Start-up Nation

“we’re making the biggest jump in innovation since the router was first introduced twenty years ago.” He was speaking into a cordless microphone at a 2004 Cisco conference.¹ Though he was in a business suit, the fifty-four-year-old chief executive of Cisco—which during the tech boom had a market value higher than General Electric’s—looked like he might break into a dance routine.

After properly building the drama, Chambers walked over to a large closetlike enclosure and opened the doors to reveal three complicated-looking boxes, each about the size and shape of a refrigerator. It was the CRS-1, in all its glory.

Most people do not know what a router is, and so might have trouble relating to Chambers’s excitement. A router is something like the old modems we used to use to connect our computers to the Internet. If the Internet is like a mighty river of information that all of our computers connect into, then routers are at all the junctions of the tributaries that feed in, and are the main bottleneck that determines the capacity of the Internet as a whole.

Only a few companies can build the highest-end routers, and Cisco—like Microsoft for operating systems, Intel for chips, and Google for Internet searches—dominates this market. Upon its unveiling, the CRS-1, which took four years and $500 million to develop, earned a place in the current volume of Guinness World Records as the fastest router in the world. “We liked this entry, because the numbers are so huge,” said David Hawksett, science and technology editor at Guinness World Records. “I just installed a wireless network at home and was quite pleased with 54 megabits per second of throughput, but 92 terabits is just incredible.”²

The tera in terabit means “trillion,” so one terabit is a million megabits. According to Cisco, the CRS-1 has the capacity to download the entire printed collection of the U.S. Library of Congress in 4.6 seconds. Doing this with a dial-up modem would take about eighty-two years.

A chief proponent of the CRS-1 was an Israeli named Michael Laor. After earning an engineering degree at Ben-Gurion University in Beersheba, Israel, Laor went to work for Cisco in California for eleven years, where he became director of engineering and architecture. In 1997, he decided he wanted to return to Israel, and Cisco, rather than lose one of its leading engineers, agreed that he would open an R&D center for the company in Israel—its first outside the United States.

At around this time, Laor started to argue for the need for a massive router like the CRS-1. Back then the Internet was still quite young and the idea that there might be a market for a router this big seemed far-fetched. “People thought we were a little nuts to be developing this product four years ago,” Cisco’s Tony Bates said at the time. “They said, ‘You’re biting off more than you can chew,’ and they asked, ‘Who is going to need all that capacity?’ ”³

Laor argued that, to paraphrase the movie Field of Dreams, if Cisco built it, the Internet would come. It was hard to see back then that the Internet, which was just starting off with e-mail and the first Web sites, would in a few years balloon exponentially with an insatiable need to move the massive data flows produced by pictures, videos, and games.

Though the CRS-1 was the company’s biggest ever and thus a company-wide project, Laor’s team in Israel was pivotal in designing both the chips and the architecture needed to bring the technology to a new level. In the end, when Chambers unveiled the CRS-1 at the 2004 conference, he was right to be enthusiastic. Fully configured, the routers sold for about $2 million each. Yet by the end of 2004, the company had sold the first six machines. And in April 2008, the company announced that CRS-1 sales had doubled in less than nine months.⁴

By 2008, the center opened by Laor a decade earlier had seven hundred employees. It had swelled quickly with Cisco’s acquisition of nine Israeli start-ups, more companies than Cisco had bought anywhere else in the world. In addition, Cisco’s investment arm made another $150 million in direct investments in other Israeli start-ups, and also put $45 million into Israel-focused venture capital funds. All told, Cisco has spent about $1.2 billion to buy and invest in Israeli companies.⁵

Yoav Samet, a graduate of the IDF’s elite 8200 intelligence technology unit who now runs Cisco’s acquisitions department for Israel, the former Soviet Union, and central Europe, says that Cisco Israel is among the company’s largest overseas centers, along with those in India and China. “But,” he notes, “whereas in China and in India there is quite a bit of engineering work done, when it comes to pure innovation and acquisition activity, Israel is still holding the front line.”⁶

It is unlikely that Cisco would have become so deeply invested in Israel, and that its Israeli team would have almost immediately become central to the company’s core business, if Michael Laor had not decided it was time to come home. As with Dov Frohman of Intel and many others, Laor’s decision to gain knowledge and experience in the United States or elsewhere ultimately redounded to the benefit of both the multinational company he worked for and the Israeli economy.

While many countries, including Israel, bemoan the fact that some of their brightest academics and entrepreneurs go abroad, people like Michael Laor show that the “brain drain” is not a one-way street. In fact, international-migration researchers