Stateline Story

Firms Scramble for Homeland-Security Money

In Las Vegas this week, some 80 high-tech firms are showcasing their latest security-related software and hardware: everything from facial recognition and retinal scanning devices to data mining and anti-hacker programs are on display.

The companies are in America's gambling capital for the third annual Government Convention on Emerging Technology, a three-day event hosted by the U.S. Departments of Defense and Homeland Security as well as several private interests.

The purpose of the trade show is to introduce new technologies to potential government customers, including state and local officials. One highlight of the conference a terrorist threat simulation in a city already on high alert because of the federal warning before the holidays that the nation faces an elevated threat of terrorist attack.

The Las Vegas show is another manifestation of the fact that businesses, especially technology firms, are scrambling to pocket some of the billions of dollars in federal anti-terrorism grants flowing to state and local governments.

This year's Homeland Security budget includes $1.7 billion for state and local governments to pay for planning, equipment and training to prevent and respond to terrorist attacks. And law enforcement agencies across the nation are to receive another $500 million that may be used to buy information sharing technology or advanced communications equipment.

An additional $2.2 billion was announced by the Department of Homeland Security last fall to help protect state and local governments protect critical infrastructure, and $725 million was given to high-risk urban areas.

The business analysis company Input recently urged technology companies to move quickly to become "the vendor of choice by state and local governments."

"Technology vendors and service providers have been disappointed that most of the state and local grant funding to date has been for suits and boots' and first responder salaries," according a November 2003 issue of Input's Homeland Security TechWatch. "However, more opportunities will open to technology contractors in the future. Look for the nature of the spending to change over the next two years as the need for manpower, facilities and basic equipment is met and governments move to install more sophisticated systems."

Some tech companies are aggressively hawking their products directly to state and local officials. Missouri's chief information officer, Gerry Wethington, told Stateline.org he could spend his whole day on the phone fielding sales calls.

Wethington receives eight to 10 phone offers a day, he said, from companies of all size promising security solutions for the state.

Investors and venture capitalists too, are eyeing the homeland security market's potential. The Paladin Capital Group has enlisted former CIA director James Woolsey, among other well-connected experts, to head its Homeland Security Fund, which is backing three companies: one that specializes in anti-bioterrorism, and two that are developing information security products.

Patriot Venture Partners, LLC, based in Massachusetts, also is looking for a payoff from security solutions.

"The massive, broad-based public and private investment in Homeland Security Innovations responding to emerging threats to business and society are ushering in a new era with entirely new investment requirements," Patriot Founder Mark Thaller states on the firm's Web site.

Not all companies are cut out for the homeland security market. In the hurry to close deals, many companies have not bothered to do their homework about states' homeland security plans, Wethington said. And some companies are simply repackaging products as security applications, he said.

"Unfortunately, some them were touting themselves as homeland security companies, but had never been in that business before," Wethington said.

Alf Anreassen, a technology market analyst for the Paladin Capital Group, said simply calling something a homeland security product is not likely to work because the customers are very sophisticated. "Lots of companies have tried to modify what they do," he said.

But large, well-established companies will likely benefit the most from the homeland security boom and bring along some smaller niche companies as partners, he said.

Kevin Rudden, a spokesman for the Veritas corporation, said companies should not try to capitalize on a terrorist attack.

Veritas, which specializes in data protection and recovery, was already well-positioned for the post-9-11 world, Rudden said.

"Initially, there was a gold rush where everything was homeland security," Steve Cooperman, director of the Oracle corporation's Homeland Security initiative, said. But he stressed that Oracle, which launched a homeland security task force immediately after the Sept. 11 terrorist attacks, has long worked with the defense and intelligence communities.

Oracle has not changed its products, but is educating state and local governments about how to use them for greater security as well as greater efficiency, Cooperman said.

"Government is very steady business for us," he said. "We're very excited by the work in homeland security."