Homeland Security: A Tech Boom This Time?

The expected spending surge has been slow to develop, especially for smaller tech outfits. Now, though, the money could be coming

Few people may remember it now, but a little over 27 years ago, Silicon Valley software tycoon Lawrence J. Ellison started on his road to riches as a humble contractor for the Central Intelligence Agency. Ellison and the two other co-founders of database giant Oracle (ORCL ) won a contract to write a supersecure database system that would allow the CIA to look at data in a new "relational" manner.

The rest is history, of course. Oracle went on to become a multibillion-dollar company, and Ellison became one of the richest men in the world. It's a classic story of rags-to-riches via a plum government contract.


  It's also a rarity. Few small tech outfits ever get close enough to the Pentagon to talk to someone about their technology. For all the buzz about private industry cashing in on spending by the Defense Dept. and federal intelligence agencies, the little guys hardly ever land those contracts. Indeed, it's usually tech giants like IBM (IBM ), Perot Systems, or the half-dozen or so Washington-centric consulting companies industry insiders like to call the "Beltway bandits."

All that was supposed to change after the September 11, 2001, terrorist attacks. It was glaringly apparent that the government needed better technology to help law enforcement, the spy agencies, and the military better share information, monitor America's borders, and protect vulnerable areas like airports and power plants. And the best way to get that technology, the theory goes, was at the source -- the little companies where the high-tech industry's innovations typically occur.

There have been successes. In-Q-Tel, the Central Intelligence Agency's nonprofit, venture-capital investment company, has invested in dozens of small outfits in Silicon Valley and has helped them negotiate the morass of federal requirements that most simply don't have the time or the manpower to handle. And big tech companies with plenty of clout in Washington like IBM have been snapping up some of those little companies, making it even easier to get that cutting-edge technology -- whether it's new surveillance technology or software that helps CIA analysts make sense of reams of information -- into the right hands.


  But good intentions haven't necessarily been followed by solid funding. While most companies spend around 2% of total annual expenses on research and development -- indeed, most software companies spend around 10% -- the Homeland Security Dept. spends less than 1%, says Ken Silva, chief security officer at VeriSign (VRSN ), a Silicon Valley computer-security specialist. Silva recently testified on Capitol Hill about the need to get serious about investment. "I pointed out that the government spending on research and development was grossly inadequate compared to what the industry is spending," he says.

Will that change? Some say yes. The next proposed federal budget has about $2 billion earmarked for R&D by Homeland Security's Science & Technology office. That's about 50% more than it had in the federal budget three years ago. Several pending congressional bills could give Homeland Security as much as $10 billion for R&D in hopes that it could become something like the Pentagon's Defense Advanced Research Agency (DARPA), which among many thing funded the research that led to today's Internet.

Of course, plenty of problems must be solved, not the least of which is getting a better grip on an arm of the federal government, Homeland Security, that didn't even exist four years ago. In a two-day special report, BusinessWeek Online looks at how small tech companies are trying to make inroads to solve the peculiar tech problems of Homeland Security. On day one, we profile the CIA's In-Q-Tel operation and take a look at Attensity, a software startup doing a range of work with the feds. On day two, we'll explain why data-sharing problems among federal agencies are so vexing, and we'll talk to the folks whose job it is to solve those problems.

These problems may be complex, but lots of little companies are out there, eager to solve them.

By Jim Kerstetter, Technology editor for BusinessWeek Online

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