A Florida company is a leader in the technology of scanning fingerprints. Today, it's used to fight terror. Tomorrow, to buy a soda?
By KRIS HUNDLEY
Published May 30, 2004
PALM BEACH GARDENS - Since he joined Cross Match Technologies seven years ago, Theodore M. Johnson has battled long and hard to get government agencies and corporations to embrace his company's electronic fingerprint scanning technology.
Now that sales are gaining speed in a post-Sept. 11 world, Johnson finds that his company's products are popping up in some pretty high-profile places, such as prisons in Iraq, Catholic dioceses across the country and Martha Stewart's booking room in New York City.
"We're connected with all the scandals," Johnson, a retired PaineWebber executive, said recently with a sigh.
The diva of domesticity, for instance, gave Cross Match's ID 1000, which scans 10 fingers electronically, high marks for neatness. "You don't have to get that ink all over your fingers," Stewart told Barbara Walters during a TV interview in November.
Cross Match's technology was less popular with Saddam Hussein. The captured Iraqi dictator was reportedly indignant at having his prints taken using the company's device, saying, "This is how you treat criminals!"
Cross Match's chief executive said he was initially surprised when his products, which had been sold to the Army's Military Police unit at Fort Bliss, Texas, first turned up in Iraq - and prisons such as the infamous Abu Ghraib - about a year ago.
"The military was using it in Guantanamo and Afghanistan before we knew it, too," Johnson said.
The company is working with the Army to address problems raised in the government's investigation of the Abu Ghraib abuses, he said, specifically the difficulty of registering detainees and maintaining accurate head counts in the overcrowded prison.
If Cross Match finds itself at the eye of a minipublicity storm, Johnson would say it's about time. The Palm Beach County company was started in 1996 by three geeks in a garage who knew the FBI was converting 40-million ink-and-paper fingerprints in its database to electronic format.
Guy Scott, Ellis Betensky and Jim Davis, who had designed medical equipment, camera lenses and spy planes, respectively, looked at the existing technology for capturing fingerprints electronically and believed they could do better. Within a year they had a prototype, called the "aluminum brick" because of its size and material, to capture a digital image of a single fingerprint.
By 1999, they had created the ID 1000, which costs about $15,000 and is roughly the dimensions of a computer printer. It replaced a long-used fingerprint scanner that was the size of a refrigerator and cost $75,000. About 1,400 ID 1000s are now in use by federal agencies.
Robert Christensen, Cross Match's corporate vice president and resident fingerprint expert, said when the FBI started printing prisoners in Afghanistan using ink and paper, it had to toss out more than half the prints as unusable. "When they deployed our equipment, it went to a 1 percent rejection rate," he said.
But the technology is not infallible, as a Portland, Ore., lawyer recently learned. Brandon Mayfield was jailed for two weeks as a witness in the Madrid train bombing after the FBI mistakenly matched his fingerprints with prints on a bag found near the scene of the March attacks. After his release, the FBI apologized, blaming the mistake on a poor quality digital image sent from Spain.
Biometrics - verifying a person's identity from a physical characteristic such as a fingerprint, handprint, face or iris pattern - has long been seen as a potential gold mine. But while potential customers marveled at Cross Match's whiz-bang technology, contracts were slow in coming.
"Not as much has happened as you might think," said Johnson, who first invested in the company in 1997 after being impressed by the talent of the company's founders. "At this point, the flood is starting to come."
Johnson said his privately held company has about a 38 percent market share, behind market leader Identix, a publicly traded company in Minneapolis. The International Biometric Group, an industry consulting company in New York City, estimates that biometrics sales will be just over $1-billion this year and could quadruple by 2008.
Brian Ruttenbur, an equity research analyst for Morgan Keegan in Memphis, has been covering the biometrics industry for six years.
"This is an industry with a bunch of pioneers, and the problem with being a pioneer is that you're the first to get the land, but you're also the first to get the arrows," he said. "But it's coming because government spending is mandating it. And Cross Match is definitely a leader in the industry. If they can continue to raise private money and stay afloat, I think better times are ahead."
While Cross Match's early sales to the military and the Department of Justice were nice and got Cross Match's technology into some prominent places, Johnson said the company reaped unprecedented visibility when its devices were chosen for the first phase of the US-Visit program in January.
The visitor screening program, run by the Department of Homeland Security, uses more than 3,000 of Cross Match's smaller machines in 115 airports, including Tampa International, and 14 seaports to fingerprint foreign visitors. The machines capture two index fingerprints and check for a match against a government database of terrorism suspects and criminals in less than a minute.
Homeland Security secretary Tom Ridge hailed US-Visit as "a catalyst in the growing international use of biometrics to expedite the processing of travelers." The government is expected to announce by midsummer the contract for the next phase of the program, which will expand US-Visit to 50 of the nation's busiest land border crossings. Total government budget for US-Visit is $10-billion.
A spokesman for U.S. Customs and Border Protection said the rollout of US-Visit has gone smoothly so far. Cross Match said it has been told that the program has identified more than 300 criminals or people illegally entering the country. No terrorists have been caught using the program.
