An Analyst Wrestles with the Palantir Realities

May 23, 2022

Palantir Technologies in my world view is a services and software company positioned as a provider of intelware. Intelware means software and services which allow users to extract high-value information from text, numeric, and possibly image and video data.

Palantir, founded in 2003, has been influenced from its inception by precursor software like the original i2 Ltd. Analyst Notebook and BAE Systems Detica. Both of these systems allowed user to intake “content”, enter the names of people or things, and display the outputs so that the higher-value facts were presented in a useful way; for example, a chart or a relationship graph.

The US government works to learn about new and potentially useful software and systems. Not surprisingly, a government agency showed interest in Palantir’s software when the entrepreneurs involved in the company started describing the Palantir features and functions. Appreciate that in its early years almost two decades ago, the presentations and demonstrations captured what I call “to be” systems; that is, at some point in the future, Palantir’s system and software would be everything that Analyst Notebook, Detica, and the other intelware vendors could offer. The pitch is compelling.

Palantir, now almost two decades old, is a publicly traded company, and it is working overtime to move beyond sales to governments in the US and elsewhere. One of the characteristics of selling intelware to non-governmental organizations is that the capabilities of the system and its use by government clients are often disconcerting to a financial institution, a big hospital chain, or consulting firm focused on real estate.

Furthermore, intelware systems require data. Some data can be easily imported into a system like Palantir’s; for example, plain ASCII text and Excel spreadsheets. Other data are in a format which must be transformed so that Palantir can import the information. Other data present challenges like converting an image with a date and time stamp into an indexed content object. That indexing, to be helpful and to reduce the likelihood of errors, has to be accurate. Some non-text data must be enriched. French content processing experts refer to this enrichment as “fertilization.”

The write up “Palantir: Complete Disaster” includes this statement:

We think there are three possible courses of action in the disaster that has been Palantir, all of which are correct.

Here are the three “courses of action”:

  1. Don’t buy shares in Palantir.
  2. Buy shares, maybe short the stock.
  3. Buy shares and ride out the downturn.

Each of these options ignore two issues. The first is why Palantir is not closing deals and showing a profit. The second is why an intelware company is not able to amp up its sales to government agencies in the US, Western Europe, and selected government agencies elsewhere.

My view is that Palantir is a tough sell for these reasons:

  1. To land a deal, the prospect has to know what the payoff from using the Gotham / Foundry system is. “Intelligence” is a hot concept, but it is a tough sell unless there is a “champion” inside the prospect’s organization to grease the skids.
  2. Competitors offer comparable products for as little as $5,000 per month and some of these competitors bundle third party data which can be fused with the licensee’s data with minimal fiddling with filters and file conversions.
  3. Newer systems are easier to use, include automated workflows which speed analysts, investigators, and and researchers work.

The slow sales of Palantir follow the same type of curve that sales of Autonomy, Fast Search & Software, and many other “information” or “intelligence” focused products have. The initial sales are from government agencies which want better mouse traps. When the intelware does not deliver markedly significant payoffs, the licensees keep looking for better, faster, and cheaper options.

Will Palantir be able to generate a profit and deliver organic growth?

If the trajectory of precursor companies is the path Palantir is on, the answer is, “No.”

Stephen E Arnold, May 23, 2022


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