Technology columnist Robert X. Cringely had an editorial in Newsday over the weekend that questions the wisdom of creating a new homeland security technology incubator in Bethpage, New York and casts a skeptical eye toward the future of the homeland security market:
Local state senators and business leaders have announced plans for a $21.1-million center in Bethpage designed to house 20 companies that will research and develop things such as explosives-detection systems and cargo-screening technology for the homeland security market.
They predict that this center, to be built on property next to Northrop Grumman Corp., the anchor tenant, will generate 300 research jobs, 2,000 manufacturing jobs and half a billion dollars in revenue in the next decade, keeping the region in the forefront of what many would expect to be a growing industry in the 21st century.
But while development is laudable, as is protecting the nation, the homeland security industry isn’t growing. In fact, it is wilting.
The article goes on to provide other evidence of a declining homeland security market, including R&D funding data from the AAAS that suggests a dismal market future and the fact that Boeing (according to Cringely, but not publicly verified) recently shut down its homeland security division.
I’ve been looking closely at the homeland security market for the last four years, and I co-authored well-received reports on the subject in 2003 and 2004. I was a realist about the homeland security market then. My estimates of the size of the homeland security market were relatively minuscule in comparison with the dreamy and inflated market estimates that excited the financial press at that time. And I think I’m still a realist today, which leads me to believe that the market prognostication in Cringely’s article is not as dire as it sounds.
The AAAS statistics that Cringely cites are accurate for what they intend to assess, but I don’t think that they’re the best proxy for the homeland security market, since they encompass only federal R&D spending (most of which never reaches the private sector) and not the much larger spending totals for federal procurement or state and local grant programs. The statistics also don’t encompass private sector spending or quasi-governmental entity (airport, seaport) spending on homeland security. Nor do they include international spending. If you add in all of these layers, then you can start to accurately represent the size of the homeland security market and decipher trends within it.
And even if Boeing (perhaps) shuttered its homeland security division, there are definitely still dozens of large companies and thousands of small companies that are chasing after this market. And there are many financial entities (private equity firms, VCs) that are still doing a brisk business in the homeland security market. And there is still, in my opinion, a deep need for the federal government to harness private sector creativity and technology to develop the next-generation of tools and systems that can play a critical and necessary role in fighting terror and securing the homeland.
The bottom line: yes, there were definitely inflated expectations about the homeland security market in the first 2-3 years after 9/11. Yes, a lot of people bought into the inflated hype, and there have been some companies that have exited the market – which is exactly how capitalism is supposed to work. But now that this hype has receded, there is still a very solid opportunity for companies that are willing to make a long-term and responsible commitment to the market.
Update (3/21): This op-ed is modified from an online essay by Cringely on the topic.