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

Knightscope Raises $10 Million With $3,320 Average Per Investor on Aug 17, 2017
Congrats to Knightscope. And condolences to their legion of little investors. Knightscope has disclosed they have raised $10+ million from their...
Briefcam New Outsider CEO Promises Exponential Growth on Jul 31, 2017
Briefcam is now nearly a decade old, having raised over $20 million, to improve investigations and review of video. The company has remained a...
$28M Drone Detection Startup Examined (Dedrone) on Jul 25, 2017
Dedrone has received ~$28M in funding to build what they call an "automatic anti-drone solution", a system to detect drones, and then automatically...
OnSSI Gets $16 Million Funding on Jul 11, 2017
OnSSI has had a rollercoaster past few years. Between acquiring VMS company Seetec, breaking up with former OEM partner Milestone and a rocky...
Resolver Raises $20M For Acquisitions on Jun 29, 2017
Resolver has closed a $20M funding round, and has several acquisition targets lined up already. Industry people might better now Resolver from PPM...
Milestone / Canon Launch Cloud Startup Arcus Global on Jun 27, 2017
Milestone has spun off a business, Arcus Global, funded by their parent company Canon. The new company aims to transform the VSaaS market with an...
ESX 2017 Final Show Report on Jun 16, 2017
The ESX (Electronic Security Expo) day 3 / Thursday is done and the exhibits are over. IPVM was in Nashville covering it in-depth. Below covers...
Anomaly Analytics Developer iCetana Raises $6M For US/Europe Expansion on Jun 12, 2017
Australian-based iCetana says their GPU-based anomaly detection analytics are proven and ready to expand globally. To do that, they have raised $6M...
ShotSpotter IPOs, Facing Low Revenue and Losses on Jun 09, 2017
A rare event for North American security manufacturers has happened. ShotSpotter has IPOed on the NASDAQ, raising $30.8 million. US IPOs,...
Mobotix Owner Ups Investment In Knightscope on Jun 06, 2017
Knightscope is asking for investments from literally anyone, with a public "mini-IPO". Recently the company secured some additional funding from...

Most Recent Industry Reports

Avigilon CEO Attacks Asian Companies Cyber Insecurity on Aug 18, 2017
Avigilon CEO is taking aim at their Asian competitors. And he is going directly after these company's cyber security issues. In this note, we...
Sony Next Gen HD Dome Camera Tested (SNC-EM642R) on Aug 18, 2017
Sony has released their latest generation, claiming improved WDR and low light, increased IR range, and more. We tested the SNC-EM642R outdoor IR...
IP Networking Course September 2017 on Aug 17, 2017
This is the only networking course designed specifically for video surveillance professionals plus it includes live training, personal help and...
Knightscope Raises $10 Million With $3,320 Average Per Investor on Aug 17, 2017
Congrats to Knightscope. And condolences to their legion of little investors. Knightscope has disclosed they have raised $10+ million from their...
Axis and Arecont Legal Conflict Over Multi-Imager Cameras on Aug 17, 2017
Arecont threatened Axis. Axis has responded by moving to invalidate an Arecont patent. It is an important contest. Multi-imagers are Arecont's...
Directory Of Consumer Security Cameras on Aug 16, 2017
The consumer camera segment continues to grow, with new startups and models from existing players released seemingly every month. In this report we...
Cat 5e vs Cat 6 vs Cat 6a Network Cable Usage Statistics on Aug 16, 2017
Cat 5e? Cat 6? Cat 6a? What do integrators use in practice, today? 140+ integrators told IPVM. Here are the results: For those who want to...
Hikvision Responds To Cracked Security Codes on Aug 15, 2017
Hikvision has responded to IPVM's report on Hikvision's security code being cracked, both with a 2 page update to dealers and communication...
Stolen Video NVR / DVR Statistics on Aug 15, 2017
"But what happens if someone steals my recorder?" Anyone who has done more than a handful of jobs has probably heard this question several times....
Hikvision Europe Cutting Out Unauthorized End User Sales on Aug 15, 2017
The days of anyone buying Hikvision from anywhere off the Internet are numbered, at least in Europe, if Hikvision's plan comes to fruition. In...

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