Brian Blum
August 22, 2011, Updated September 11, 2012

Onavo crunches your data so you can download more for less, no matter where you’re using your cellular phone.

Onavo co-founder Guy Rosen

Onavo co-founder Guy Rosen.

The story goes that a little old lady from Pasadena went traveling in Europe. She used her cell phone and, upon her return, was walloped with a $60,000 bill for roaming charges.

While the tale is most probably tall, the reality for many travelers using their phones overseas is that bills of up to $1,000 or more are not out of the norm – even more so now that smart phones allow users to download email, get driving directions and freely interact with the wireless web.

That was the exactly the problem that Guy Rosen encountered on a trip to Barcelona in February last year to attend the Mobile World Congress. An executive at the once hotshot, but now defunct, Israeli startup Modu, the frustrated Rosen was determined to find a way to reduce cellular roaming charges. He teamed up with fellow Modu-ite Roi Tiger and founded Onavo, which has built compression technology claimed to reduce the amount of data being downloaded into a phone by up to 75 percent.

The Onavo app, which launched at the end of April and is available for iPhone versions 3G and up, apparently works so well that the influential blog TechCrunch called it “a must-have app for any and every iPhone user on a data plan.”

Investors agree. The company raised $3 million from Magma Venture Partners and Sequoia Capital in May.

Supports more than 260 providers in 95 countries

Onavo is not one of those simple iPhone apps that a couple of guys built in their bedrooms over a long weekend. The app has some pretty complex back-end technology to redirect (with the user’s permission, of course) data traffic from the websites and online services before they reach the phone. The data is then compressed on the Onavo servers before being sent on its way.

The procedure is seamless, doesn’t slow down your phone, and is roughly akin to connecting via WiFi to your local coffee shop’s network. Behind the scenes, Onavo installs a “proxy” on your device with the right settings for your specific wireless provider. The company supports more than 260 providers in some 95 countries, with more on board every day.

Onavo co-founder Roi Tiger

Onavo co-founder Roi Tiger.

“From the user’s perspective, nothing has changed,” explains Dvir Reznik, Onavo’s VP of marketing. “Once you’ve installed it, it’s all ‘tap and forget.'” And if, for some reason, Onavo’s servers (which are hosted on Amazon’s cloud storage service) go down, your phone’s traffic will continue as always, albeit temporarily without the money-saving compression.

There are a few quirks still in the system. Onavo doesn’t compress streaming data, so if you stream a video to your phone or listen to Pandora or Last FM, for example, you’ll still be charged full data rates. Also, it only compresses downloads, not emails. Reznik says they’re working on both.

No more unlimited data plans

While Onavo is targeting the roaming market first, the service applies to data downloads in one’s home country, too. “We started by focusing on roaming because that’s where Israelis feel the most frustration,” Reznik says. A recent OECD report found that Israelis pay $15.15 per megabyte for cellular data while roaming, well above the global average of only $9.48.

Data plans within Israel, however, are quite generous – up to five gigabytes per month. That’s not necessarily the case across the pond, where smart phone owners in North America receive an average of only a few hundred megabytes of download per month, says Reznik, who points out that the days of unlimited data plans are, sadly, long gone. Therefore, Onavo’s service in these markets can be just as valuable whether roaming or not.

One might think that mobile providers would be fighting any widespread adoption of Onavo. On the contrary, says Reznik.

“Operators are dealing with a massive amount of data. If everyone on a commuter train started watching YouTube videos at once, that train will experience some serious connectivity issues.”

And once users get the inevitable massive bill, the next time they hit the road, they’ll either turn off the data plan entirely or buy a local SIM card.

“That’s the last thing an operator wants,” Reznik explains. “If once text messages were the big cash cow for operators, now it is data. It’s where they receive most of their revenue.”

Built-in Onavo?

Onavo is currently negotiating with providers, app developers and even phone manufacturers. Reznik wouldn’t disclose exactly how such a deal would work, but intimated that releasing a device with Onavo built in would be a win-win for everyone.

Operators love Onavo for another reason. The app actually consists of two components: the data compression, which has received most of the buzz, and a separate reporting tool that gives users the ability to see which apps consume the most data for specific time periods.

That was previously unavailable for the entire Apple platform, including both iPhone and iPad, which Onavo also supports, Reznik notes.

The reporting tool allows operators to “educate” users to avoid those data bottlenecks. If users know that downloading albums from iTunes is data-intensive, hence expensive, for example, they might delay that action until they get home and the phone switches to their home WiFi network. Already, Apple will instruct users to wait until they get to a WiFi connection if a download is larger than 20 MB.

There are other advantages this Israeli innovation brings: when less data need to be downloaded, reception improves – important for big cities like New York that suffer from notoriously poor connectivity. There may even be a benefit in terms of radiation reduction, since most radiation occurs when the phone is trying extra hard to make a connection to a cellular tower. Reduce the amount of data and the phone can chill a bit more.

Wide-open opportunities

While it’s possible that Apple could bake its own Onavo-like technology into a future version of the iPhone, Reznik suggests it wouldn’t be in the company’s best interests to “tell an operator that they’ll now be earning less money.”

What will Onavo do with its $3 million investment? First, build a similar app for Google’s Android platform. Reznik says the company could have a beta version for Android within the next couple of months. The company will hire a dedicated VP of sales to work with cellular carriers, and an American office may open in 2012.

The Onavo app is currently free, but that won’t last forever. Reznik says that, although the reporting tool will probably always be available at no cost, the compression piece will be subscription-based.

“We’re still brainstorming on the plans and rates,” he says.

Either way, the business proposition is that you’ll save more in inflated roaming charges than you’ll spend on the subscription plan. And with hundreds of thousands of downloads in just the first two months since the iPhone app’s launch, the data may be compressed, but Onavo’s opportunities are wide open.

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