How Obama Impacts the Security Industry

Author: John Honovich, Published on Nov 04, 2008

The security bubble is burst. With the election of Obama, US demand for security products will drop significantly as subsidies for security technology are reduced and global tensions are eased. This will place significant pressure on businesses to justify the real ROI of security technology and it will contribute to falling industry growth.

Here is the forecast:

  • Expect many, if not most, US government projects in development to be put on hold until February 2009 (after the inauguration).
  • Expect 2009 US spending on government related security technology to drop by 10% - 20% relative to 2008. This include direct military spending as well as homeland security and municipal projects funded by government grants.
  • Expect overall US security demand to drop by 4% to 8% (given the large impact government has on overall security spending).
  • Expect some reductions in global demand as other countries reduce their perceived need for anti-terrorism security measures.

The key drivers for this are:

  • Obama will reduce spending on defense and accelerate withdrawal from foreign wars.
  • Other countries, including those hostile to the US, will decrease their hostility as Obama reduces tensions relative to Bush.
  • Obama will engage in public work projects but these projects will only have modest security needs and will likely not have an impact until 2010.

The report belows provide preliminary analysis. A copy of the final report, released later this month, will be emailed to newsletter subscribers only. You can sign up below if you are not already subscribed.

The Security Bubble is Burst

The US has been in a security bubble for the past 7 years. The response to 9/11 has generated $23 Billion USD in homeland security grant funding. At least hundreds of millions spent on highly questionable security and defense projects. In the last few years, it has become clear that many of these projects are significant failures, like the US Mexico Border project and the ongoing problems in the NYC project.

Fear and subsidies have driven so many poorly thought out and unnecessary projects. The need for companies and the government to demonstrate a response and the stream of federal subsidies has resulted in a bubble. It has increased the public's skepticism of these projects (e.g., cameras not working) and in my own analysis it was clear that these technologies had almost no effect on stopping terrorists or other real time threats.

Stock Market Movement Demonstrates This

While McCain's odds of winning the presidency plunged in the last month, so too have many security/defense stocks. Up until the last 30-45 days, these stocks have generally matched the pace of the S&P 500. Then, as McCain odds plunged from 37% to 9% (as shown by intrade), these company stock's price have dropped 10% to 20% lower than the overall pace of the S&P 500. For instance, see L1, Northop, Smith & Wesson. Magal's another interesting example, up 45% for the year by the summer, Magal's stock suddenly plunged to -3% for the year in the last 45 days. (Note: thanks to "SecurityBear" for the idea for this test)

Given the correlation of McCain's odds falling and security/defense stock prices, I infer that investors believe Obama's presidency will significantly reduce the opportunities of these security/defense companies.

Decrease Spending and Subsidies on Security

Get Video Surveillance News In Your Inbox
Get Video Surveillance News In Your Inbox

Relative to the Bush administration, Obama will almost certainly decrease spending on defense and terrorism related security projects. We are already seeing the general recession impacting subsidies for security. The deepening recession, by itself, will put pressure on reducing these grants/ subsidies. Obama's political positions and his Democratic base will accelerate those reductions as well as accelerating withdrawal from foreign wars.

These grants and military build-ups have been critical to the growth of security projects, not only for the US military (a very significant buyer) but also for states, local governments, utilities and transportation companies. All of these organizations have significantly used grants to justify security projects that would not have been feasible or justifiable otherwise. The drying up of these grants will cause significant reduction in the industry.

Decreased Hostilities and International Tensions

The demand for anti-terrorist solutions is driven by or at least enhanced by the level of tensions and opposition to the US government. While the Bush administration accelerated worldwide hostility to the US, the evidence is clear that the world dramatically prefers and is more comfortable with Obama.

The fear and the tension of the last few years is likely to subside by Obama's presence, his temperament and his international policies. Though this is certainly good for peace, greater stability and reduced risk decreases demand for security products.

Public Work Projects Minor Impact for Security Industry

It is likely that Obama will engage in significant public work projects yet those projects will have far less benefit to the security industry than the Bush administration.

Given the current plunge in consumer spending and its projected continuation, economic growth will be severely constrained. The textbook economic approach to such decreases is to compensate and offset this through increased government spending - e.g., the New Deal in the Great Depression. We are very likely to see a 'new' New Deal as hundreds of billions in new infrastructure projects will be approved in 2009.

However, the impact of those programs will take time and only have small elements for security. First such funding will not pass until Spring 2009 and it takes time to allocate such funding. Actual security projects may not commence until the first half of 2010. Plus, these are likely to be infrastructure projects that will certainly have a security component but a far smaller percentage than military and homeland security.

Recommendations

The recession and Obama's election combine to create a new world for the security industry - one where many are absolutely not prepared.

