"Artificial intelligence still at the hype stage"

William Wagner Photo: Tamar Matsafi

LogMeIn got more than it thought it was getting when it acquired Israeli company Nanorep.

"The Economist" last week referred to artificial intelligence as the high-tech industry's next big hit. According to the PitchBook information company, investments in artificial intelligence (AI) rose from $5.4 billion in 2016 to $7.6 billion in the first 11 months of 2017. Mergers and acquisitions in the sector totaled $21.3 billion in the first 11 months, 26 times as much as in 2015. An analysis of the investors' talks shows that the term "artificial intelligence is sometimes more frequently heard than another term that has already been a big hit for several years - big data.

"The days when artificial intelligence was considered something unique are vanishing," says LogMeIn CEO William Wagner, who visited Israel last week. "Artificial intelligence is going to be a part of every type of business product you buy. Right now we're still at the hype stage, in which we think of it as something that stands on its own, but within two years, people will stop talking about artificial intelligence. It will simply be merged into the applications."

Wagner was in Israel in order to visit Nanorep, a Herzliya-based startup acquired by LogMeIn five months ago for $45 million, plus $5 million for employees staying with the company for the next two years. Nanorep is managed by CEO Eli Campo, former senior VP and general manager of Shopping.com, sold to eBay, and of LivePerson, a Nasdaq-listed company. Nanorep has developed a chat bot based on artificial intelligence used for customer service at a number of large companies in Israel and overseas, including Bank Leumi (TASE: LUMI), Israel Discount Bank (TASE: DSCT), Ikea, Fedex, MTV, Vodafone, and Toys R Us.

Following the exit, Nanorep is expected to double its current 50 employees within two years, and has already rented additional space in the building in which it works. "What is interesting is that when we began talking with Eli Campo two years ago, we thought about Nanorep and artificial intelligence as something that we could put into our products as a plug-in," Wagner says. "Today, we think differently about it: artificial intelligence is the core of our product, and Nanorep is therefore, through acquisition, our spearhead. What is leading our strategy right now is artificial intelligence-based customer service; within two years, we have completely changed our approach. We once thought about Israel as the development center of Nanorep. Now, it's our artificial intelligence center, which will work in combination with our development teams in other places around the world."

Wagner makes it clear that the company is still active in the acquisitions market, "because we still have parts missing," but declines to say whether there is anything on the agenda in Israel. "There's nothing concrete that I'm willing to share, and that could be in Israel or in other places. My point is that because we have $1 billion a year in revenue, a $6 billion market cap, and no debt, we're considering a strategy of acquisitions."

"Globes": Did you meet with companies here?

Wagner: "I have meetings with companies all the time; we're active in mergers and acquisitions. That's all I'm willing to say. It won't be my last time in Israel."

75% machine, 25% human

LogMeIn, whose Nasdaq market cap is $6.2 billion, is in the midst of aggressive expansion. Last July, the company announced a merger with Citrix's GoTo products - a measure that boosted its sales from $330 million in 2016 to $1 billion this year. GoTo's products include a product for remote control of computers and mobile phones, products for remote support for IT personnel and companies providing customer support, and a product for managing online meetings and seminars (webinars).

Most of GoTo's products are comparable to those of LogMeIn, which was founded in Budapest in 2003 as a developer of software for remote control of PCs. The company moved to Boston in 2006 in order to obtain access to financing, while at the same time developing remote support products for enterprise IT managers and a commercial version of remote control software. The product facilitates direct access for companies' service representatives to go to customers' computers and mobile devices in order to help solve problems. Customers for the product included Microsoft, HTC, and Lenovo.

LogMeIn held its IPO on Nasdaq in 2009 at a $150 million company value. "2013 was the end of the company's initial period," Wagner says. "Growth was a little slow, we launched almost no new products, and the old products were less relevant because of the transition to cloud computing. The second stage was a renewal of growth: between 2013 and 2016, we doubled the company's size by doing three things: we started making sales within the company, which we were unable to do before; we changed our approach to pricing and creating packages; and we invested a lot in technology for work collaboration, which became our fastest-growing activity. In 2016, our market cap was $1.6 billion, and the company grew to 1,000 employees."

