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  • After 17 years on the private market, data analytics company Palantir is

  • ready to make its public market debut.

  • Co-founded by Peter Thiel back in 2003, i ts mission: Providing software

  • that customers use to integrate volumes of data, from images to

  • spreadsheets, into a central platform where it can then be securely

  • analyzed and interpreted.

  • News of Palantir's plans to go public, as well as its recent announcement

  • that it will be relocating its headquarters from Palo Alto to Denver has

  • put the secretive software company in the spotlight.

  • Best known for its work with U.S.

  • government agencies like the CIA, the Department of Defense and, most

  • controversially, Immigration and Customs Enforcement, the company was

  • founded following 9/11 with the goal of defending American interests.

  • The core mission of our company always was to make the West, especially

  • America, the strongest in the world, for the sake of global peace and

  • prosperity. But in recent years, Palantir has also courted customers like

  • Airbus, Chrysler and BP.

  • Commercial customers now make up about 50 percent of the company's

  • revenue, a number that's trended upwards over the past decade.

  • And even though Palantir has never turned a profit, revenue has been

  • growing as losses have narrowed.

  • Perfectly normal for a software company to show that sort of trajectory

  • going into their IPO.

  • The question is, does the economic model over time look like one that will

  • eventually produce profits?

  • And you can certainly get there.

  • But while longtime investors are eager for the company to go public, for

  • others, confusion remains about what it is exactly that Palantir does and

  • why their work with law enforcement agencies has raised eyebrows.

  • The name Palantir comes from the Lord of the Rings.

  • In the fantasy series, Palantiri are spherical stones that help powerful

  • users see what is going on in other parts of Middle-earth and communicate

  • with each other. Founded in 2003 by billionaire Peter Thiel, alongside

  • current CEO Alex Karp, Joe Lonsdale, Stephen Cohen and Nathan Gettings,

  • Palantir's tech helps detect unusual or suspicious patterns in large

  • datasets, using techniques that the founders learned working together at

  • PayPal. The CIA was one of the company's earliest investors and its only

  • customer for a number of years.

  • Eventually, other intelligence agencies like the FBI and the NSA jumped

  • aboard, using the company's customized data analytics capabilities to

  • track and capture terrorists, insurgents and drug smugglers.

  • They cite Afghanistan and Iraq as two examples of places where soldiers

  • were mapping networks of insurgents and makers of roadside bombs by hand.

  • So they actually were bringing in technology to do things that

  • intelligence agents on the ground were having to do manually in very

  • dangerous places.

  • The company's software has been credited with helping to find and kill

  • Osama bin Laden. And though this has never been confirmed, Palantir

  • certainly has not disputed it.

  • The tech's also helped to uncover Bernie Madoff's Ponzi scheme and rooted

  • out Chinese spyware installed on the Dalai Lama's computer.

  • We work hand-in-hand with most of the special operators in the Western

  • world. We work hand-in-hand with most of the clandestine services.

  • We're in over 40 countries.

  • Today, the company increasingly works with high-profile commercial

  • customers too. Its first was JPMorgan Chase, which adopted the software in

  • 2009 to monitor employees who might go rogue.

  • However, the partnership ended in scandal when JPMorgan's Special

  • Operations Lead used it to spy on top executives.

  • Others have continued to express interest, though.

  • Fiat Chrysler now uses Palantir to identify potential faults in car parts.

  • Airbus uses it to respond more quickly to manufacturing problems,

  • accelerating the production of its 350 aircraft.

  • And BP uses it to analyze drilling data, reportedly leading to a 10

  • percent increase in oil production in the North Sea.

  • This is a hefty piece of software that runs across an enterprise and is

  • used for understanding everything that a company faces, whether it's their

  • customers, their supply chains, downtown, geographies where there's

  • growth, where their competitors are gaining share.

  • As revenue from the commercial sector has increased over the years, CEO

  • Alex Karp has had to rethink his historical dismissal of salespeople.

  • We don't look like a classic enterprise software company.

  • We have no salespeople.

  • Almost everyone here is an engineer.

  • Not anymore. Karp's been building out a sales team.

  • And in 2019, the company spent 61 percent of its revenue on sales and

  • marketing. However, long-standing government contracts remain integral to

  • the company's revenue as well as its reputation.

  • And during the coronavirus crisis, Palantir has formed a number of new

  • partnerships too, with the VA, the National Institutes of Health and

  • Britain's National Health Service, helping these agencies, as well as the

  • CDC, to track the spread of the virus and allocate resources.

  • In order to make decisions r ight now, in order to know where the PPEs need

  • to go, in order to know when and where you're going to reopen , you want

  • all the analytical models, all the pieces of information, all in one

  • place. Palantir is really designed to thrive in a crisis.

  • But especially under the Trump administration, t he company's work with ICE

  • and police departments has raised considerable concern in the

  • liberal-leaning Silicon Valley, leading Palantir to double down on its

  • commitment to law enforcement and national defense.

  • So I do think this idea of like nationalism and libertarianism is kind of

  • intersecting in a very interesting way and Palantir seems to represent all

  • of that. Protests against Palantir first gained traction in 2018,

  • primarily in response to the company's contracts with Immigration and

  • Customs Enforcement, which are worth up to 92 million dollars.

  • The agency has cracked down on illegal immigration through workplace raids

  • and separating families at the border.

