One Saturday morning in June this year, Hagai Hartman was still lying in bed at home in Vienna, Austria and opened a message sent to him via LinkedIn from the mergers and acquisitions department of European software giant SAP. The message was friendly but relatively formal and didn't reveal detailed intentions but Hartman, founder of the marketing cloud company Emarsys, already understood that something big was about to happen.
"At that stage I knew that SAP was putting out feelers to us and that they had a good opinion about us but they hadn't had any direct contact with us," Hartman tells "Globes" in a Zoom interview. "I'm a cautious person and in the past I've already received many enquiries and from my point of view SAP was verging on a dream. It was clear to me that Emarsys and SAP were a perfect match and so I was excited to receive the message. I immediately answered the message and we moved forward quickly with the entire process."
That message on LinkedIn led to the announcement on October 1 that SAP was acquiring Emarsys. The deal is expected to finally close during November after regulatory approvals are received, and SAP will pay, according to estimates, more than $500 million for the acquisition. Emarsys, which has raised to date about $60 million and has 800 employees in 13 offices worldwide, is on paper an Austrian company, but its founders and managers including the CEO, CFO and CPO are actually Israelis.
Emarsys was founded in 2000 in Vienna by Daniel Harari, an Israeli-Austrian who has already left the company, Josef Ahorner, an Austrian and fourth generation in the founding family of the Porsche car corporation, who is the company chairman and main shareholder and Hartman, who was CEO until 2016 and currently serves as the company's Chief Innovation Officer. Hartman originally came to Austria to work as a security officer, stayed because he fell in love, and is now part of one of the largest ever tech exits in Austria.
"The ecosystem in Vienna, is different and smaller"
Hartman (51) was born and raised in Jerusalem. His family managed a newspaper printing house in the city and he began working there as a young child. But when he was 15, the business went bankrupt due to the lethal hyper-inflation of the 1980s.
"That bankruptcy was an experience that seeps into the bones of a youth of that age," he recounts. "I remember that I asked my father why he went bankrupt and he explained to me that instead of managing, he simply worked. Over the years I kept that sentence with me and I was very careful about not working. If you do the work by yourself, the presentations say and work on marketing, you don't have an overview and you lose control. That is something I also kept with me during my (military) service as a battalion medic in the 890 paratroopers brigade. I was in charge of seven or eight medics and a doctor and when they brought in the wounded, I couldn't work on them, because I had to manage the incident."
After his service in the paratroopers, Hartman worked as a security officer in Israeli diplomatic offices around the world and for El Al before he began studying business administration at the College of Management. Towards the end of his degree course, he began running out of money and so he decided to put his studies on hold for a semester and traveled to Vienna to work in El Al's security operations there. There he met a Viennese Jewish woman who became his wife and mother of his children (although they have since divorced). The two fell in love, came to live in Israel for a while, but eventually settled in Vienna.
"If I hadn't met her, there is absolutely no chance that I would have founded a high tech company in Vienna of all places," Hartman explains. "The tech ecosystem in Vienna is smaller and different in its culture. I had to learn everything there myself."
The first company that Hartman founded at the end of the 1990s was engaged in comparing insurance rates for enterprises. It was no great success and closed down. "I was then an impudent 29 year-old Israeli who couldn't even speak German. The company's programmers worked in the basement of my house. We didn't understand what we wanted from them and it was no simple technological challenge to compare between insurance policies back then."
One of the investors in the failed insurance startup was Ahorner who later matched up Hartman with a young agency for Internet services called Emarsys, another of his investments. "Those were the days of the dot com bubble and it was possible to get an investment for anything. In this company there were 18 youngsters who didn't really know what they were doing. They developed an online game and collected 10,000 users, but they didn't have a clue what to do with them. I came in and suggested to them that they build a system connecting up all these users, for what's the point in collecting users if you don't do anything with them, because what are you gaming philanthropists? Very quickly we got rid of all the company's employees and we only kept the name and the computers. I brought over developers from Israel to build the system."
Israelis continued to hold the senior positions at Emarsys over the years. When Hartman decided to step down as CEO in 2016, "Because I was fed up dealing with things like events, investors and regulation instead of building products." He recommended to the board of directors to appoint in his place Ohad Hecht, also an Israeli, who has since then managed Emarsys's operations in Hong Kong.
Electronic mailing? No way
Emarsys has developed a platform that allows companies to send out proposals and campaigns by email and phone text, social media and alerts in apps. Among 1,500 customers are well-known brands like Nike, low-cost airline Wizz Air, and bag companies Samsonite and Karl Lagerfeld. If there is something that can make Hartman cringe, it is to ask him if Emarsys does electronic mailing.
"At the time when we were founded, there were companies that had a database of customers' emails and sent them what was basically spam. Our uniqueness is that we have strata of knowhow, with the assistance of which our customers can contact their customers in a personal way." He corrects himself. "It begins by contacting them in the way that the customer wants, by mail or social media, and continues through to when to send them the announcement and what type of language to use. I hate newsletters that go out every week on Thursday at six in the evening, because it has no meaning. We know for example that the chances that you will press on the link in the email on Saturday is bigger than on Thursday at six in the evening, so we would send the announcement on Saturday."
Based on what do you know all this?
