Minnesota Technology

Body of Evidence

Winter, 2002
By Phil Davies

Biometrics is a hot technology these days- and several Minnesota companies are at its forefront.

It's a typical morning for Jeffry Brown, CEO of Bio-Key International. Strategic partners and federal officials want him on the phone. There's a keynote speech to prepare for a biometrics conference in New York. Meetings in California with top executives of Oracle Corp. and Siebel Systems loom on the calendar. Halfway through a demonstration of his company's finger identification software, Brown has to break off to dive into an impromptu teleconference with a hot prospect.

It's been like this since September 11, when the terrorist attacks transformed the tiny Eagan startup into a company poised to ride the crest of swelling interest in biometrics, technology that uses biological markers such as fingerprints, iris patterns, and facial structure to establish identity. "Our very strong and advanced biometrics [technology] is getting significant notice, with people from all over the country taking a look at us," Brown says.

For most of last year Bio-Key and other Minnesota biometrics firms struggled to make headway, spurned by investors and potential customers who saw no pressing need for their products. Fingerprint scanning by law enforcement was the only solid biometrics market. Then, on the day after the attacks on New York City and Washington, D.C., a collective yawn gave way to manic activity, with biometrics stocks soaring and biometrics firms from coast to coast reeling under a barrage of phone calls and e-mails. The frenzy has abated somewhat, but biometrics remains a hot commodity. Consider:

• Visionics Corp. of Minnetonka raised $20 million from private investors in October, and two months later, after landing contracts to install fingerprint scanners and facial recognition systems in U.S. airports, forged a "collaborative alliance" with mega-contractor Raytheon Co.
• Last fall Edina-based BioConX gained a powerful ally in its efforts to promote its network security software outside the health care field: Siemens, the multinational electronics conglomerate. Siemens will pitch BioConX software as the brains behind its ID Mouse, a computer mouse that "reads" fingerprints.
• In November former Israeli Prime Minister Benjamin Netanyahu signed on as an adviser to Bio-Key's board, helping secure licensing deals with national IT integrators.

Each company has staked a claim to a piece of an industry primed for growth. According to the International Biometric Group (IBG), a New York City consulting firm, global biometrics sales will mushroom from $524 million last year to $1.9 billion in 2005. While much of that will be spent on public safety, businesses are expected to invest heavily in biometrics to safeguard data, physical assets, and Internet transactions.

"Before September 11, many people didn't think the technology was there," says Wendy Angeles, product manager for biometrics and speech recognition at BMS Integrated Office Technologies, a Twin Cities computer system reseller. "Now you've got corporations looking at it to secure data from international espionage and banks looking at it for security."

Still, the state's biometrics companies face stiff challenges. They're competing against scores of biometrics firms, including giants such as Motorola and Sony that have muscled into the field. Charges that biometrics tools invade privacy are likely to resurface once the nation stands down from its war on terrorism. And the technology does need refinement.

Staring Down the Competition
Visionics is the star of Minnesota biometrics, the company that has already established itself as a national player. The firm has that $20 million in the bank, 220 employees, and solid revenue-$30 million in 2001, projected to reach $45 million this year. CEO Joseph Atick has testified before Congress on biometrics, delivered keynote speeches at international conferences, and appeared on Good Morning America-activities that keep him so busy that he's rarely in his sparsely furnished Minnetonka office.

The company owes its notoriety and financial backing to FaceIt, a facial recognition system that offers a first line of defense against known terrorists and criminals gaining access to airports, courthouses, and other public facilities. FaceIt was developed in New Jersey, but it's now a Minnesota product by virtue of a 2001 merger between privately held Visionics and Digital Biometrics Corp., a Twin Cities firm that pioneered fingerprint-scanning technology in the 1980s. Atick expects the firm's facial-recognition revenue, about $4.5 million in 2001, to triple this year, propelling the company to profitability by the fourth quarter. "[FaceIt] is driving the growth of the company because it is opening up new applications that were not available to us before," he says.

A pilot study of Argus, a version of FaceIt tailored for airports, began in December at two major U.S. airports, with cameras mounted at multiple security checkpoints. An alarm goes off when computers find a familiar face in a "bad guy" database. In addition to the Raytheon deal, the company also has formed a strategic alliance with ARINC Inc., an IT vendor to the aviation industry. Both agreements allow Visionics' partners to resell FaceIt systems and integrate FaceIt software into their own products.

Live-scan systems that electronically record fingerprints were Digital Biometrics' bread and butter, and Visionics continues to market them to law enforcement and government agencies. Visionics has also introduced desktop and portable live-scan systems, and launched a mobile fingerprint identification system called IBIS, which is a handheld device that allows police to capture fingerprints in the field for wireless matching with law enforcement databases. IBIS has already been installed in squad cars in Hennepin County as part of a federally funded pilot program.

