How the US is increasingly reshaping the spyware market to favor companies selling cyberweapons to the US and its allies, like Israeli startup Paragon Solutions
Contrasting fates of Israeli spyware-makers Paragon and NSO reveal how American support is crucial in $12bn industry
Context & Ripple Effects
The spyware market has been splitting along Washington's preferences since 2021, when Pegasus export licenses became a tool of Israeli diplomacy and Edward Snowden called for a total trade ban on an industry he said 'only sells the virus'. The US then sanctioned NSO — yet a 2022 investigation found government spyware use booming anyway, including the DEA's secret deployment of Paragon's Graphite.
The Financial Times now argues American support is decisive in the $12bn industry: Paragon, founded in 2019 and profiled early on as funded by US-based Battery Ventures, sits on the favored side of that divide while NSO withers under sanction. The Atlantic Council data points the same direction — US-based spyware investors nearly tripled to 31 in 2024, overtaking Israel's 26.
First-order effects
- Paragon gains the commercial high ground: US government customers like the DEA already run its Graphite tool, so Washington-aligned agencies can buy from it while NSO remains locked out by sanctions.
- NSO, once hailed as an Israeli Silicon Valley success story, is reduced to competing for non-US customers without the diplomatic cover its export-licensing role used to provide.
Second-order effects
- Rival spyware vendors now have a clear playbook: attract US capital and sell to the US and its allies, which explains the surge in American investors recorded by the Atlantic Council.
- Israel's leverage shifts from controlling who buys Pegasus to deciding which homegrown firms get blessed for the US market, making Tel Aviv's endorsement itself a tradable asset.
Third-order effects
- The industry is structuring into a licensed tier serving the US and its allies and a blacklisted tier serving everyone else — meaning sanctions no longer shrink the market but redraw its map, exactly the outcome Snowden's ban call failed to prevent.
- If the pattern holds, export approval becomes the industry's core competitive asset rather than exploit capability, pushing vendors toward compliance-heavy designs and concentrating the $12bn market among a few US-sanctioned favorites.
The trend: The commercial spyware market is being reorganized around US alliance politics, with American capital and government patronage replacing Israeli export licensing as the gatekeeper determining which cyberweapons firms survive.