Palantir Technologies: Maybe Stealth Is Better for Specialized Services Companies?
August 24, 2020
I, like many other Palantir watchers, read “Leaked S-1 Screenshots Show Palantir Losing $579M in 2019.” My hunch is that this going public thing is not going to be the cake walk some envision. Palantir Technologies is a specialized services company. In my lingo, that means the firm’s principal technology was developed for and influenced directly by the needs of intelligence, law enforcement, and similar enforcement agencies. I am not going to dwell on some facts which informed Palantir observers should know; for example:
- The company was founded in 2003. That is just about 17 years ago. In that time, the technology for intel and LE professionals has advanced. Anyone who has been in the “enterprise software game” knows one thing: Keeping the 2003 Buick running is not getting easier, nor is it getting cheaper to keep that four-door sedan humming. What’s this mean? First, the built in costs for a 17 year old engineering structure are not likely to decrease. Second, massive investment is needed to keep pace with upstarts like Datawalk. Third, some of the new specialized services solutions are quite easy to use and very, very slick.
- Palantir has ingested about $2.6 billion from about three dozen, Type A, usually impatient, and generally attitude choked, entitled people. That’s a big price tag on a company losing about $600 million per year. Real estate should be less expensive in Denver, but the traffic? Yeah, about the same as Sillycon Valley.
- The number of customers for high end specialized software is small compared to the number of people who happily consume TikTok videos. That’s a big, big problem. The number of vendors selling more modern systems outnumbers the number of intel and LE entities able to purchase, training professionals, babysit, and then — in a crisis situation — actually use the Fancy Dan software.
But these are facts which I have written and lectured about, and I have not done much with Palantir’s approach to sales, its exciting interactions related to the i2 Analyst’s Notebook AND file format, and the changing economics for LE and intel agencies. Let me just say that this “downsizing” movement is not new and it is not going to make selling big ticket software easier. One former Swedish intel professional asked me for a recommendation for investigative software or what I call intelware. I told him, but the fellow said, “Nope, we’re going with a low cost Israeli solution. It’s good enough.” That’s a potential problem for specialized services firm with gigantic cash burning systems. Better is not going to be “good enough” to make the sale.
Let me hit my main point: Stealth. I have long been an advocate that specialized software companies avoid the public spotlight. There are many reasons. Going public is a very public action, and it exposes the financial weaknesses in a way which is ultimately either a home run or a strike out.
Consider Voyager Labs. What is this company? What does it do? Getting info is difficult. The firm is a vendor of specialized software, but it keeps a low profile or distracts with some wacky marketing play for (heaven forbid!) advertising companies. What about Nice? What’s it do? Customer experience. Yeah, CX. And there are hundreds of other companies in the specialized services business. Only a few have gone public, and these outfits are very skilled at making sure their businesses are positioned in a way that seems logical to those unfamiliar with some of the more interesting facets of their business. One example is Verint. Another is BAE Systems. Will Palantir emerge as a BAE Systems-type outfit with shares chugging along in a range that does not excite Robinhood investors? With the losses reported from a somewhat mysterious source, it’s hard to say. But on the surface, assuming the “leaked” financial data are accurate, it seem like a long shot.
The IPO, the investors and stakeholders hope, will get them some cash. Will the payoff be one of those pre-Rona 17X jobs? You will have to noodle that question as you ponder 17 years and losing half a billion a year. Just getting one’s money back might be a realistic scenario to ponder. On the other hand, there is the possibility of losing money. Not a happy thought. Stealth may be a better option for some specialized services firms.
Stephen E Arnold, August 24, 2020
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