As former CEO of Express, David Kornberg was constantly on the lookout for retail technology innovations. An annual trip to Silicon Valley with the retailer’s technology leaders was always on the agenda. The United Kingdom was another place he looked for tech innovation. Israel? Kornberg wanted to deepen the connections there, too — for good reason.
“I’ve always known about the advances in technology in Israel,” Kornberg says. “Some of the technology coming out of Israel absolutely is on par with Silicon Valley.”
Re:Tech, an Israeli innovation hub, often serves as matchmaker between Israeli tech startups and retailers in North America, Europe and Asia.
“Re:Tech is really bringing the best of Israeli tech to retail,” Kornberg says. “I wanted to add Israel to the list of countries we were working with because I knew there were great things coming out of there.”
Israel now has at least 500 startups specializing in retail; most are centered in Tel Aviv. Amazon, Alibaba Group and eBay have launched research and development centers in the country. U.K. ecommerce retailer ASOS partnered with Re:Tech last summer for a two-day event that connected the company with startups focused on solving key challenges for online retailers.
Re:Tech plays an important role in the overall retail technology ecosystem, says Lihi Pinto Fryman, chief marketing officer for Syte, a visual artificial intelligence system that allows users to snap a photo and instantly find those products or similar items.
“I would divide it into two impacts and two roles,” she says. “They create awareness of the fact that retail tech in Israel is a hypergrowth sector in itself. In Tel Aviv, it’s all about high tech. Within that, retail tech is becoming stronger and is one of the fastest growing areas of tech. The other thing is, they bring retailers to Israel.”
LEARNING FROM FAILURES
To understand how remarkable the Israeli retail tech startup culture is, consider that ecommerce is virtually unheard of with retailers based there. Amazon hasn’t yet launched its activity in the country.
Yet within the nation of 8.5 million are some 6,000 tech startups. That is one startup for every 1,400 people — putting Israel as the second most dense startup population in the world. It also holds the fifth-highest number of patents per person, following Japan, Sweden, Switzerland and South Korea.
A number of well-known companies can trace at least part of their roots to Israel, including SanDisk, Fiverr, Wix and Waze. Israeli companies have been popular acquisition targets, too: Last year, GrubHub purchased Tapingo, a mobile commerce application that offers advance ordering for pickup and food delivery services for college campuses. Nike purchased Invertex, a computer vision firm. Alibaba added VisualLead, a software company focused on the research, development and enablement of internet of things technologies.
Investment is up as well. In 2018, 32 Israeli retail tech startups raised a total of $428 million, according to Re:Tech.
It’s not something in the water, but rather something deeply embedded in the culture. Yael Kochman, partner and CEO at Re:Tech, points to Israel as a very young nation, founded in 1948. “We are a startup nation,” Kochman says. “Everything we’re raised to do as children is build and explore. It’s a country that encourages you to learn from your failures. Even our education system encourages you to try things. You get credit for trying, not only from achieving.”
Alla Foht, Re:Tech’s partner and chief innovation officer, points to the required military service for most young Israelis. The Israeli Defense Forces give young Israelis access to high-tech tools, allowing them to be comfortable with technology as well as experience failures and acquire leadership skills.
Foht served in the Israeli Air Force, where every flight — operational or training — included extensive debriefings from ground forces, pilots and commanders. “We would talk about what was good, what was bad,” she says. “It was to get kudos for the good and to understand the bad, to improve next time. It was very unjudgmental. This is very typical to the Israeli state of mind.”
Foht has paid that insight forward, counseling a friend whose startup had closed to “consider it a tuition. Everything he has learned is priceless. It’s tuition for the next position or the next startup.”
Advice and experience are one thing to entrepreneurs. But Re:Tech also is in the matchmaking business, hosting events to help retailers and retail tech startups meet when the startup is ready. “We help throughout the innovation process,” Foht says, “from building the strategy to how to work with brands.”
The fast-moving culture of startups and retail’s glacial pace often can cause challenges. Foht and Kochman try to bridge that by helping retailers “move things faster,” Foht says. “From the other end, we spend a lot of time with startups. A lot of times, we’re talking with very young and passionate people, and try to help them understand more of the corporate way of doing things.”
Some of the companies Re:Tech has worked with could no longer fairly be described as startups: Personalization and decision logic technology firm Dynamic Yield was acquired by McDonald’s earlier this year in a deal reportedly worth $300 million.
Others have well-developed products that are ready for deployment — if not in use already — with hundreds of employees.
But one thing is common among all the retail tech clients. Despite their country’s nascent ecommerce and chain culture, they are solving some of the biggest issues facing retail today. And it starts by taking advantage of what some might term as hindrance.
“One of the reasons why Israeli startups are so successful selling abroad: Our home market is almost never an option,” Pinto Fryman says. “From day one, we need to think globally.”
