Israeli software tester Qualitest sees strong growth as world goes digital

Israeli software tester Qualitest sees strong growth as world goes digital

The Petah Tikva-based quality assurance firm, already the world’s largest of its kind, hopes to grow fivefold in 5 years with help of AI tools and aggressive M&A strategy

Shoshanna Solomon is The Times of Israel's Startups and Business reporter

Norm Merritt, the CEO of software testing firm Qualitest, in Tel Aviv; Feb. 2, 2020 (Shoshanna Solomon/Times of Israel)
Norm Merritt, the CEO of software testing firm Qualitest, in Tel Aviv; Feb. 2, 2020 (Shoshanna Solomon/Times of Israel)

Israel’s Qualitest Ltd., the world’s largest independent software testing company by revenue, hopes to grow sales fivefold  within five years, riding the wave of increased digitalization of industries and businesses worldwide.

“Our goal is to be five times our size in the next five years through organic and inorganic growth,” said Norm Merritt, CEO of the Petah Tikva-based firm. Qualitest has some 3,700 employees, of whom 1,500 work locally, with others in the UK, the US, India and Europe.

Merritt, who joined the firm as CEO in September 2018 and is based in the United States, spoke with The Times of Israel in Tel Aviv this week.

Founded in Israel in 1997 by Ayal Zylberman and Eli Margolin, Qualitest provides automated and manual software testing services for companies including tech giants Google, Microsoft, and Intel Corp.

The Qualitest team in Petah Tikva, February 2020 (Courtesy)

In July, private equity firm Bridgepoint Advisers Ltd. acquired a controlling stake in Qualitest for $420 million from Marlin Equity Partners.

The funds from the investment will allow Qualitest to grow market share through global acquisitions, strengthen its product development and recruit more workers, the company said.

Qualitest designs and develops solutions offering a wide range of advanced testing and quality assurance capabilities for blue-chip companies in the fields of technology, telecom, entertainment, AI, cyber, healthcare, finance, security, media, and retail, using up to date tools such as artificial intelligence.

“Every company, every industry is recognizing that they have to change the way they do business. They have to change their whole approach, their whole value proposition, using technology,” Merritt said, in the lobby of a Tel Aviv hotel overlooking the city with a view to the sea. “You walk into any McDonald’s and …there’s now kiosks and it’s a very different business and it’s driven by technology.”

As a result, with firms “using technology in unprecedented ways,” they need an independent body to verify that the software they are buying or developing for the app, product or website used by their customers works well.

“The demand for our services at Qualitest is increasing at an unprecedented rate,” Merritt said. “We help make sure that before they launch new code and a new technology, that it not only works properly and functions as a design, but that it’s reliable, it’s usable, it actually fulfills the business purpose for which it was created.”

An illustrative image of software code (scanrail; iStock by Getty Images)

The market in which Qualitest operates is expected to grow 13% year on year, and  is valued at $38 billion globally, he said.

“It’s a big market. Its’s growing very quickly,” he said. But Qualitest is “growing at almost twice the rate of the market,” he said.

The company’s products, which include artificial intelligence tools developed in Israel, pinpoint what sections of thousands of lines of code need to be looked at for flaws and vulnerabilities.

An AI edge

In December, Qualitest said it acquired Israel-based artificial intelligence and machine learning company AlgoTrace for an undisclosed amount. The acquisition will allow Qualitest to “radically expand the number of AI-powered testing solutions available to clients, as well as develop its capabilities in assisting companies test and launch new AI-powered solutions with greater confidence and speed,” the firm said at the time.

The AI tools acquired give Qualitest its competitive edge and “the capacity or the capability to determine what we should be testing,” Merritt said, because the complexity of systems that use software is growing constantly.

Take “Tesla as an example,” he said. “They have 100 million lines of code in a single car.” Human beings no longer have the ability to know where they should be spending their time checking for flaws, he said, and that is why machine learning is necessary.

The Tesla Roadster electric car parked on a street in New York, Feb.ruary19, 2009 (AP Photo/Craig Ruttle)

AI tools, however smart, will not replace engineers, he said. They “will replace some jobs,” he said, but more importantly, “they will extend the capability of our engineers to allow them to be more effective and be more pointed, and more precise in their solution.”

Merritt added that the day when software will write itself and correct itself is “way off.”

“You can’t teach the computers to be human. You can teach them to do things that humans can’t do,” he said. “But there is still an intuitive kind of understanding and what’s interesting is, like any tool, if you don’t have an expert using it, the tool is useless. And I think that’s the key. You have to have an expert using the tool and that’s why Qualitest is using AI as an enhancement to our engineers’ capability.”

One third of the firm’s revenues stem from the Israeli market, one third from the US, and the rest from the UK. “The US market is growing the quickest,” by some 40% year on year, Merritt said. Sales in Israel grew 15% last year.

“Israel as a percentage of revenue will decrease over time,” he said. “But only because the company’s growing so dramatically elsewhere. But it’s still growing in Israel.”

Qualitest is the largest company globally operating in this field, he said, with competitors being either much smaller or boutique testing firms, “many of whom are open and ready for acquisition. And that is something that we are definitely looking at.”

Bridgepoint “wouldn’t have acquired us if they didn’t want us to double, triple” revenue through acquisitions, he added.

Qualitest is currently looking at a number of possible acquisitions, Merritt said, one of which is in Israel, though he declined to elaborate.

The main challenges ahead, Merritt said, said are finding the right talent — “all companies are struggling” — and execution, “the ability to take advantage of the growth in the market.”

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