When President Donald Trump announced an arms deal worth billions of dollars with Saudi Arabia last week, one item stood out among the hardware: cybersecurity technology. And there was one regional ally, more adept than most at dealing with a cyber threat, that raised an outcry against the package: Israel.
Energy Minister Yuval Steinitz said the U.S. should make sure the deal, “will not, by any means, erode Israel’s qualitative edge, because Saudi Arabia is still a hostile country,” according to Reuters. It was a time-honored invocation of one of Israel’s main defense mantras: since it is small in size and population it needs to maintain qualitative and technological military superiority in the region.
While Israel depends on the U.S. for quite a few weapon systems, for example for its air force, cybersecurity is one field in which it has carved out a niche of its own. In fact, the prowess of its military and security services in that field has spawned a whole new industry for the country, now worth billions of dollars in exports per year. It is second only to the United States in terms of market share.
“Today we provide something like ten percent of the global market in cyber technology products, twenty percent in total global investment in cyber technology is invested in Israel,” says Isaac Ben Israel, a former general who founded the National Cyber Bureau in the Prime Minister’s Office and now heads the program for science technology and security at Tel Aviv university.
Some other estimates come out slightly lower but the numbers are impressive either way. Ben Israel is clear about what has made Israel so advanced in the field: the fact that it has been under cyberattack for many years.
But the country has also been associated with offensive cyber capabilities. The Stuxnet cyberworm that was revealed in 2010 and said to have struck Iran’s nuclear program, is widely thought to be a joint U.S.-Israeli project. Ben Israel makes the somewhat ironic point that the attack was what first alerted the wider world to the potential of cyber weapons and gave a boost to the cyber security industry.
“Until 2010 the potential of cyber security was only known to experts,” he says. When actual machinery, Iranian nuclear centrifuges, experienced real damage, the importance of cyber security started to sink in.
Israel’s status as a cyber superpower is not likely to be threatened by the sale of some U.S. technology to Saudi Arabia. Chances are that at least part of it was designed in Israel to begin with.
Steve Morgan, whose firm Cybersecurity Ventures specializes in the global cyber market, notes that even the U.S. relies partly on Israeli technology. “Why engineer something that already exists? We don’t have the time to do that. We see some of that in the U.S. Our military is Israel’s number one customer,” he says.
Global spending on cyber security is expected to be a cumulative $1 trillion over the next five years, from 2017 through 2021, says Morgan. And Israel is well placed to get a significant part of that.
Cybersecurity Ventures publishes a list of the top 500 cyber security companies; it features 36 Israeli ones, the largest number after the U.S. Even that number does not represent the whole picture since many Israeli companies are acquired by American firms or move to the U.S.
And that’s not all: “You now see the phenomenon of startups here wanting Israeli teams. So you see a whole new American company with an Israeli mindset,” says Morgan. In fact, personnel is key with an estimated shortfall of 1.5 to 2 million engineers in the sector.
That’s where Israel, despite its small population of just over 8.5 million, has a relative advantage. Yoav Leitersdorf is the founder and managing partner of YL Ventures, a Silicon Valley-based firm investing in Israeli startups and then moving them to the US.
He calls the Israeli army, with its draft and constant supply of new experts, “the world’s most important supply for cyber security professionals. And many of them start new companies.”
YL’s previous seed capital fund, launched in 2013, was all invested in cybersecurity companies. A new fund, of $75 million, was announced just a few weeks ago and Leitersdorf expects three quarters of it to go towards cyber security.
Israel’s leading venture capital firm, Jerusalem Venture Partners, which has invested $1 billion since it was founded in 1993, also puts a lot of trust in cybersecurity. Managing partner Gadi Tirosh says that about one quarter of JVP’s investments go towards cybersecurity.
But that’s an increasingly broad field, he explains: “These days that extends from endpoint security to cloud security to fraud detection, anti-money laundering measures and so on. As the whole space evolves, the definition of what is cyber expands as well.”
JVP’s investment in startup CyberArk paid off handsomely when it had, as Tirosh puts it, “the most successful IPO of 2014, worldwide.”
Tirosh sees Israel maintaining its competitive edge in cyber security for some time to come. Not only because of the country’s current strong position and ongoing advantages but also because it has gained the trust of its customers, a precondition in the field of cybersecurity.
“I think it’s going to take a while until corporates will feel comfortable enough buying cybersecurity solutions from high-tech hubs like China or even India, and Russia too,” says Tirosh. “There are even some doubts around the world about whether U.S. software-based solutions are entirely innocent.”