  1. Cut Waste - Anytime an industry grows for years based on stimulated governmental demand, waste accumulates. Extra people, inefficient processes, carelessness of planning. The waste needs to be cut immediately, especially for private sector companies where this could be the difference between surviving and going bankrupt.
  2. Focus on Tangible ROI - The industry has had it easy for years selling into the fear of terrorism and the easy money of government funding. As this tightens, everyone needs to make sure that their products and services truly solves day to day criminal and operational problems.

1 report cite this report:

Obama Budget To Shrink Security Industry on Feb 27, 2009
With massive deficits building, Obama needs to cut long term spending. Obama's budget blueprint shows that cutting security/defense spending will...

Related Reports on Funding

Hikvision $6 Billion: Doubles Chinese Government Funding on Aug 18, 2016
This is seriously bad news for the rest of the industry. Hikvision has announced a new $3+ billion line of credit, in addition to the previous $3+...
You Can Invest In The Silicon Valley Robot Mini-IPO on Aug 16, 2016
Do you want own a part of the robot future? Now, you can. After gaining international fame with their robot runs over child debacle, Knightscope...
Silicon Valley Startup Launches People Counting As A Service on Aug 09, 2016
A Silicon Valley startup says their people counting sensor is so accurate it's free, just pay for the data. They recently raised $4M from a top VC...
Anti-Terrorism Video Surveillance Bad at Fighting Crime on May 16, 2016
So much of city video surveillance has been deployed and funded with the intention of stopping, or at least mitigating, terrorist attacks. But...
Vidsys Hangs On, Gets $11M New Funding on May 16, 2016
The founder of Vidsys claims to have invented the term "PSIM" in 2005, and for some time, many thought that PSIM was going to be the new VMS. Over...
Mark Cuban Funded Analytics Company Shifts Away From Security on May 10, 2016
In early 2015 Mark Cuban has funded a video analytics company, Netra, after the founder cold-emailed him. Now the company has shifted away from...
Vivint Gets $100M from Peter Thiel And Mitt Romney on Apr 27, 2016
One of the most prominent Silicon Valley investors and a former presidential candidate are backing Vivint with a $100 million investment.  In this...
BRS Labs Is Gone; Giant Gray Is Here on Mar 28, 2016
BRS Labs is no more.  After raising over $100M and years of outrageous claims, the company is effectively starting over. In the report, we examine...
Camera Doorbell Startup Ring Now With ~$100 Million Funding on Mar 16, 2016
Smart doorbell startup Ring has raised an additional USD$61M in funding. Ring has also announced a "Pro" doorbell, which is an enhanced product...
Pivot3 Moves From Video to Hyperconvergance on Mar 15, 2016
A decade ago, Intransa and Pivot3 both hit the video surveillance market hard with big money and big claims for advanced storage offerings....

Most Recent Industry Reports

Camera Calculator Class and IPVM Member Orientation October 2016 on Sep 28, 2016
Members, learn how to better design video surveillance systems and get the most out of your IPVM memberships with 2 upcoming live classes. Both...
Axis 4MP Camera Tested (M3046-V) on Sep 28, 2016
Axis has brought 4MP to its camera line in the new M3046-V, the highest resolution model in their revamped M30 series. We bought and tested this...
Hiring Spree At Aimetis 6 Months After Being Acquired on Sep 28, 2016
Aimetis was acquired in April 2016, and is now expanding almost all of their departments, hiring employees from Axis and other industry...
Camio Natural Language Processing Tested on Sep 27, 2016
The ex-Googler led team from Camio has advanced its video monitoring offering to include natural language processing. Camio ingests video,...
Access Door Controller Configuration Guide on Sep 27, 2016
Properly configuring access control door controllers is key to a professional system. These devices have fundamental settings that must be...
Hacked Dahua Cameras Drive Massive Cyber Attack on Sep 27, 2016
Cyber attacks are accelerating and IP cameras are behind many of them. Worse, last week, a 'massive' attack was carried out using numerous Dahua...
Axis Secretly Paid Anixter Sales People To Push Axis NVRs on Sep 26, 2016
Internal Axis communication shows how Axis paid Anixter and Tri-Ed sales people with secret bonuses to push Axis NVRs. In this report, we examine...
VLANs for Video Surveillance Tutorial on Sep 26, 2016
Many people confidently say to 'use VLANs' as an answer to IP video networking problems and as a way to signal expertise. But how should VLANs be...
Ambarella CEO Admits H.265 and 4K Not Popular on Sep 26, 2016
Ambarella is the main chip provider for high-end surveillance cameras driving higher resolution and new CODECs. While Ambarella has been pushing...

The world's leading video surveillance information source, IPVM provides the best reporting, testing and training for 10,000+ members globally. Dedicated to independent and objective information, we uniquely refuse any and all advertisements, sponsorship and consulting from manufacturers.

About | FAQ | Contact