICQ's successful penetration of cyberspace can be attributed to an "unconventional" distribution strategy he calls "word-of-mouse."