Why Silicon Valley is still salivating over those sweet, sweet government defense contracts

The narrative that major tech companies are shedding defense contracts is wrong.


October 15, 2020

As noted by investor Elad Gill, tech innovations born out of the defense industry are many.

Think semiconductors, GPS and — the most important invention since Dr. James Naismith put a ball through a peach basket — the internet.

In recent years, though, the marriage of Big Tech and defense has hit the rocks. Case in point: Google famously dropped an AI surveillance program (Project Maven) after employee uproar.

Now, more defense-related startups are getting in on the action

Anduril has raised $241m to build tech including border surveillance, while Shield.ai has pulled in $48m to make defense AI systems.

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Perhaps most notably, Palantir — the Peter Thiel-backed firm that only recently left startup-dom — took on the abandoned Project Maven contract.

This may be creating a narrative that the biggest tech firms are shying away from government contracts, leaving a void for startups.

Don’t be fooled, though, says Gill.

Megacap tech firms are still happily taking that government cheddar

According to Gill, the list is extensive:

  • Amazon and Microsoft are fighting over the $10B JEDI contract
  • Intel, IBM, and Oracle have secured long-term gov commitments
  • Salesforce has the No. 1 enterprise solution for the government (AKA “Government Cloud”)
  • “Tons of SaaS companies”… although with much smaller contracts

When you consider that the US budget for defense spending is somewhere between ~$700B and $1T (give or take a few hundred billy), it’s not hard to see why tech companies of all sizes keep coming back to the well.

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