Predicting irrational shoppers: Commerce Sciences applies behavioral economics to ecommerce

By Mick Weinstein , written on October 30, 2012

From The News Desk

Behavioral economics, as its well-known proponent Dan Ariely describes it, “is interested in the same questions as classical economics, but without assuming that people are rational.”

The field came to popular attention in the past decade from the bestselling "Freakonomics" books (er, empire), Ariely’s and Daniel Kahneman's fascinating work, and from other behavioral economists identifying sources of the financial crisis that their classical counterparts failed to red flag. Richard Thaler and Cass Sunstein’s 2008 behavioral econ work "Nudge" made such a splash that its authors and their students now impact international public policy in significant ways.

So it’s about time behavioral economics began banking some consumer internet coin, right?

Commerce Sciences, a startup out of Tel Aviv, wants to bring behavioral economics, predictive analytics, and big data crunching to small and midsized ecommerce sites. The company recently raised a healthy $1.8 million seed round from investors, including Eric Schmidt’s Innovation Endeavors, Eden Shochat of Genesis Partners and Joe Lonsdale.

Both co-founders -- Aviv Revach and Eyal Brosh -- are graduates of the IDF’s elite 8200 intelligence unit, which spawns more and more consumer Web services these days. You can watch Israel’s angels toss business cards at these guys’ feet at the moment they switch out their army boots for Jack Purcells. In this case, both Brosh and Revach, who’s moving to San Francisco to work out of Innovation Endeavors’ office, already have past successes under their belts.

Revach, who's built like an NBA forward, crouched over his latte in my local Jerusalem cafe to describe the Commerce Sciences approach: “Most ecommerce site owners and marketers look at customers from the perspective of the sales funnel: How can we get you in, down the tube and out through a purchase? We look at the customer as a person,  recognizing that sometimes their motive isn’t finding the right product, but rather other elements, like the feel of the site or the type of communication coming from the merchant. And every person is different.”

The company’s first product is a free, self-service toolbar that sits on an ecommerce site’s footer and pops up coupons, a chat box, and other messages. Commerce Sciences calls it a Personal Bar, as it can, for example, produce different messages for first time customers versus customers whose behavior the software has already analyzed and optimized for.

Revach says the bar already includes an Ariellian behavioral econ lesson: They’ve found that a little coupon graphic that a customer “tears off” from the toolbar converts far better than a discount code that you need to Control-V at checkout.

Now, on the one hand I fully identify with the sentiment of Roi Carthy’s recent Tweet: “Ahhh, toolbars… The damage you've inflicted on the Israeli entrepreneurial sensibility...” Conduit’s success has fostered far too much user-hostile product design in this country. Another freaking toolbar to contend with?

On the other hand, Commerce Sciences isn’t really about this toolbar. Revach and Brosh want to build the brains behind optimizing the online buying experience, lessening the friction between merchant and individual customer. That’s the real, not so user-hostile product the founders hope to develop over time. This initial, self-serve toolbar is just a low barrier way to acquire initial merchant customers and begin collecting data.

“This market lacks an entity that sees and analyzes all of the massive activity across thousands of ecommerce sites,” Revach says. “We can integrate all that data and help merchants react to the changes and particularities of customer behavior. The bar is just the beginning -- eventually we’ll integrate with the main elements of sites.”

Of course, top ecommerce sites like Amazon already do sophisticated personalization, and their copywriters already incorporate behavioral economics. That’s why Apple puts the phrase "Select your Macbook Pro" at the top of the page (mind to wallet: “It’s already mine! I just need to select one!”). And large online merchants like Wal-Mart and Target use expensive service-based solutions like RichRelevance and MyBuys.

But for the 20,000 online retailers that Revach estimates for the mid-market segment, which can’t afford in-house or outsourced coded personalization or genius copywriting, Commerce Sciences hopes to provide a powerful, affordable option to raise conversions and customer satisfaction. The revenue model: freemium, with payment for over 400,000 monthly unique shoppers.

So far, Revach says, over 70 sites have installed the bar, and the company has collected over 20 million user actions across the 40 different behavioral data points they monitor. While the software does analyze referral links, it does not at this point integrate with ad networks’ cross-site browsing data for its behavioral analysis.

[Image courtesy hospi-table]