Re:Tech identifies artificial intelligence as a key retail technology trend coming out of Israel, and Syte is right in the midst of it. Pinto Fryman, her husband and brother started the company four years ago with co-founder and Chief Technical Officer Helge Voss. Voss brings experience from academia and research experience from the European Organization for Nuclear Research, one of the world’s largest and most respected centers for scientific research.
With five years in development — operating in stealth mode until 18 months ago — Syte already has lined up customers including Tommy Hilfiger and Kohl’s. Companies that implement Syte’s visual camera often see uplifts of 2-3 percent, Pinto Fryman says.
Spending more than three years focused solely on development allowed AI to improve — and for Syte to be driving some of those improvements. “People were starting to talk about AI, but the solutions then were not ready to go to retailers and create an impact,” Pinto Fryman says. “We wanted to make sure we would have the groundbreaking technology that would make every image shoppable.”
The partnership with Voss was crucial. An expert in machine learning for more than two decades, he became a key link in helping to “build a bridge between machine learning and physics and fashion and home décor.”
As it became clear that Syte would succeed in building that bridge, the company’s sales team began talking to people at conferences.
“No one knew what we were talking about,” Pinto Fryman says of those days three years ago. “They would give us looks of, ‘Will this work?’ Today, when we go to conventions, there is not even a single CIO or CTO who doesn’t have visual AI in their wheelhouse.”
A number of facets underpin Syte; it can work with physical locations and smart mirrors as well as online. “The idea is to find that moment of inspiration and connect it with the visual catalog, without the need to explain,” Pinto Fryman says. “It can allow you to shop the look, complete the look or find your inspiration. It can begin with a camera, a smart mirror or any number of solutions. The idea is always the same: When a millennial wants something, the retailer is there to give it to them at the moment of inspiration.”
And that family business? With more than 60 employees — and about four new hires every week — maintaining that feel can be a challenge. But recruiting young people who aren’t afraid to fail helps.
“It’s not something you can learn, this notion that it’s good to fail because it gets you closer to success,” Pinto Fryman says. “The only thing that is important when you fail is to get up again very, very quickly. I say to everyone in the company: ‘If we don’t fail once a day, it means we haven’t been trying hard enough.’”
A TOUCH OF SECURITY
Israel’s tech sector has long been praised for its work with tech security. Namogoo brings a bit of that into solving a retail problem most executives don’t even know exists. Customer journey hijacking involves unauthorized ads — that often feature products from direct competitors — being injected into the customer’s browser while visiting an ecommerce site. The tools that allow this hijacking to occur often are downloaded by the consumer — perhaps unknowingly.
Because the hijacking occurs on the user’s device, the company isn’t even aware that it’s happening.
Namogoo’s data shows that between 15 and 25 percent of all user web sessions include unauthorized ads. Not surprisingly, these may spike to 30 percent during peak shopping seasons.
Chemi Katz, co-founder and CEO of Namogoo, points to the obvious issue: “Ecommerce retailers are spending so much time creating a customer experience — and one-fourth of customers don’t get to experience it as you intended.”
Founded in 2014, Namogoo has 100 employees, with offices in Boston and London in addition to Tel Aviv. It’s growing about 300 percent year over year, says Katz, a serial entrepreneur with a string of successes behind him.
Because most ecommerce executives have no idea these ads are appearing, Namogoo has a pretty easy sales pitch. It allows customers to either do an A/B test or to deploy Namogoo on 97 percent of the site, allowing for a 3 percent monitoring group. Katz says companies that deploy the software see a conversion rate uplift of 2-5 percent.
ASICS found that nearly 12 percent of its online shoppers were visiting its sites with an infected browser. With the hijacking stopped, the company saw a 14 percent increase in average conversion rates from those infected shoppers. GlassesUSA found that almost 15 percent of its shoppers were using infected browsers. With the unauthorized ads blocked, the company saw an 8 percent increase in revenue per visitor.
Katz sees Israel’s weak ecommerce sites as a reason for tech innovation. “We experience these issues ourselves,” he says. “One of Israel’s biggest resources is its engineering capabilities. We like to solve problems, and today you can solve almost anything using data. In the past, the Israeli ecosystem was focused on a wide range of problems, but I am recently seeing more and more focus on using data to solve complicated retail challenges. This is the same case here at Namogoo. Our solution is based on data gathered from analyzing over 500 million web sessions every week, enabling us to help online retailers provide their customers the intended user experience free of disruptions.”
Embracing failure may be part of the Israeli mindset — but stopping it for retailers and companies has helped push the country’s tech sector ahead.
Sandy Smith grew up working in her family’s grocery store, where the only handheld was a pricemarker with labels.