A secretive software-maker says hello to the stockmarket—and waves goodbye to Silicon Valley
Palantir’s longer-term prospects are murkier. Successful corporate-software firms develop programs and services that can be offered without much customisation to many clients. This is trickier in the data business, where every company has a unique digital footprint. When Palantir got going, it was in effect a professional-services firm, chiefly creating bespoke data-analysis systems for the likes of the CIA and the Department of Defence. In recent years it has developed more generic products for corporate clients. But its scepticism of standardisation means it continues to deploy plenty of engineers to tweak them. This increases costs and is likely to limit how big and profitable it can get, says Mark Moerdler of Bernstein, a brokerage.
Palantir’s origins bring other challenges, too. Because it came of age before the rise of computing clouds, its software often still inhabits customers’ data centres, making it less nimble than younger cloud-based rivals like C3.ai and Databricks. Working for the government, particularly its spookier agencies, has also created a secretive and proprietary culture that is not an easy fit with the sort of partnerships that other tech firms often successfully use to expand their business. And it remains heavily reliant on government contracts. Between January and June 55% of revenue came from official sources, up from 45% in the same period last year. It has only 125 clients, with the biggest three (unnamed) ones accounting for nearly a third of sales.
Closeness to the state also points to Palantir’s biggest risk: politics. From its post-9/11 beginnings it has seen itself as an instrument of national security. “If we are going to ask someone to put themselves in harm’s way, we believe that we have a duty to give them what they need to do their job,” Mr Karp writes in his missive. One of his co-founders is Peter Thiel, a famed venture capitalist of strong libertarian bent with an authoritarian streak—and an occasional supporter of President Donald Trump.
This—combined with work for Immigration and Customs Enforcement, a federal agency despised by progressives for its heavy-handed treatment of migrants, or the Pentagon’s Project Maven, to analyse drone footage—has made Palantir one of the most hated firms in left-leaning Silicon Valley. “I’ve had my favourite employees yell at me,” said Mr Karp earlier this year, from a barn in New Hampshire where he was self-isolating even before the pandemic. Some engineers have left. Others are demanding high salaries to remain; in the first half of the year Palantir paid $182m in stock-based compensation, 38% of revenue. Though being in bed with America’s law enforcers and spies won’t scare off other government customers, corporate clients may take fright, particularly abroad. As the prospectus concedes, “Our reputation and business may be harmed by news or social media coverage.”
Palantir, which has recently decamped from Silicon Valley to Denver, is trying to make a virtue of the culture clash. It paints itself as a patriotic problem-solver, eschewing the techno-Utopian pretensions of the West Coast’s engineering elite. They may know more than most about software, Mr Karp writes. “But they do not know more about how society should be organised or what justice requires.” ■