From Silicon Valley to Washington, D.C., companies are scrambling for a piece of the $100 billion-plus homeland security pie.
Vaidhi Nathan’s Silicon Valley company is like many a fledgling high-tech operation. From its offices in The Enterprise Network of Silicon Valley — a business incubator that has helped launch a slew of techie startups, including eBay — Nathan’s company hopes to leverage proprietary technology into a profitable business.
Just a few years ago, Nathan’s company would have been angling to cash in on the dot-com boom. Indeed, it’s not hard to imagine the halls here at The Enterprise Network (TEN), a warren of offices on a quiet, palm-lined street, buzzing in dot-com fervor. But these days, Nathan and his neighbors aren’t preaching e-commerce and IPOs. They’re talking DoD and Washington, D.C.

They’re still focused on making money — but also on making the world more secure by developing and selling products designed, at least in part, to thwart terrorist acts. Nathan’s company, Intelli-Vision, makes intelligent security cameras. A company down the hall is developing software to track terrorist funding. Another is working on a sensor to monitor water and air.

The entrepreneurs at TEN are just one small part of a quickly growing industry devoted to giving government and private businesses the tools they need to defend against and respond to terrorist attacks. Nascent small businesses like Nathan’s and gargantuan multinational corporations are equally eager to establish a foothold in the homeland security arena, and for good reason. As the overall U.S. economy has softened, this business has mushroomed into a multibillion-dollar spending stream. It’s an industrial mountain, risen from the economic plain essentially overnight.

And to Bill Musgrave, the stocky, gray-haired former Navy man who heads TEN, entrepreneurial innovation and agility will be essential to battling an elusive and unpredictable enemy. So much so, he’s looking to line up government funding for an “Office for Entrepreneurial Homeland Security Solutions.”

“There’s so much talent in Silicon Valley,” Musgrave says. “We need to give the government the chance to access the kind of technologies and solutions only entrepreneurs can offer.”

An Infant Industry
The numbers are astounding. In 2000, according to the San Jose-based Homeland Security Research Corporation (HSRC) — recently formed to study and analyze the homeland security industry — private companies and federal and state governments together spent $5 billion on security measures. Since then, an entirely new federal agency, the Department of Homeland Security, was born, many state and local governments have scrambled to equip and train first responders, and private companies have seriously addressed their own vulnerabilities.

And this preparation has added up. According to the HSRC, $65 billion will be spent in 2003, $90 billion in 2004, $110 billion in 2005, and between $120 and $180 billion annually by 2008.

All this money, naturally, has to be spent somewhere. There has been no dearth of companies — big and small — willing to offer products and services to defend the nation. While there are no figures on the number of companies and employees now involved with homeland defense, it’s clearly substantial. Some businesses have started up specifically to cater to the market; others have launched new divisions to focus on homeland security.

As would be expected, though, the overnight emergence of a multibillion-dollar industry — particularly one with such high stakes — has not been entirely smooth. There have been complaints about the speed with which government operates, and criticism that some companies are focusing on homeland security simply because the rest of the economy is so anemic.

Regardless of the inevitable frustrations and difficulties, one thing is clear: The homeland security industry is not going away anytime soon, and it’s one sector that everybody wants to succeed.

The Big Boys
Some of the biggest players are familiar household names: Raytheon, Northrop Grumman, Boeing. For these companies, getting involved with homeland security was a natural. As longtime government contractors, all had plenty of experience working on defense projects, and, just as important, the government was comfortable working with them.

Another large company transforming its long relationship with the government into homeland security business is Avaya. For years Avaya has supplied the telecommunications systems — including secure lines and wireless services — for the White House and Congress, as well as those on many of the U.S. Navy’s aircraft carriers. When it came to communications, says Bob Fortna, head of government solutions at Avaya, September 11 was a real learning experience for many in government. “One of the things that was very apparent was that there weren’t contingency communications facilities available,” he says.

Since then, Avaya has been developing backup systems that local, state, and federal governments can use if everyday facilities are knocked out.

Each of these companies — thanks to the familiarity government has with them and vice-versa — are well positioned to earn a big slice of the homeland security pie. But the industry can’t be viewed in a vacuum, says John Stammereich, who coordinates Boeing’s homeland security operations. “Whatever we do is measured not only in direct terms of getting contracts from the Department of Homeland Security, it’s really measured in how well our airline customers are doing financially,” Stammereich says. “Is [homeland security] big enough to move the needle at Boeing? I’d say, when you combine it with the commercial side, it’s definitely big enough to move the needle. Is it a big enough market by itself without the commercial side? The jury is out.”