Over the next 18 months Visionics aims to branch into the private sector, leveraging government accounts to sell FaceIt and fingerprint machines to banks, parking ramp operators, and other security-conscious businesses. "Our Holy Grail is to go into the consumer and commercial arena, but we're not going to rush that, because we would burn a lot of marketing dollars," Atick says. "When the market's ready, we're ready."

The firm's archrival in facial recognition is Viisage Technology, a Massachusetts company that has also landed airport contracts. On the fingerprint side, Visionics vies with California-based Identix and more than 70 other companies. But Richard Ryan, an analyst for Minneapolis-based Dougherty & Co., believes that Visionics may have the edge in technology. FaceIt is the only commercially available facial recognition system that can process input from hundreds of cameras, in real-time. And no one else has a remote fingerprinting device like IBIS.

Battling Algorithms
BioConX and Bio-Key are much smaller, younger companies that have their work cut out for them.

Privately held BioConX is seeking $4 million in equity or venture funds to market its biometrics middleware-software that integrates other companies' devices and applications into computer networks. Founded by a group of Twin Cities software developers, the firm wrote its own biometrics algorithm in 1999 and went after the enterprise security market. BioConX's software eliminates passwords, substituting a single biometrics log-in for network administrators and individual computer users.

"We can substantially reduce log-in time and help desk time, and biometrics adds a tremendous amount of security," says Jim Langhans, CFO of BioConX. The software works with all major operating systems and an array of biometrics technologies. Last summer BioConX signed co-marketing deals with iris recognition manufacturer Iridian Technologies and Sony, maker of a credit card-sized fingerprint reader called the Puppy. The Siemens alliance followed, an arrangement with even greater potential to establish BioConX as the finger scan middleware of choice for businesses worldwide.

Langhans says that customer interest has surged since September 11, with companies previously considering pilot studies committing to full-scale rollouts of the software. But BioConX already had paying customers before then, primarily in the health care sector. The Health Insurance Portability and Accountability Act, effective in July 2003, puts the onus on health care providers to safeguard medical data-and to go beyond simply demanding a password for access. A number of IT integrators catering to hospitals, clinics, and managed-care organizations resell BioConX software. Dairyland Health Solutions, a Glenwood company that serves more than 400 hospitals nationwide, has installed the software in two Minnesota hospitals.

The company expects to bring in $4.3 million this year, becoming profitable by fall. To keep growing, and compete with KeyWare, BioNetrix Systems and other middleware vendors, BioConX plans to cultivate relationships with resellers in markets such as banking and government services.

Bio-Key International finally has traction after stalling in its first attempt to spearhead the biometrics revolution. Under its old name, SAC Technologies, the firm developed a device to process input from multiple biometrics technologies. But it didn't catch on, and in 2000 the company went back to the drawing board, reemerging last summer with a new name, new management, and a new concept-licensing security software for the Internet. Like BioConX, Bio-Key saw biometrics as a solution to hacking and identity theft in enterprise networks and e-business. But the company has focused on finger identification, developing a finger scan algorithm that Brown claims is faster and more accurate than other systems designed for law enforcement.

Bio-Key's offerings include Web-Key, designed to shield corporate intranets and online commerce, and a software development kit for melding its finger scan algorithm into existing applications and systems.

Brown says that Netanyahu, with his background in security and anti-terrorism, has been a key ally, opening doors in executive suites across the country. Companies that have licensed the firm's core algorithm include Y-Point Inc., a New- York-based system integrator, and Educational Biometric Technology, a Caledonia startup that develops lunch line checkout and time-and-attendance software for schools.

Bio-Key posted its first revenues in the fourth quarter of 2001, and projects more than $2 million in sales this year. One of Brown's top priorities is raising about $10 million from private investors, to be spent on ramping up operations to meet demand.

Staying on Top of Technology
For all its promise, if the biometrics industry is to live up to its billing, it must deal with pressing technical and social issues.

Privacy concerns are particularly worrisome. Can an e-commerce vendor sell customer data, complete with biometrics profiles, to telemarketers? And what's to prevent police from scanning crowds for political activists as well as terrorists? Atick of Visionics expects the American Civil Liberties Union and Privacy Foundation to again take biometrics companies to task. "The issue of privacy will not go away, and it would be a mistake to make it go away," he says, noting that he and other industry leaders are working with Congress to formulate new privacy laws governing biometrics. "You have to address it."

Samir Nanavati, a partner with IBG, expects further consolidation in the market, with many small, cash-poor firms closing shop or being absorbed by larger competitors. To survive, small players like BioConX and Bio-Key will have to market themselves adroitly, Nanavati says, nurturing partnerships with name-brand firms and "getting in front of the right eyes to evaluate the technology."

And that technology must be rock-solid. Winning companies will offer systems that can unerringly zero in on their target at a reasonable cost, while safeguarding individual privacy. "The only way we'll stay ahead of our competition is by staying on top of technology and deploying it in a manner that will solve a current problem," says Donald Harris, BioConX's chief technology officer. "You're not going to sell any product if it's not going to solve a problem."