LogMeIn made another significant deal in October 2015 by acquiring LastPass, a company that developed a popular product for payment for managing personal passwords, for $125 million. Later came the merger with GoTo, which Wagner says "put us at the starting point of the current stage, the company's third stage, in which we're in three very large markets: collaborative work, customer relations management (CRM), and IT. Each of these has annual sales potential of $1 billion a year within 3-5 years."

How did you get to Nanorep?

When we sat down and examined our portfolio, we realized that we lacked AI, and that was the reason why we examined almost 20 companies in the sector. We met with Eli and the team in December 2015, and even though we knew then that this was the best technology, we had the merger we had planned with GoTo, so we said that we couldn't do anything right now, but we hoped to get back and talk. Six months later, we talked and discovered that this was one of the rare cases in which a company achieves more than the targets it set for itself in terms of revenue and growth.

"We did another rapid check of the products itself in order to make sure that it was still the best, and we thought it was. When I say the best, I mean that the technology has high artificial intelligence capabilities, but also that it can be installed without the need of constant professional services. You can install Nanorep in two or three days, instead of keeping a team of advisors at the customer for three months or six months in order to get it to work. That's LogMeIn's model, so there's a fit between us.

"What we're bringing to the connection with Nanorep is the personal connection, and in the first quarter of 2018, we'll have an initial product that completely integrates human communications with artificial intelligence. We don't think people will buy just an AI solution two years from now; they'll look for it as part of CRM or business intelligence (BI) systems, because otherwise, it will be only an interesting tool, and you won't get the full possible benefit from it. This is a trend we'll see in all business applications in companies such as SalesForce and ZenDesk. Everyone's going in this direction and looking for how to do it the best way."

Does it work to the customers' benefit? It's a bit of a strange experience to talk by chat, and not to know whether you're talking with a person or a machine.

"Does it really make any difference?"

What does make a difference is getting good service, and in most cases, people complain that the dialogue in a chat is not really effective.

"That's exactly the point, so you don't want just artificial intelligence. There are these special moments in which only a person can help you, but artificial intelligence can handle 75% of the things, which mainly repeat themselves, and which the machine learns. If you relied only on the machine, it wouldn't have worked completely. The combination between things makes it hard to distinguish whether it's a person or a machine. One minute, you're talking to a bot, and a minute later, it will be a person corresponding with you."

So the balance is 75% artificial intelligence and 25% human customer service?

"Something like that, yes."

What is the current balance?

"As of now, worldwide, most of the service is provided by people."

"To double and upgrade the offices here"

Asked about his experiences in Israel so far, Wagner answers, "They mainly confirmed what I already knew - there's very significant talent here, especially in artificial intelligence. That's the reason why Israel isn't an 'external outpost' for us; it's starting to become more of a center for us. That's the reason why we're planning to double and upgrade the offices here. I'm trying to convince Eli to stop thinking like a startup, and to be convinced that it's all right to waste a little money on the office - just a little. There's access to talent here that's hard to get in other places in the world. Only this morning I met someone here who did a degree in engineering, an MBA, and is now doing another MSc in machine learning. She's very curious, diligent, and enthusiastic. These are people I want to work with."

There is very tough competition here for talent. Are you optimistic about your ability to fill jobs?

"Yes, certainly. This problem is not very different here from other places. That's how it is in Boston, California, and even in Budapest. For many years, we've been used to competing for talent against companies like Google, Cisco Systems, Facebook, and Micrsoft. If someone wants to work for these companies, that's excellent. He will be part of a huge organization, but I think that what's nice about us is that we're in the middle - small enough for everyone to see the effect of what he does, but with enough resources. As long as we're on the subject, our competition is mainly with startups, which have the type of talent we're looking for. The good news is that we don't have a big presence here, and the bad news is that we don't have a big presence here, so we can decide what kind of company we want to be."

Published by Globes [online], Israel Business News - www.globes-online.com - on December 11, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

William Wagner Photo: Tamar Matsafi
William Wagner Photo: Tamar Matsafi
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