(machine roaring) - [Host] In November, the defense startup Anduril Industries released its latest autonomous weapons systems, Roadrunner and Roadrunner-M. (bombs exploding) The Roadrunners join Anduril's suite of AI-powered unmanned products that are shaking up the defense industry. (machine roaring) Since it was launched in 2017, Anduril has found success as a defense department contractor selling autonomous vehicles and the software that powers them. Today, the startup's technology is being used across multiple branches of the US Military, and in both the Ukraine-Russia and Israel-Gaza conflicts. The company was recently valued at $8.48 billion. Anduril was created to help build a new type of military to meet the demands of a changing battlefield. - We are in a position where over the last decades, we have built the wrong things. - We need a different kind of US military and a different approach to military power. - Anduril I think, is a healthy revolution for the defense industry. (soft music) - So this is Fury. It's an unmanned combat aircraft that is able to work in collaboration with manned fighters, with other manned aircraft to hugely push out the range that we can engage targets at without putting people at risk. That's kind of one of the coolest things about autonomous systems, not necessarily the fact that they can think faster or do better than a person, but they can also just throw away their lives. - [Host] Anduril's founder Palmer Luckey is among the more polarizing figures in the tech industry. - My name is Palmer Luckey and I'm a virtual reality enthusiast, and the designer of the Rift. - [Host] Luckey first found success when his virtual reality company, Oculus, was acquired by Facebook for more than $2 billion. But in 2017, Luckey was ousted from Facebook after a tumultuous tenure. (soft music) - Let me just show you very quickly what our software looks like. This is an example of what we think it's a pretty intuitive interface. - [Host] The foundation of Anduril is Lattice a software platform that serves as a command center of sorts, allowing a single human operator to control and coordinate multiple autonomous robots, be they a drone, a sub, or a mobile sentry. - What you're gonna see at the bottom is essentially all the different assets that are a part of the team, and then you're gonna see a graphical display that looks very similar to a lot of the software that we might use in everyday life, where there's a map in the background. You're gonna see multiple vehicles on that software, and each of them, you kind of know what role they're playing. Engineers are designing our software, much like the people who design the kinds of software that goes on our cell phones or on an iPad. It's meant to be very, very user friendly, hardware focused defense companies. That hasn't been the approached. - The US military likes to buy things. The whole contract mechanism is set up to buy things. And just now, I think generationally, culturally, they're starting to catch up to the idea that a software package can be just as powerful as the thing that it comes in. - [Host] But Anduril's Tech isn't the only thing that sets it apart. The startup is also pursuing a business model that borrows a lot of inspiration from the tech world. - The way that the traditional defense, really large defense companies are set up when they take risk, the market actually frowns upon that risk being taken. We are designed completely differently as a company. We are designed like a high-tech company, the set of investors that we have, and ultimately, hopefully, when we're a public company, it is expected that we take risk on. - [Host] Anduril says it's taking bigger risks because it's betting that the way we fight wars is changing rapidly. - What we're dealing with right now is a disruption created by technology created by the threats that we're facing. - [Host] Anduril's Chief Strategy Officer Christian Brose, likens this alternative to the Moneyball system described in Michael Lewis's book of the same name. - You guys are talking the same old nonsense. We got to think differently. - [Host] In "Moneyball," the Oakland A's attempt to put together a baseball club on a budget by employing computer-generated analysis to draft its players. - Similar to baseball. You have to come up with a strategy that is low-cost, that's going to allow you to build an affordable, sort of scalable approach that's going to be successful. For military terms, it's not relying upon traditional military systems, that come in very small quantities, that are rather large, very expensive, very exquisite, hard to produce, hard to replace, very manned, going the opposite direction, and relying on larger and larger quantities of smaller, lower-cost, more autonomous military systems that you can produce very quickly, you can replace very quickly. - Anduril I think, recognized that there was a gap in what some of the big primes were doing and sought to fill that gap. Thinking differently about defense is something that's hard to do if you've been very successful working in your particular way of thinking about defense. That's part of why Anduril is so interesting as an alternative mechanism. - [Host] Since the end of the Cold War, America's defense industry has undergone considerable consolidation. In the 1990s, the US relied on 51 primary contractors. Today, that number is just five. Lockheed Martin, Boeing, RTX Corporation, Northrop Grumman, and General Dynamics. According to a 2022 DOD report, fewer contractors has stifled innovation and undermined price competition. - We live in a world where 80% of weapons procurement goes to just five companies. - [Host] One of the biggest issues is cost-plus contracts. - Meaning they're paid for time, materials, workforce, and then a fixed percentage of profit on top. Because that profit is a plus, a lot of vendors are incentivized for the cost portion to be as large as possible as well. They can often make more money when something takes longer than it was supposed to. They can often make more money when they sell a solution that's more expensive rather than a solution that's less expensive. And this wouldn't be a huge problem if there was real competition. - [Host] Anduril is carving out an alternative pathway to secure DOD contracts by buying up smaller startups and small to medium sized businesses. - So when Anduril looks at buying companies, we typically want to buy companies that are quite far along building something that is differentiated, that is far ahead of what we have, and that would be difficult for us to catch up with. And so what it really comes down to is do they have something that will become much more valuable when paired with our core product, which is Lattice AI, can autonomy make this thing that they're making into a much more powerful product? And that's been the basis of all of our acquisitions so far. - [Host] Today, Defense contractors produce small numbers of large, expensive, heavily manned hard to produce weapons systems. The so-called Moneyball Military that companies like Anduril are working toward will be made up of large numbers of smaller, lower cost autonomous systems. - I don't think that Anduril will ever be able to completely replace one of the prime contractors. What they do is very specific and very well honed. We, unfortunately, are in a very uncertain world where great power competition is a potential. It's happening right now, and that great power conflict is a potential that we all have to deal with. And in that kind of world, the prime contractors are gonna be necessary to build those huge defense systems. - The large primes are struggling to do things the way Anduril does because they're publicly traded companies with an existing investor class that invested in them to be a certain type of company. At the same time, I hope they do get there. I think that maybe they're not gonna get quite to where Anduril is. But I think that we could get to a future where defense companies are spending more on developing their own products than the government is. I think that's a positive world. (upbeat music)

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