"Most of it is based on artificial intelligence (AI). 20 years ago, to manage marketing there were almost no decisions to make and all there was to do in order to write an email to a customer was to know their name and whether they were male or female. Today there are hundreds of different decisions and nothing is done manually by the marketing manager. Everyone knows the recommendations for products that I might reasonably buy as Amazon and Netflix do and this is AI-based. We add predictions on what the customer is motivated to buy and if it is better to give a discount, bonus or free shipping. Also the language that is worth using changes from person to person. Whether we say to you that stock is running out or that you are the first to buy. Everyone is psychologically motivated by different wording."
And this is determined by the group that I belong to?
"Thanks for asking. I hate groups because that's stigmatization. I'm talking about individuals. We think about what is suitable for you, not for a group, and based on what you have purchased in the past, items that you have put in your basket on the website, your browsing history, and other data. We use them in order to improve the service given to you and of course also the business results. It's sufficient that we operate a little AI to know when to send a message to a customer and that already raises revenue from the campaign by 3%."
How did you manage with the strict European GDPR privacy law, which came into effect in 2018?
"We have an entire department that works on complying with regulatory laws and checks the companies working with us, and receives permission from users for everything. We are very tough on this issue because if a company like us sends emails that the customer doesn't want, then very quickly Gmail, Yahoo and Hot Mail will block us. A company that sends spam won't survive."
Hartman, by the way, does not have many good words to say about the way that Israeli brands communicate with their customers and thinks that a revolution is needed on the matter. "Israelis are very good in bringing customers to their websites through work with Google and Facebook but they don't know how to use marketing in order to keep them and sell to existing customers. It's a great shame because if a customer buys once and then leaves you, then you won't be profitable. At most in Israel, they'll give an existing customer a 5% discount on their birthday.
SAP: We searched and were surprised to discover that they're Israelis
The person who sent the first message to Hartman on LinkedIn, which ended in the exit, was Gadi Krumholz, SAP VP Corporate Development. Krumholz recalls that the acquisition of Emarsys became with a need that arose in the corporations customer experience division. The division develops, among other things, a system for building large online stores, such as Shufersal in Israel and Levi's internationally. "The division's manager was looking for a solution that brands could use in order to create a personal connection with customers and we did an analysis of all the companies working in the sector," says Krumholz. "We found that Emarsys was on paper the most interesting. It seemed to have the latest technology and it was the largest company but not huge, which is what we wanted. At a certain stage we search for the contact people on Crunchbase and we were surprised to discover that they were Israelis. Of course Because I am working out of Israel, they then sent me to close the deal."
But Krumholz had to first of all cope with an unfamiliar problem - how to make contact with Hartman. "I of course have contacts with all the venture capital funds in Israel, so I've no problem getting in touch with entrepreneurs. There's always about 30 people that can link me up with anybody. But with Hagai Hartman, because he had been in Vienna for so many years, I did not have a single person in common and nobody to connect me to him. I was forced to send him a message on LinkedIn."
Although Hartman was excited by SAP contacting him, the company's investors and board of directors were less enthusiastic."They thought that it wasn't the right time to be sold and that we should wait until 2022," says Hartman. "Because of Covid-19, they didn't believe that companies would make serious acquisition offers and that it was possible to close deals over Zoom and so they declared that while the company was growing, there was no rush. In contrast, I was thinking how to find a good home for a company that we had worked on for 20 years, and that this was more important to me than the size of the exit."
If the company was profitable and growing, why sell?
Hartman: "Our rivals are companies like Salesforce, Oracle and Adobe, and we are very small compared with them but we still competed against them with great success but we were at a disadvantage on the subject of data. In order to contact customers personally, you need data about them and the transactions that they have done. Even when you sign an agreement with a brand, it still takes you months and sometimes years to get from them all the data that you need on users, like the purchases that they have made. In contrast, the moment that we are linked up to SAP's system, we can directly get information on deals and that is an amazing short cut for us."
Hartman's investors were eventually persuaded and the due diligence process was successfully completed. According to SAP procedures, because of the pandemic, employees could not go on business trips and so most of the process, was carried out without face to face meetings. "When Hartman finally came to Israel and we went out to dinner, we were already 90% of the way to the agreement," says Krumholz.
At the same time as the sales deal to SAP, Emarsys is itself currently completing the acquisition of Israeli startup Loyalsis, which deals with advanced management of customer loyalty clubs in ecommerce and has 12 employees. After completion of the large deal, Loyalsis and Emarsys employees in Israel will join the SAP R&D Center in Israel . Managing Director SAP R&D Center in Israel & Senior Vice President at SAP Cloud Platform, Orna Kleinmann, said, "The Emarsys acquisition reiterates SAP's investment and growth in the Customer Experience area in recent years, including the acquisition of the Israeli startup, Gigya, in 2017."
Hartman himself plans returning to live in Israel with his current Israeli partner after 25 years in Austria. "In social terms I’m Israeli and although I miss the local culture in Vienna, my friends were for the most part Israeli," he says. "I'm happy that my children, aged 18 and 20, can already manage without me and I can return to the wonderful people that there are in Israel."
Hagai Hartman: Born in Jerusalem, lives in Austria with children aged 18 and 20 * Served as a medic in the IDF paratroopers and during his academic degree course traveled to Vienna to work as a security officer for El Al * In 2000, he founded Emarsys, a marketing cloud company and served as CEO until 2016, when he became Chief Innovation Officer in order to handle what he loves - building products.
Published by Globes, Israel business news - en.globes.co.il - on October 25, 2020
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