Israel and the AI Wars
After a recent review of Startup Nation Central’s September 8th report on AI Adoption in Israel I was struck by the contrast between Israel and the Rest of the World (ROW) usage and adoption of AI in their daily operations. In Israel, AI offerings are not a tool used only for automation or minor “finishing” improvements to products, but AI is everywhere Because AI ubiquitous in Israeli organizations they are creating a foundational re-thinking of the way that products are built and services are delivered.
From its early beginnings, AI (and its predecessor Machine Learning) have been utilized by Israeli engineers and technologists in building products, optimizing solutions and automating workflows. What sets Israeli companies apart from the ROW is their AI-first mentality, likely caused by the heavy Engineering and development focus in the workforce (partly derived from National or Army Service) and high quality Engineering and Design faculties.
Global AI and Business Priorities
The report, completed in conjunction with Georgian sampled 634 global executive respondents of which 73 were from Israel and asked questions relating to their organizations’ priorities for AI adoption, deployment within business units, motivations for AI deployment and methods utilized. For the entire respondent group, the Georgian report outlines that 83% of respondents ranked one of the following three AI initiatives among their top organizational priorities: optimizing internal efficiency with AI, building in-house AI/ML models, or deploying external AI features through their org. Additionally, 31% of respondents prioritized building AI/ML capabilities internally while deploying external models/features throughout the organization.
Georgian states that the main organizational priorities from respondents were:
Use of AI Tools by internal teams to improve efficiency
Building AI/ML models and product features internally
Major market expansion
Deploying an external AI model of feature using third-party software
Diversification of revenue streams
Customer experience enhancement
Brand development and positioning
Tech stack upgrade or other major operational change
Restructuring of organizational plan
Agile Transformation
Clearly the market has moved from the period where AI models were a curiosity for the technically inclined, found in academic papers/blogs and the fringes of computational and mathematical science. Today’s AI ecosystem has layers and is more focused on applications solving real world problems.
While companies like AI21Labs were building their own LLM iterations (like Jamba), they were, at the same time, building Wordtune to help content creators solve the challenges of creating great content. Google’s Deepmind efforts were hidden behind their suite of products and services as Facebook was using ML tools to advance their Metasphere and AR offerings. It’s like AI was the drummer of the band keeping the beat and the product was the lead singer or guitarist in front facing the audience.
This all changed when Open AI launched ChatGPT. Suddenly the model was the star and the delivery mechanism (a chatbot) was secondary. In fact, this became more clear as subsequent large language model builders like Google, Mistral and Anthropic followed with similar chatbot interfaces. Suddenly, AI was the front and center in the public square and it’s potential seemed both scary and limitless.
Israel’s technology sector is dominated by Engineers, not mathematicians or designers and as such, Israel’s view of AI is far more directed towards problem solving vs. cool factor. As such, Israel is the land where Applied AI blooms in full force. AI systems, processes and toolsets are ingrained into every part of product development and design and vibe coding has become the norm amongst development teams. Everyone wants to be Maor Shlomo from Base44 and reap a massive payday by vibe coding a game changing product that is a must for a specific organization.
Israel’s AI Priorities
Unlike the 561 non-Israeli executives in Georgian’s survey, Israel’s business executives have different areas of focus and challenges, so let’s break this down.
Market expansion still wins
As everyone understands, Israel is a small country the size of New Jersey, USA with a modest population of under 10 million. As such the majority of its technology commercial activities have to take place outside of the country. In fact when we compare GDP per Capita, Israel' s peer countries look interesting:
2024 GDP per capita (USD)
As a result, the report outlines Israeli business executives continue to maintain their focus on market expansion and revenue growth whereas their ROW counter are most concerned about AI deployment and strategy (this is #2 for Israeli executives). What is strikingly different from their ROW counterparts is that Israeli executives are seeking ways for AI to help them in their quest for market expansion and revenue acceleration.
The other business priorities outlined at the beginning of this post are essentially aligned with ROW executives.
Applied AI within business units
The report then segments into how AI has been adopted into various business units like Engineering & Product, HR, Customer Service, Sales, Security etc. With an Engineering/Product first mentality amongst most Israeli companies, it shouldn’t surprise us that Israel leads its counterparts in AI’s adoption in this business function. What is most striking though, is that the report outlines that Israeli companies lag their AI adoption and usage in all other core business functions. This finding is more surprising because there are at least 20 Israeli companies whose primary purpose is to help customers implement AI in their business units.
Adoption of AI solutions
Most of today’s businesses and their leaders have two choices with regards to AI adoption: build an internal solution or hire/purchase a third-party offering and adapt to their native solutions. ROW companies, by and large, choose to buy third party solutions or use extensions of existing solutions instead of building their own from scratch. The report highlights that Israeli companies prefer to build their own in-house solutions instead of adopting a 3rd party solution, which is not surprising given Israel’s Engineering-sided culture.
And at 13% of survey respondents, both Israeli and ROW companies equally choose to wait until an existing AI solution is available for their current tech stack rather than build or buy something. This number of respondents is aligned with the laggards conversation from Geoffrey Moore in Crossing the Chasm.
The Georgian AI Maturity Framework
Georgian has benchmarked adoption using a “Crawl-Walk-Run” for all organizations in terms of their adoption and utilization of AI. Surprisingly, the adoption and usage of AI in Israel when compared to ROW is bifurcated, meaning that the most advanced users of AI (the “runners”) are more likely to be Israeli than ROW and the least advanced users adopting AI (the “crawlers”) are more likely to be Israeli than ROW companies.
While this bottom end of the adoption curve - the walkers, is surprising, when coupled with the main objectives of market expansion and revenue growth, it becomes clear that those companies for whom AI is not a core part of their enterprise or offering, it’s understandable that their AI adoption has been slower.
Measuring AI Return on Investment
Israeli executives believe much more than their ROW counterparts that their AI initiatives will have a direct impact on their top line revenue growth and are of similar opinion as it relates to AI creating cost savings or potential unmeasured positive outcomes. Moreover, Israeli executives are more confident that they can measure the direct impact of AI on their operations than their ROW counterparts.
Roadblocks to AI Adoption
There are multiple blockages that could slow down adoption of AI in any organization including technical, financial and human capital challenges. According to this report, Israeli executives, unlike their ROW counterparts, are significantly less concerned about the technical talent market and the cost of model deployment. This is likely because there is an abundance of technical talent coming from Israeli’s technical institutes and the Israel Defense Forces special technical units AND the focus on Adopted AI.
Final Thoughts
I’m struck by how this report creates a picture of Israel as an advanced technical and engineering focused market that treats AI adoption as secondary to its commercial and growth initiatives and at the same time, exhibits why this mentality exists. With an Engineering-first viewpoint, small domestic economic footprint creating a need to build global offerings, it’s clear that Israel executives are asking now what can they do to be part of the AI revolution, but how AI can help them thrive and grow in the current economic climate.
You can find the entire report from Startup National Central here (you’ll have to register): Startup Nation
