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It was a short work week in the US, but there was a lot to read and ponder. For you today, some thoughts on the future of the SaaS vertical, what the second half of 2023 might hold for Israeli startups, and the well-being of founders. — Ana

Industry specific knowledge

Vertical AI is the next logical iteration of vertical SaaS, Index Ventures partner Paris Heymann recently argued on TechCrunch+. In other words, just as companies were buying cloud-based software made for their industry, they will now buy AI applications that leverage basic models and infrastructure to answer their business needs.

While some business AI applications are sure to be horizontal, “meaning they can be used by customers in any industry,” Heymann predicted that many AI applications will also be vertical or industry-focused.

Both horizontal and vertical applications can make businesses more efficient. But according to Heymann, “AI-enhanced software applications will be most powerful when they have deep underlying knowledge of end-user workflows and access to valuable industry-specific training data.”

I tend to agree with Heymann’s view, and some of the examples he mentioned are proof that the demand for vertical AI already exists. For example, the international law firm Allen & Overy recently announced a society with harvey, a startup backed by OpenAI Startup Fund that puts AI and LLM to work on legal work.

“It is a game changer that can unleash the power of generative AI to transform the legal industry,” stated an A&O executive.

The Power of Vertical AI in Business

Vertical AI, as Paris Heymann describes, is the future of AI applications in various industries. It offers businesses the opportunity to leverage AI technology specifically tailored to their needs, increasing efficiency and productivity. While horizontal AI applications can be used across industries, the true potential of AI lies in its deep understanding of industry-specific workflows and access to valuable training data.

Benefits of Vertical AI

• Increased efficiency: By incorporating AI into industry-specific workflows, businesses can automate tasks, streamline processes, and reduce manual workload, resulting in improved efficiency and productivity.
• Customized solutions: Vertical AI applications can be tailored to address the unique challenges and requirements of specific industries, providing businesses with specialized tools to achieve their goals.
• Improved decision-making: With access to industry-specific data and insights, vertical AI can provide businesses with valuable information to make informed decisions and drive growth.
• Enhanced customer experience: By utilizing vertical AI, businesses can offer personalized, targeted experiences to their customers, leading to increased satisfaction and loyalty.
• Competitive advantage: Adopting vertical AI early on gives businesses a competitive edge by staying ahead of industry trends, optimizing operations, and delivering innovative solutions.

Real-World Examples

One prime example of the power of vertical AI is the partnership between Allen & Overy, a global law firm, and Harvey, a startup backed by OpenAI Startup Fund. Harvey utilizes AI technology to answer legal questions and assist in legal work. This collaboration has been hailed as a game changer in the legal industry, as it enables the use of generative AI to transform traditional legal practices.

In addition, various industries have embraced vertical AI to optimize their workflows. For instance, healthcare organizations are leveraging AI to improve medical diagnoses and treatment plans, while manufacturing companies are utilizing AI to optimize supply chain management and predictive maintenance.

The Future of Vertical AI

The growth and adoption of vertical AI are expected to accelerate in the coming years. As businesses recognize the benefits of industry-specific AI applications, we can expect to see increased investments in AI research and development. Key trends that will shape the future of vertical AI include:

1. Advanced Machine Learning Algorithms

As machine learning algorithms become more advanced, vertical AI applications will be able to analyze complex data sets more effectively. This will result in improved accuracy and insights, enabling businesses to make data-driven decisions with confidence.

2. Enhanced Natural Language Processing

Natural language processing (NLP) plays a crucial role in vertical AI, allowing machines to understand and interact with human language. Advancements in NLP will enable AI systems to comprehend industry-specific jargon and nuances, further enhancing their ability to assist businesses in specialized tasks.

3. Integration with Internet of Things (IoT)

The integration of AI with IoT devices holds immense potential for vertical AI applications. By harnessing the wealth of data generated by connected devices, AI systems can provide real-time insights and predictive analytics, enabling businesses to optimize operations and offer personalized experiences to users.

4. Ethical Considerations and Regulation

As AI becomes more pervasive, ethical considerations and regulation will play a significant role in shaping the future of vertical AI. It is crucial to establish frameworks and guidelines to ensure that AI is used responsibly and avoids bias or discriminatory practices.

Conclusion

Vertical AI is set to revolutionize industries by providing businesses with AI applications tailored to their specific needs. The demand for industry-specific AI solutions is evident, as demonstrated by the partnership between Allen & Overy and Harvey in the legal sector. Vertical AI offers numerous benefits, including increased efficiency, customized solutions, improved decision-making, enhanced customer experience, and a competitive advantage.

Looking ahead, the future of vertical AI is promising, with advancements in machine learning algorithms, natural language processing, IoT integration, and ethical considerations. Businesses that embrace and leverage vertical AI will be well-positioned to thrive in an increasingly digital and AI-driven world.

Summary

Vertical AI, the next logical iteration of vertical SaaS, is poised to transform various industries by offering AI applications specifically tailored to their needs. Unlike horizontal AI applications that can be used across industries, vertical AI applications leverage deep industry-specific knowledge and training data to enhance efficiency and productivity. The partnership between Allen & Overy and Harvey in the legal sector exemplifies the transformative power of vertical AI.

The future of vertical AI looks promising, with advancements in machine learning algorithms, natural language processing, IoT integration, and the establishment of ethical frameworks. Businesses that adopt vertical AI early on will gain a competitive advantage by optimizing operations, improving decision-making, and delivering customized solutions. The rise of vertical AI signifies a new era of industry-specific AI applications that will revolutionize businesses and drive growth in the years to come.