Palantir Technologies: A Problem for Intelware Competitors?
September 24, 2020
The Palantir Technologies initial public offering is looming. Pundits are excited; for example, “Palantir Has A Long Uphill Battle Towards Customer Acquisition, But Benefits From Stickiness And Contract Expansion” makes clear that the journey to profitability may be like the Beatles observed: A long and winding road. Others are focused on churn; for example, “5 things to Know about Palantir’s Upcoming IPO.” DarkCyber’s response: “Just five?”
The issue is intelware. Many companies have tried to convert selling to law enforcement, intelligence agencies, and regulators into a billion dollar software and services business. There are some success stories; for example, Booz Allen fits the bill. The company sells time. The company has its own software, not much, but it exists. The company cheerleads, which is a nice way to say that for money “experts” will talk about promising products from the competitive marketplace.
Palantir is more like Autonomy than a blue-chip consulting firm. Autonomy played the “secret black box” chip with its neuro-linguistic programming. It worked until it did not. The firm licensed its black box to BAE Systems in the 1990s. The Autonomy marketing machine then generated revenue slowly and steadily. Then Autonomy acquired companies and cranked up its sales machine. At “peak Autonomy,” the well managed outfit Hewlett Packard, grabbed a brass ring with Autonomy engraved on it. The cost was north of $10 billion and years of legal bills. Autonomy was a publicly traded company, and it had a revenue track record dating from 1996. The HP deal was completed in October 2011. That means that the FY2010 data give us an idea about how much secret black box software can generate with “advanced” software, great marketing, and demanding management. The revenue for Autonomy after 15 years was in the neighborhood of $870 million.
One of Palantir Gotham’s innovations: A right mouse click displays a wheel of choices. The interface is definitely jazzier than that of Analyst’s Notebook, now owned by IBM.
Palantir Technologies opened for business in 2003. The company has been in business for 17 years. Yep, that’s two years longer than Autonomy. And what is Palantir’s alleged revenue for the last fiscal year? $742 million. The company’s advantages were the support of Peter Thiel (a Silicon Valley Thor), secrecy, a method for importing ANB files (if you don’t know what this is, well, what can I tell you in a free blog post?), and okay sales and so-so marketing. (One of Palantir’s innovations was a wheel of choices, not Bayesian methods wrapped in mystery.)
If my math is correct, Autonomy generated $128 million more revenue that Autonomy. If one uses 2011 dollars, not the Rona roiled 2020 dollars, the difference is more like $400 million, give or take $20 million or so. Yep, Autonomy appears to have outperformed Palantir: Less time, more revenue.
What?
Why?
Who?
How?
Let’s take each question.
First, what? The lackluster performance of Palantir Technologies illustrates the difficulty intelware companies, even ones with great advantages like the aforementioned ANB filter, have making really big money quickly. Remember. To generate less revenue than Autonomy, Palantir required $2.6 billion in funding. DarkCyber thinks that patient investors may be nervous about their investment which could melt away like a real snowflake. You can work out the math. Take 17 years of losses, subtract the revenue generated over 17 years, add in some interest just for spice, and mix into a pressurized container containing the fumes of burning a big cash pile.
Why? The reason is that generating substantial revenues from government contracts, regulated businesses like banks, and creating an analytic tool that helps something like an energy company discover an overlooked oil deposit is difficult, slow, and complicated. These customers have established relationships; for example, there’s BAE Systems, Booz Allen, IBM Federal Systems, Raytheon, and about 50 other outfits which grab the apples on the fruit trees often before they are ripe. Outfits like Palantir Technologies have to compete with low-cost providers like Hunchly and Sixgill, open source or low cost software, low fee, unemployed “experts, and jaded, procedure centric procurement officials. The purchasing mechanisms have been in place for decades (Booz Allen was founded in 1914. That was 106 years ago. Quick question: Who designed the Department of the Navy? Answer: Mr. Allen of Booz, Allen & Hamilton. How well does Booz Allen understand government procurement? Take a wild guess.) The Palantirians, with warm up jackets and sneakers, and attitude encountered the harsh realities of getting multi-year multi-billion dollar deals from major Beltway players. After 17 years, is the Palantir sales machine working like magic?
Who? The face of Palantir is Alex Karp, a person with an interesting background. Is he a denizen of Wall Street? Nah, he’s more comfortable in the Silicon Valley byways. Palantir’s other senior executives have mostly kept low profiles. I have one of rare pictures of a Palantir founder named Nathan Gettings from Illinois too. He is not a regular on CNBC as far as I know. (Quick recall: How many of these Palantir founders do you recognize from Dancing with the Stars?”)
These individuals may be the ultimate founders of Palantir Technologies, but Mr. Karp converted a fast cycle coding exercise into the juggernaut that consumed hundreds of millions of backers’ cash. The graphic is from a for-fee report about the intelware company. For details, write benkent2020 at yahoo dot com.
How? DarkCyber does not know how a company with 17 years hooked on its injections of investor cash generates so much excitement. There are 18,000 police departments in the US, the US government has about 60 enforcement agencies, there are a handful of Executive Branch agencies in the market for intelware, and there are 50 states with police departments. The total market, however, is smaller than some MBAs assume. The pool of uncommitted cash is not deep. (Most “sales” are proofs of concept or free placements with possible payment in the future if the system works.)
Also, Autonomy served a far larger market and hit a wall not far from Palantir’s alleged 2019 revenue. DarkCyber does not know how to produce hundreds of millions in new sales, additional sales to compensate for attrition among existing licensees, research, development, sales, marketing, and support. Getting there from here may be like the observation about Oakland, California: There is no there there.
The title of this free blog post is “Palantir Technologies: A Problem for Intelware Competitors?” DarkCyber believes that the Palantir IPO will be somewhat problematic for the hundreds of companies offering Palantir-like intelware solutions.
- If the IPO is a home run Babe Ruth style with the posturing and pointing thing, competitors will have to explain that their systems are better, faster, and cheaper. (Most customers go with cheaper in the Era of the Rona.)
- If the IPO is a meh. The competition chug along in status quo mode which means sluggish sales at lower and lower license fees. (Pray for follow on service work.)
- If the IPO tanks, the competitors with investors are likely to be summoned to Zoom meetings to explain how their financial targets will be hit. DarkCyber is not a fan of Zoom meetings.
Net net: This will be an interesting IPO and one that may make 2020 interesting. Because 2020.
Stephen E Arnold, September 24, 2020
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Needs correcting? “If my math is correct, Autonomy generated $128 million more revenue that Autonomy.”
Keep them coming!