Shortly after the World Trade Center came crashing down, a contingent of tech industry heavyweights, including Hewlett-Packard's (HPQ) Carly Fiorina, AOL Time Warner's (AOL) Steve Case, and AT&T's (T) C. Michael Armstrong, flew to Washington to meet with Administration officials. And during the following 12 months, 100 or so tech leaders held a flurry of follow-up meetings with the White House and the Defense Dept. The subject at hand: how best to marshal the strongest ideas from Silicon Valley in the new war against terrorism.
Expectations ran high back then that the people who helped create the PC and Internet revolutions could put their skills to work. High-tech machines would snag weapons in airports, nifty software would help government agents spot the bad guys trying to sneak in, and stronger security systems would thwart cyberattacks. The tech industry jumped at the chance. Many people wanted to do their part to help a grieving nation. But in a year in which business spending on tech ground to a halt, tech heads salivated over the prospects of an unexpected and promising new multibillion-dollar market.
It didn't quite work out as well as hoped. Security experts argue that America is little safer today, as Washington and the tech industry struggle to see eye to eye. Tech leaders have been critical of what to them appears a state of chaos in the capital, as the President and congressional Democrats bicker over the details of a new Homeland Security Dept. And so far, only limited amounts of money have been spent. "There has been too much debate and very little action," complains Joseph M. Kampf, CEO of Anteon International, a $700 million Fairfax (Va.) tech contractor.
Washington agencies, meanwhile, have been saddled with the huge chore of evaluating a flood of proposals. In the three months following September 11, one inter-agency entity that vets research and development ideas, the Technical Support Working Group, received 12,500 proposals. Of those, 600 were pushed along for further review, resulting in just 10 contracts for $9.2 million, ranging from robotic bomb-mitigation systems to bio-threat detection devices. And In-Q-Tel, a venture fund backed by the CIA, has received more than 1,100 proposals from tech firms, double its previous rate.
Now, however, after a year of halting progress, the money is starting to flow more freely as the bureaucracy appears to be shifting into gear. With Congress expected to establish the Homeland Security Dept. in October and approve the Bush Administration's $38 billion request for anti-terrorism funding, companies with ideas and products are getting in line. And that's just federal spending. Total expenditures on homeland security by federal, state, and local governments, as well as the private sector, could range from $98 billion to $138 billion for 2003, according to a survey conducted in June by Deloitte Consulting Inc. for Aviation Week & Space Technology, which, like BusinessWeek, is owned by the McGraw-Hill Companies.
With so much lucre in the pipeline, tech companies are growing more optimistic. Homeland security is "going to be an enormous opportunity," says Major General Robert L. Nabors, senior vice-president for government solutions at Electronic Data Systems Corp. Adds Mark Kvamme, a partner at Silicon Valley venture-capital firm Sequoia Capital who has met with Defense Secretary Donald H. Rumsfeld and other top officials: "We are dealing directly with decision makers. They still have their budgetary constraints, but they are writing checks."
Where will all the money go? Initial winners are likely to be producers of specialized gear, such as InVision Technologies Inc. (INVN), one of two outfits certified to make the bomb-detection gear required in all airports by yearend. So far this year, InVision, whose sales in 2001 were $74 million, has racked up $439 million in orders from the Transportation Dept.
Traditional defense contractors such as Lockheed Martin (LMT), Boeing (BA), and Unisys (UIS)--far more experienced than your average tech firm at the sometimes byzantine ways of government procurement--are also cashing in. Nowhere is that truer than in the effort to make the airports safe. In June, the Transportation Security Administration (TSA) awarded a $1.4 billion contract to Boeing Co. and Siemens (SI) to install and maintain explosive-detection devices and to train 30,000 baggage screeners, while Lockheed Martin bagged a $350 million TSA award to integrate all security measures at the 429 largest U.S. airports. "The core competency of defense contractors is to follow the money," says Jon B. Kutler, chairman and CEO of Quarterdeck Investment Partners Ltd., a Los Angeles investment bank that specializes in the aerospace industry.
Still, tech titans such as IBM (IBM), EDS (EDS), and Oracle (ORCL) have hardly been shut out. In the most recent quarter, IBM said government business was its strongest sector, and HP saw double-digit growth in federal government markets. So far, many of the contracts remain tiny. On Aug. 21, Big Blue won a $20 million contract to build an instant-messaging network to assist 40 police, fire, and safety agencies around Washington, D.C., communicate and respond to an attack. Ultimately, such traditional tech bigwigs are unlikely to reap huge gains because government revenues, which typically account for 10% of sales, can't really boost the bottom line.
That's not the case for tiny tech startups, some of which are finding funding for everything from tracking cross-border financial transactions to cybersecurity. Sequoia Capital's Kvamme says roughly five startups backed by his firm are already doing business with the Defense Dept. "They are a very big and important customer which has gotten much easier to deal with," says Kvamme. Similarly, the CIA's In-Q-Tel has funded 21 projects, including several to help it comb through mountains of data.
Even at some of the most troubled agencies, the government is lurching ahead. EDS is the lead contractor for the Immigration & Naturalization Service's new Internet-based system to monitor foreign students. The President's 2003 budget also includes $380 million to finish building by 2005 a new system to track immigrants. By Oct. 1, Attorney General John Ashcroft said all U.S. ports will be able to take fingerprints of high-risk visitors from countries such as Iran and run them against a database of known criminals and terrorists. In the past seven months, a pilot version of the project has led to more than 2,000 arrests of felons.
Another bright spot is the U.S. Customs Service, a long-time user of technology. Customs is scrambling to secure the 14 million containers coming into U.S. ports against tampering. Million-dollar X-ray machines and nifty software tools are the main reason inspectors at New Jersey's Newark-Elizabeth Seaport say they're not overwhelmed by the task of monitoring 3,000 to 4,000 containers a day. The port has recently starting using an $850,000 machine that scans a container truck in seconds. All told, Newark Seaport now scans 10% of the most risky containers, up from 2% a year ago.
Clearly, much work remains to be done--including at the proposed Homeland Security Dept. itself. Just ask Steven I. Cooper, who on September 11 was running tech operations at Corning Inc. The 52-year-old former U.S. Navy pilot applied for and won the post of chief information officer at Homeland Security. Since March, Cooper has begun the huge task of overhauling all the computer systems that will be part of the new agency. His focus: crafting a plan to link thousands of disparate government computer systems, and finding ways to tie the feds with state and local governments and the private sector. "Our objective is to make sure the right people have the right information all of the time," he says.
Other gaping holes in the tech war on terrorism remain. One glaring example: the Internet itself. The control systems of key pieces of infrastructure such as the power grid are increasingly managed over the Net. Information about such control devices, known as SCADA systems, and how to program them were discovered on al Qaeda computers seized this year. Indeed, technologists say U.S. businesses are not prepared for a major cyberattack, according to a July study by the Business Software Alliance.
Clearly, it has been a long, tough year. Uncle Sam's slow start means the window remains open for al Qaeda and other terrorists to launch another attack. For the next few years, the country's borders, buildings, airports, mail, computers, and communications networks will be vulnerable at many points. And there's no guarantee that simply increasing the budget will improve security if the money is not well spent. But as Washington slowly gears up for the task at hand, there's little doubt that the country's technology wizards will play a growing role in defending against future attacks. By Spencer E. Ante in New York, with Linda Himelstein in Silicon Valley, and with Stan Crock and Paul Magnusson in Washington