For Johnson, whose devices will print about 24-million foreign visitors this year, the publicity from US-Visit far outweighed the dollar value of the initial $2-million contract.
"I was in Europe in January and we had appointments with a number of major corporations and governments in Germany, Switzerland and Turkey," he said. "And they all knew who we were due to US-Visit."
Johnson was executive vice president at PaineWebber, responsible for the eastern half of the United States, when he first paid a courtesy call to Cross Match's founders. They had financed their initial research with a $250,000 loan and the note was coming due. Johnson paid off the note and became a major shareholder. In 1999, he took over day-to-day operations as chief executive.
Over the years he has raised more than $40-million in private funding for Cross Match. The former Wall Street executive, who is 70, brags that he has paid no sales commissions for funds raised and accepted little venture capital backing.
Today, Cross Match has 165 employees, about 100 of them engineers. The company is tucked away in the center of an office complex in Palm Beach Gardens, with assembly and research space in an adjacent area that was once an ice-skating rink. On display in Cross Match's lobby is a company scanner that was housed in a Merrill Lynch office next door to the World Trade Center. It not only withstood the blasts of Sept. 11, Cross Match officials said. It still works.
In February, the company made Forbes magazine's list of 10 Hot Private Companies. Last year it came in fifth on Inc. magazine's list of the nation's fastest growing companies, with growth of 11,517 percent between 1998 and 2002.
Cross Match's revenues were nearly $25-million in 2002; Johnson declined to reveal last year's sales, describing them only as "good."
"We're not made yet," he said. "We have a nice platform and a white-hot market area that is not a bubble. But we have no steady flow of income yet. Now it's a question of how we can leverage our technology for our benefit."
To maximize its revenues, Cross Match has started a services division, geared to the commercial market. Johnson wants his company to be seen as the one-stop source for corporations doing background checks and creating access cards for employees. He envisions Cross Match providing the fingerprinting and partnering with other companies to do credit and employment checks. His company would make money from selling machines, service fees and maintaining the database of employee prints.
Johnson said that since January his company has done deals with about a dozen major financial institutions, which are interested primarily in using Cross Match's device for enrolling employees. Other potential uses of digital fingerprint technology, he thinks, are to access a centralized database of medical records and to track missing kids. Cross Match, keeper of such databases, would reap the rewards.
"The government business is where the money is for the next two to three years," he said. "But the commercial side is where the home run is."
With that focus in mind, Cross Match has spent the past two years developing a biometric chip for the commercial market. Funded in part by a $2-million government grant, seven engineers - including Guy Scott, the only founder still involved with the company - have created the prototype for the Authorizer.
The chip is about a one-inch square piece of gray film that looks like a dirty version of a mouth-freshening strip. The Authorizer captures a fingerprint and compares it to the authorized user's. It uses a sonar-like system to test for blood flow, to ensure the finger belongs to a living person. It will also be able to measure for stress, so if a gun is to the user's head, the transaction will not be authorized. The company said the chip will be on the market in about a year at a cost of about $10 each.
Daniel Halpert, one of the scientists on the project, said the Authorizer could be used in everything from cell phones to credit cards to cars to verify the identity of the user.
"It will eliminate the need to carry an ID," he said. "I won't have to give my daughter quarters anymore for soda machines; I can give her a credit card and won't have to worry about her losing it. Nobody will be able to steal cars. This chip will bring forensic level biometrics to a mass market sensor."
Halpert, like others at Cross Match, scoffs at the idea that people may hesitate to be fingerprinted to get a soda. They say that if the public thinks their personal data is safe, they are willing to make the trade.
"People aren't saying you're invading their privacy," chief executive Johnson said. "They're saying you'd better protect our data. There could be abuses and they'd have to be handled."
Ari Schwartz, associate director of the Center for Democracy and Technology in Washington, said fingerprint devices that just capture key algorithms for matching purposes and do not permanently store the digital images have less potential for abuse. He said that though digital fingerprint images can be stored in an encrypted way, if that code were ever broken, fingerprints could never again be used for positive identity.
"People are more aware of privacy issues, but they also want more security," he said. "They know there are legitimate uses for fingerprints, but it's often difficult to know if it's actually helping with security or just making it look like there's protection when it's not doing much at all."
Ruttenbur, the Morgan Keegan analyst, said fingerprinting is becoming more commonplace, with six states including prints on drivers' licenses and many banks requiring thumbprints on checks for non-customers.
"Actually, storing fingerprints digitally - putting them in zeros and ones rather than storing the actual fingerprint image - is a pretty secure way to do it," he said.
As Ruttenbur watches the development of the biometrics industry, he expects the real growth to be on the software side, managing that massive database of zeros and ones, the mathematical building blocks of all computer languages and programs.
Cross Match's Johnson couldn't agree more.
"There's not much question about our technology," he said. "But we're really into being a solutions business, not just a box business. That's where the money is."