  • My house has been protested for many months, almost every day.

  • Our office has been protested.

  • Many Palantirians protested against it internally.

  • Some people were so upset about it that they left.

  • These are very hard decisions.

  • Co-founder and board member Peter Thiel is probably president Trump's most

  • famous Silicon Valley backer, donating 1.25 million dollars to his 2016

  • campaign. Karp's politics differ, but he says that Palantir remains fully

  • committed to aiding the U.S.

  • government. I've never stopped being critical of this administration.

  • I'm not planning to vote for this administration.

  • So there are things I would do differently.

  • The core issue though is, who decides?

  • The small island in Silicon Valley that would love to decide what you eat,

  • how you eat and monetize all your data, should not decide who lives in

  • your country and on what conditions.

  • There are elections. There are rules.

  • They should be enforced. Karp's ethos also holds true for Palantir's work

  • with police departments, from New York City to Los Angeles, New Orleans

  • and Chicago, who have used the tech for surveillance of criminal suspects

  • and predictive policing, a tactic that civil liberties groups say leads to

  • over-policing of minority neighborhoods.

  • But can Palantir really claim to be above the political fray?

  • I understand the desire to be neutral and to kind of say, hey we're gonna

  • play by the rules.

  • That is a logically coherent stance if companies are also neutral with

  • regard to who makes the laws.

  • But hold on, if you're willing to back political factions with your own

  • money, you can't say while in this aspect of our business, we do influence

  • policy and politics. But over here we are politically neutral.

  • It doesn't work that way. Other tech companies like Google have backed out

  • of controversial contracts with the Defense Department.

  • But Palantir sees that as an abdication of responsibility.

  • Peter and I built a very patriotic company.

  • Google is clearly not a patriotic company.

  • Karp also hit back against the culture of the Valley in the company's S-1

  • filing to go public.

  • Here's what he had to say: The engineering elite of Silicon Valley may know

  • more than most about building software, but they do not know more about

  • how society should be organized or what justice requires.

  • Our company was founded in Silicon Valley, but we seem to share fewer and

  • fewer of the technology sector's values and commitments.

  • In August, the company announced it will move its headquarters to Denver,

  • Colorado, likely both a financially and morally-motivated decision.

  • The Valley has basically sold its soul to an advertising model where it's

  • OK to sell your data, but it's not OK to support the country.

  • And they didn't want to be part of that ecosystem and didn't feel that

  • that ecosystem was aligned with their values.

  • So what does all this controversy mean for investors?

  • For those who believe in Palantir's mission, it could be an asset.

  • And for those with qualms, while it ultimately may not mean much.

  • The general belief around the Valley is that public market investors in

  • particular talk a big game about governance and about things that they

  • view as acceptable and unacceptable, and then they buy the stock anyway.

  • Though Palantir has yet to turn a profit, t his isn't of considerable

  • concern to investors, who are used to betting big on tech companies

  • operating at a loss.

  • What will affect the company's value is whether investors view it more as

  • a high-growth tech company or a lower-margin consulting firm.

  • That combination makes this a bit of a Rubik's Cube for investors, because

  • it's not a pure play software model.

  • For most of its history, Palantir has spent heavily on software

  • customization services for both government agencies and large

  • corporations. It is a very costly business to run.

  • But if they can automate their own processes and have a more efficient

  • sales process and get the biggest customers to continue to buy more, then

  • their operating metrics do improve over time.

  • As of late, that's what Palantir has been trying to do.

  • And now it offers two fixed-fee platforms, Gotham for government clients

  • and Foundry for the private sector.

  • The company's target market is said to be the 6,000 companies that make

  • 500 million dollars or more in revenue.

  • So the average customer spends over five million dollars a year on

  • Palantir's product.

  • The top 20 customers account for roughly two thirds of their revenue.

  • They say they only have about 125 customers.

  • So this is fundamentally different than your Zoom and your Slack.

  • It is not for everyone.

  • In 2015, when Palantir raised its last funding round, the company's

  • valuation was upwards of 20 billion dollars.

  • But lately, share prices have been all over the map, indicating a

  • valuation range of anywhere from less than 10 billion to over 20 billion.

  • They're trying to show investors that they do have this really big market

  • opportunity, that they have a bunch of potential customers out there.

  • And that's where the skepticism is.

  • The true value will be clarified at the end of September when Palantir

  • completes its direct listing, a process that is similar to an IPO, except

  • that the company won't sell any new shares.

  • It will just unleash those held by existing investors.

  • Thus, the shares will be priced based on investor demand and if the stock

  • trades higher than expected, that value won't be handed to brand new

  • shareholders. I think the Palantir IPO is going to signal to venture

  • investors and others that serving the Department of Defense and military

  • business is going to be worthwhile.

  • Karp certainly hope so, saying that the future of our nation depends on it.

  • The country with the most important AI, most powerful AI, will determine

  • the rules. That country should be either us or a Western country.

  • Palantir doesn't do business with China, the U.S.'s main competitor when it

  • comes to AI. So if we bring our A game, we will win.

  • If we bring our D plus game because most people in the Valley live on an

  • island where this seems like a questionable project, they will win.

After 17 years on the private market, data analytics company Palantir is

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How Palantir And Its Data-Mining Empire Became So Controversial

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    joey joey posted on 2021/05/15
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