Smaller Players
Not only big corporations are tapping into the billions government and the private sector are spending on security. Small companies, some with as few as a handful of employees, are also eager to land homeland security contracts. This is particularly so in Silicon Valley, where the government and military are hoping to find cutting-edge technologies to meet their security demands. The government and technology companies are interacting on an entirely different level these days. “We get, at least on a monthly basis, a parade of military and intelligence officials coming out here looking for technology,” says Robert Shaw, CEO of Arcsight, a 50-person cybersecurity company. “They’re not waiting for the integrators to go find it. They go right to the source.”

The source, that is, of the kind of cutting-edge technology that can take security methods forward by leaps and bounds. Technology like IntelliVision’s automated cameras. Used to monitor any sensitive area — government buildings, train stations, parking lots, ports — they’re already used in the Washington, D.C., Metro and at Disneyland. Nathan demonstrates the systems on his laptop, using everyday scenarios to show the cameras’ “intelligence.”

In one on-screen scenario, an unidentified man lurks outside the locked doorway of an office building. Another man, clearly absorbed in his thoughts, approaches and swipes his security card over a reader to enter the building. When the door opens, the loiterer calmly slips through the open door, closely shadowing the oblivious man. Nathan’s cameras pick up on the suspicious activity and send an alert to police or company security force.

How does the camera know to alert security about the loiterer who “tailgated” the legitimate visitor? Because it’s able to adapt its security search via artificial intelligence. “It learns the scene and the background, learns what’s normal over time,” Nathan says. “After it learns what’s normal, it looks for what is abnormal.”

But however compelling the technology, nabbing government contracts isn’t easy. Unaccustomed to dealing with bureaucracy, some entrepreneurs have been frustrated with the slow pace. Small companies often aren’t set up to handle long lead times, and this can complicate their desires to get government business. “The government’s sales cycle is very long, anywhere from three months on the lower end to one to two years,” Nathan says. “We need to have short sales cycles to get the products out and start growing. That’s why sometimes it’s hard for small companies to deal with the government as a customer.”

It can also be difficult for small companies to attract Washington’s attention. Making the necessary contacts in state and federal governments takes time, and it’s not the same kind of glad-handing businesspeople are accustomed to. “One of the problems small companies have had in getting into the homeland security business is finding their way through the Washington maze for the right door to knock on,” says Lee Ewing of the newly formed Homeland Security & Defense newsletter.

Some observers, though, believe that these barriers might be useful. An avalanche of proposals from inexperienced companies can slow the procurement process, and thus, the process of mending holes in the security net. “There are many companies taking relatively generic products and services and pasting a homeland security label on them and hoping that will attract favorable attention,” Ewing says. “What this does for potential purchasers in the federal, state, and local governments and in the private sector is, it makes it more difficult to find the real players who have something to contribute.”

But for some savvy small companies, like Arcsight, the homeland security boom has been a boon for business. Arcsight is helping clients in government and industry manage threats posed by everything from hackers invading a computer system to a rogue employee trying to print and steal sensitive documents. Arcsight’s software has drawn enough notice that the CIA’s venture capital fund, called In-Q-Tel, opted to invest in the company.

Arcsight’s interactions with the government have so far been smooth. “We’ve found that the government is at least as good as the private sector,” says Hugh Njemanze, the company’s chief technology officer. “In the whole evaluation process, the government has been just as good as anybody else.”

Which is why so many Silicon Valley techies are hitting the streets of the capital. “Every CEO and every executive in the Valley now spends time in Washington,” says Arcsight’s Shaw. “I would say there’s more air traffic to D.C. than there is to New York now.”

It’s that old adage: Follow the money. And the government is today’s big spender. “Homeland security is currently the only game in town,” says Jonathan Tal, president of HSRC. “That will not change in the near future.”

randy lyhus is a freelance illustrator from kensington, maryland. he works for clients such as the wall street journal, business 2.0, and american express.
"we get, at least on a monthly basis, a parade of military and intelligence officials coming out here looking for technology.

they’re not waiting for the integrators to go find it. they go right to the source."

— robert shaw, ceo of arcsight