Global arms makers that have long relied on planes, tanks and guns for profits are increasingly focusing on the bits and bytes of cybersecurity as they bend to new US government priorities and a potential new battlefield. Weapons manufacturers are snapping up smaller companies that specialise in cybersecurity.
This is a fragmented market with smaller niche players whose services range from thwarting threats to computer networks to posing them in order to help defenders spot vulnerabilities. "We have created a special business unit for cybersecurity because we think that it's a field of expansion for us," EADS Chief Executive Louis Gallois told the Reuters Aerospace and Defence Summit in Washington this week. Cybersecurity is a growing concern across the US government. This year, the Pentagon tapped Army General Keith Alexander as the first commander of US Cyber Command. It was created to better defend the Pentagon's 15,000 computer networks that link more than 7 million machines.
It will centralise command of US military cyberspace operations, pull together existing resources and seek synergies that officials say did not previously exist. The command is to become fully operational next month. The confidential nature of the work as well as the rapidly morphing nature of the threat makes for big business opportunities, executives said.
"It's hard to put your arms around the size of that market due to the classified nature of that business," said L-3 Communications Holdings Inc CEO Michael Strianese. "You read about the bad things that happen, data being taken or things being hacked into in the public domain," Strianese told the Reuters summit. "Can you imagine what's going on that you don't read about?"
Alastair MacWillson, a senior executive in Accenture's cybersecurity practice, estimated the value of the global cybersecurity market at $80 billion to $140 billion, depending on how broadly it is defined. Boeing Co the Pentagon's No 2 supplier by sales, has made several acquisitions in the cyber sector, including the purchase of Argon ST earlier this year. Market Research Media has estimated the federal government will spend $55 billion between 2010 and 2015 on cybersecurity.
Lockheed Martin Corp, the Pentagon's No 1 supplier, and Northrop Grumman Corp, the third-biggest, also told the summit they were keeping an eye out for possible cyber-related acquisitions. A key challenge is that any defence against cyber threats must be constantly updated. A given defense could have a shelf life of as little as three months, Lockheed Martin Chief Executive Robert Stevens said at the summit.
"You don't want to buy something that has a rapidly expiring value because you own it as a core proprietary solution and it's of very little value in a year or two," Stevens said. "Almost by the time you integrate the company, the value could be gone." This paves the way for what Accenture's MacWillson termed "talent warfare" among companies jockeying to enter the cybersecurity space.
"Cyber to us involves predominantly having the right very smart people and then creating a climate for those people where they have all the contemporary means and mechanisms of understanding the cutting edge of how technology is being applied and can respond with real creativity and adaptability to that cutting edge," Stevens said. Defense companies are not the only ones eyeing cybersecurity acquisitions. Top suppliers already compete and partner with the information technology companies, and insiders expect competition to heat up.