Red Herring

Biometrics sector analysis

Finger scanners lead the biometric industry, accounting for more than 50 percent of the market.

November 4, 2003

Biometric devices identify individuals by electronically measuring unique physical characteristics or actions. Finger scanners are the most common type. This year, revenue from the scanners is expected to account for more than 50 percent of the market, according to the International Biometric Group, an industry consulting firm; hand, facial, and iris scanners represented about 10 percent each. In 2002 and 2003, revenue for biometric technologies has grown more than 50 percent, to $928 million, the group said, and is likely to continue at a similar pace for several years. Increased interest among large corporate clients and government entities is driving the skyrocketing demand. Several major government security initiatives - including the US-VISIT border entry/exit program in the United States and a national ID card program for Saudi Arabia - will launch within the next few years. Moreover, the U.S. government is already in the midst of implementing a Common Access Card for its federal employees. All of these will rely upon at least one biometric technology to link the ID card to its carrier. The use of two or more types of biometric data ensures a much higher degree of accuracy, so providers are increasingly moving to partner with or acquire companies that provide complementary technologies.

Public companies
Identix
Herring Take: Formed from a June 2002 merger with the facial-scanning company Visionics, the newly incarnated Identix has strong offerings for fingerprint-, hand-, and facial-recognition technologies. The company accounts for 80 percent of the market for live fingerprint-scanning equipment with the U.S. government. In addition, the International Civil Aviation Organization and the National Institute of Standards and Technology endorsed the company's new facial-recognition technology, the Automated Biometric Identification System, as having suitable standards for border security. With $100 million in revenue, Identix is six times the size of its nearest competitor. It is also in the running for additional revenue of $65 million to $100 million over the next several years for new projects, like US-VISIT and the Common Access Card, as well as upgrades on existing systems, like for the Immigration and Naturalization Service through the Department of Homeland Security. The additional deals may come in handy. In its last fiscal year (ended June), Identix was not profitable, losing $22.3 million before merger-related write-downs of $165 million on revenues of $92.5 million.

Recognition Systems (a wholly-owned subsidiary of Ingersoll-Rand)
Herring Take: Its patented technology is hand geometry, which identifies an individual by the size and shape of the hand. The company has over 75,000 hand-reader units installed worldwide. It is a subsidiary of Ingersoll-Rand, a construction, mining, and manufacturing conglomerate. Security and safety products provided $1.5 billion, or about one-sixth of the parent company's revenue, last year. The already-established customer relationships and widespread reach of Ingersoll-Rand (which also has other biometrics subsidiaries, like the facial-recognition company InterFlex) may aid Recognition Systems by providing enhanced sales opportunities and bundling options.

Viisage Technology
Herring Take: Already a favorite among state driver's license bureaus and casinos for its facial-recognition technology, Viisage is trying to tap into the federal security market. Through 1,800 systems in 1,400 locations in the United States, Viisage has delivered more than 25 million digital-identification documents for government agencies responsible for issuing drivers' licenses, social services cards, and law-enforcement credentials. Facial-recognition technology is highly accurate when verifying someone's identity from a document like, say, a passport. But selecting wanted individuals from a crowd is a much more delicate endeavor highly dependent on the quality of the original images. A recent partnership with the defense giant Raytheon to test facial recognition at Boston's Logan International Airport and another with the e-signature company InterLink are good steps for Viisage, allowing it to broaden its customer and product base.

Private companies
AuthenTec
Date founded: 1998
Number of employees: 52
Funding (millions): $50
Number of rounds: 3
Key investor(s): Sierra Ventures, Texas Instruments, Harris Corporation, Knickerbocker, Advantage Capital Partners, Stonehenge Capital, Newlight Associates, Firsthand Capital Management

Herring Take: A promising biometrics player, AuthenTec received its most recent round of funding, $15 million, in spring and was the first company to ship a million fingerprint sensors. Primarily for PCs, the sensors are used in place of personal identification numbers, passwords, physical access cards, and keys. The PC market accounts for 70 percent of the company's sales. And a newly announced deal with Microsoft to develop PC software that allows Windows users to log on via biometric devices will only help Authentec solidify its PC focus. The company is currently expanding into the wireless market. Other products include sensors for access control to buildings and automobiles.

Iridian Technologies
Date founded: 2000
Number of employees: 30
Funding (millions): $37
Number of rounds: 2
Key investor(s): GE Equity, Perseus, Joh. Enschede, Itochu International, Walden Capital, Penny Lane Investments

Herring Take: Look for Iridian to remain a leader in the iris-recognition business. Every human iris is unique, making iris-based identification schemes possible. Best used when confirming previously established identities, the technology is highly accurate yet very expensive. Iridian's technology and patent holdings are based on the algorithms originally developed by Cambridge University's John Daugman, the inventor of iris-recognition software. Most of the company's customers are airports, like New York's John F. Kennedy airport, that use the technology to allow entry into security-sensitive areas. Amsterdam Airport Schiphol and Vancouver International Airport have used Iridian systems to facilitate the easy passage of frequent-traveler customers through security checkpoints.

Ultra-Scan
Date founded: 1989
Number of employees: 40
Funding (millions): N/A
Number of rounds: N/A
Key investor(s): B. Thomas Golisano, SAIC Venture Capital Corporation, New York Empire State Development - Small Business Technology Investment Fund, Rand Capital

Herring Take: Ten times more reliable than optical technologies, ultrasound is the most accurate method for reading fingerprints. It provides a greater ability to read prints under conditions that typically obscure optical fingerprint readings. One of Ultra-Scan's founders, John Schneider, realized the potential of the technology while working on a related project for the U.S. Federal Bureau of Investigation. The company still has strong ties to the federal government. It recently entered the second phase of a $1 million contract with the Department of Defense, in which it will be installing an in-field fingerprint-identification system for the Army. Look for Ultra-Scan to take the lead when it comes to rugged environments that require near-foolproof accuracy.