Much of the Western military hardware used in Ukraine sounds familiar to any student of 20th-century warfare: surface-to-air missiles, anti-tank weapons, rocket launchers and howitzers. But Ukraine’s use of Western information technology, including artificial intelligence (ai) and autonomous surveillance systems, has also had a powerful, if less visible, impact on Russian forces. Commercial vendors supply Ukrainian troops with satellites, sensors, unmanned drones and software. The products provide reams of battlefield data which are condensed into apps to help soldiers on the ground target the enemy. One American defence official calls them, appreciatively, “Uber for artillery”.
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Behind this new form of warfare are some of the most unconventional minds in American tech. Everyone knows about Elon Musk, whose rocket company SpaceX put Starlink satellites at the service of Ukraine (though he has now restricted access from the battlefield). Your columnist recently met two other iconoclastic entrepreneurs. One is Palmer Luckey, a 30-year-old who in 2017 co-founded Anduril, a maker of surveillance towers, drones, unmanned submarines and an AI-driven system that supports them, called Lattice. With his trademark flip-flops, Hawaiian shirts and goatee, he is an atypical defence contractor (Tony Stark, Marvel’s gadget-obsessed “Iron Man”, springs to mind). Yet the startup is already shaking up the traditional model of military procurement in America. In its short life, it has won contracts in America and Australia. It provides autonomous systems to Ukraine. When it last raised money in December, it was valued at $8.5bn.
The other is Alex Karp, an eccentric doctor of philosophy with an Einstein-like mop of hair. (Mr Karp used to sit on the board of The Economist’s parent company.) Palantir, his Denver-based software firm, builds digital infrastructure to help clients manage lots of data, be it on security threats, health-care systems or factories’ productivity. Like SpaceX, it has blazed the trail for civilian-military ventures since he co-founded it two decades ago. He makes bold claims. Palantir, he says, has changed the way Ukrainian troops target the enemy, and even the nature of counter-terrorism. He credits its software with saving millions of lives during the covid-19 pandemic. It may not all be gospel truth (the description of British journalists he delivers while staring at Schumpeter—“bad teeth, hard questions”—is only half true). Yet there is little doubt Palantir is supporting Ukraine both on the ground and as part of NATO’s intelligence network. On February 13th, when it reported its first-ever quarterly profit and Mr Karp hinted that his firm might be an acquisition target, its market value rose to $21bn.
Both men are cut from similar cloth. They are Silicon Valley renegades. They criticise big tech for abandoning its historic link with America’s defence establishment. They lament the fast pace of civilian-military fusion in China, which they see as a potential threat to the West. To a greater or lesser degree, they are linked to Peter Thiel, a right-wing venture capitalist. Mr Thiel chairs Palantir and his Founders Fund was an early backer of Anduril (both names echo his love of J.R.R. Tolkien). To some that makes them creepy. Still, using different business models, both highlight how sclerotic the traditional system of “prime” defence contracting has become. They offer intriguing alternatives.
Like a prime contractor, Anduril only sells to military customers. But unlike defence giants such as Lockheed Martin and Northrop Grumman, it does so while taking all the research-and-development (R&D) risk on its own shoulders. Mr Luckey is a born innovator. As a teenager, he invented the Oculus virtual-reality headset that he later sold to Facebook for $3bn. Walk with him through the arsenal of airborne and subsea devices on display at Anduril’s headquarters in Southern California and his wonkishness as he explains the gadgetry is almost overwhelming.
His business acumen is no less sharp. He and his executives have no time for the Pentagon’s traditional “cost-plus” procurement system. Though it may be necessary for big projects like fighter planes and aircraft-carriers, they say, in general it distorts incentives, creating a risk-averse, expensive and slow-moving defence juggernaut. Rather than waiting for government contracts, Anduril creates what it thinks defence departments need, and uses iterative manufacturing and a lean supply chain to make products quickly and relatively cheaply.
It is fiercely competitive. Compared with the prolix, PowerPoint-heavy bidding processes for prime contracts, Anduril relishes the cut-and-thrust of “shoot-offs”, or competitions in which the Department of Defence (DoD) tests commercial products against each other. Its success rate is high. In 2020 it won a big contract to provide surveillance towers on America’s border with Mexico. Last year it secured $1bn from the DoD to provide autonomous counter-drone systems. It is building underwater vehicles the size of buses to patrol waters off Australia. Though there is an element of the “America first” crusader about Mr Luckey, he leaves no doubt that he intends Anduril to be a big, profitable business.
Lords of the slings
Palantir has tentatively started to achieve that status, but with a “dual-use” business model. It works for private clients as well as governments (albeit only ones friendly with America). Both on the battlefield and in business, its software cuts through the thickening fog of data to enable quick decision-making. Other dual-use firms are increasingly winning defence contracts. The Pentagon’s Defence Innovation Unit, set up in 2015, supports a big increase in the use of commercial technologies, such as AI, autonomy and integrated systems, to speed up the responsiveness to global threats.
Ukraine is a good testing ground. It is also a good simile. The struggle of tech Davids taking on America’s military-industrial Goliath is not dissimilar to tech-enabled Ukrainian troops battling the turgid might of Russia. ■
Read more from Schumpeter, our columnist on global business:
What would Joseph Schumpeter have made of Apple? (Feb 9th)
China’s BYD is overtaking Tesla as the carmaker extraordinaire (Feb 2nd)
How will Satya Nadella handle Microsoft’s ChatGPT moment? (Jan 25th)
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Source: Business - economist.com
