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Europe’s need to catch up with software-led New Defense

Daniel Ek is the co-founder and CEO of Spotify. Tom Enders is the president of the German Council on Foreign Relations and a former CEO of Airbus. Both are on the board of directors of the security and artificial intelligence company Helsing.

The return of imperialistic aggression to Europe has shaken democracies to their core. 

Russian President Vladimir Putin’s unprovoked invasion of Ukraine marks the end of a period of peace as we know it — one which almost came to be known as the “end of history.” But with the return of 19th and 20th century power politics to Europe, there’s now a real risk we may start equipping our armed forces to fight last century’s wars — more hardware, more tanks, more guns. 

By itself, such hardware won’t be sufficient in preventing future conflict or deterring modern, authoritarian adversaries. Undoubtedly, investing in assets to match the strength of other fast-growing global military powers is important, but to ensure dependable peace and stability, we need to deter anyone from starting another conflict.  

And for that, Europe must invest intelligently in the next generation of software-defined technologies for its defense. 

It’s not catch-up we must play, it’s leapfrog. And the solution is real innovation, which will be more likely to flow from new, well-funded defense technology companies — what we call New Defense. 

There’s no denying that technology has dramatically enhanced Ukraine’s military resistance in the war with Russia. 

Russia has a military budget 16 times that of Ukraine, yet Ukraine’s resistance, although largely improvised, has demonstrated that digitized, connected troops can push back conventional armed forces in innovative ways — even when physically outnumbered and outgunned. AI-enabled aerial reconnaissance and electronic warfare, combined with armed, networked drones, has halted whole tank convoys, destroyed helicopter fleets on the ground and persistently helped prevent Russia from gaining air superiority. 

These lessons won’t be lost on Putin and his military leadership, and they will be carefully studied by China as well. 

In response, what we need now is a new breed of defense companies, built to address new and future challenges. Europe must leverage the innovative capacities of its open, democratic societies to equip and transform its armed forces to face the new, digitized reality of conflict. 

Russian President Vladimir Putin | Matthew Stockman/Getty Images

This means truly embracing software to make hardware smarter. It also means accepting that existing defense contractors are unlikely to become digital natives — they struggle to attract and incentivize top software engineering talent and are stuck in a cost-plus business model, choking internal research and development (R&D) budgets to less than 3 percent.  

Instead, New Defense companies are software-first, they pay for their own R&D and employ fast, agile and iterative development practices. Culturally, they share the mission of keeping democracies from harm and see the importance of helping our men and women in uniform, while rationally questioning and probing the ethical implications of using technology in conflict. 

So far, the United States has led the way in this category. But Europe can catch up fast, as new companies are waking up to the needs and opportunities answered by New Defense.  

However, innovation funds and incubators won’t be enough for these companies to be successful. Governments must bring them to the core of where innovation matters — into large defense procurement programs.  

To do this, European governments need to redirect investment on a large scale. Currently, we estimate that disruptive technologies account for less than 1 percent of European defense equipment spending. This is disastrously little, and will see Europe fall further behind in the race for tech sovereignty. 

We, therefore, call for European governments to set a target of 20 percent equipment spending on New Defense companies. 

Such a target would have several positive consequences. Firstly, it would correct a market failure innate to the defense sector — micro-risk aversion. As procurement is deeply politicized, officials are incentivized to avoid the risk of betting on new companies. As the saying goes, “No one ever got fired for buying from a prime.” But this comes at the expense of the macro gains of introducing powerful cutting-edge military technologies. This needs to be reversed.

The target would also encourage existing defense contractors to partner and collaborate with New Defense companies, creating an incentive to establish internal New Defense initiatives. This should increase the R&D spending of established defense contractors, so that they can qualify for this share of new expenditure, reinserting more private capital into the R&D cycle.

Finally, and crucially, it would provide New Defense companies with the opportunity for real revenues, which, in turn, will encourage further investments from venture capital. Every euro or pound spent on New Defense by governments will boost private investment into cutting-edge technologies.   

There’s a precedent for this approach: The United Kingdom Ministry of Defense has already set a goal of allocating 25 percent of budgets to small and medium-sized enterprises, holding major contracts and government procurement accountable for ensuring a broad, diverse industrial base.  

We have recently spent a lot of time with the founders and technologists dedicating themselves to New Defense. Their mission to protect liberal democracies is real and infectious, their backgrounds are varied and their technological capabilities are nothing short of astonishing.  

Europe needs New Defense companies to update the capabilities of existing assets and to make ambitious programs like the Franco-German and U.K. Future Combat Air System successful. Failure to include New Defense will mean the failure and obsolescence of these programs — which will diminish our ability to deter and defend. 

We urge governments to embrace New Defense. This is the most powerful lever we have to show authoritarian governments that democracies are willing, and able, to defend themselves — and to catapult our armed forces into the future.

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