Unlocking the Secretive IPO of Palantir – What It Really Means
There are a lot of interesting IPOs in 2020, but Palantir represents a new shift. Let me explain. After decades of China cloning and engaging in corporate IP theft, their state-backed companies have superior leverage in the AI arms race and cold-tech wars.
Enter companies like Palantir, whose bulk of clients are made up of the U.S. Government sector. It does not matter if they are profitable, because it’s becoming essential to anti-terrorism and U.S. government activities. Like Microsoft pivoting to government clients with the Pentagon Cloud deal, Palantir claims to have values outside of Silicon Valley, moving to Denver Colorado.
What is Palantir, though? It’s hard to understand. Palantir is a data analytics company co-founded by Peter Thiel. It is finally going public after 16 years with a direction offering. The Denver-based company applied to list on the New York Stock Exchange under the ticker PLTR. It lost about $580 million in 2019 and is reliant on a few big Government contracts.
Palantir is very likely to become (like Facebook has) a government-backed company, copying the model of China. This, even as companies like Google and Microsoft court Chinese businesses and even the Chinese Government as clients. The 21st century is a stage where humanity is more likely in the future to be pivoting into groups identified by corporations rather than by nations.
When Alibaba goes global, what is China and what is the world? When the entire world uses Google to search, what is the United States? And what is the future of Palantir? Palantir is at the intersection of data and Government activities on the field. That’s not just a dangerous place to live, it’s highly controversial. Palantir claims it will not have the Chinese Government as a client in the present or the future, since it’s based on pro-democracy values.
When technology has become political:
CEO Alex Karp said Silicon Valley engineers may be able to build good software but they don’t know “how society should be organized or what justice requires.”
Silicon Valley’s data-hungry products (the digital advertising business model of Google and Facebook) have been cloned by China in a surveillance state capitalism model that is state-backed. American companies have few ways to compete except to copy the improved business model. And Palantir represents, in our opinion, the first such IPO to represent this new trend in 2020.
If Alphabet fueled surveillance capitalism it’s no great wonder they are an active bidder to partner with the Chinese Government and companies like Huawei. But Palantir is also really interesting, as it represents a company that services the most elite high net worth clients, actual Government groups and entities.
As Microsoft is the world’s most well diversified data and AI company, its pivot to servicing U.S. government clients means it’s the main competitor of Palantir. Amazon is of course the other, as it’s no accident Northern Virginia was picked as Amazon’s HQ2 location.
Palantir as a Dark Horse Son of Silicon Valley Surveillance Capitalism
Palantir, as a Silicon Valley software and services company founded in 2003 with the explicit purpose of helping the intelligence community with counterterrorism investigations is responsible for Government kills. Data kills in 2020 and these corporations that serve Government and military interests will become very profitable. However Palantir appears nearly beyond the hope of profitability now.
But that doesn’t matter as the U.S. becomes more reliant on it and similar providers. When Microsoft won the JEDI contract it was worth $10 billion dollars.
As nation states leverage companies as tools to fight their strategic rivals, they are in fact elevating state-backed corporations that have competitive advantages that their competitors will be unable to replicate. It’s in a sense hacking how Darwinian free-market capitalism is supposed to work. This is also uniquely how China disrupts Silicon Valley in that 2015-2030 period we are witnessing today.
Karp said Palantir has “repeatedly turned down opportunities to sell, collect, or mine data,” contrasting it with consumer companies “built on advertising dollars.” Palantir doesn’t need to replicate what digital advertisers have done, because Palantir deals with actionable data that’s strategic in real time. Palantir moving to Denver Colorado is symbolic of an exodus out of San Francisco and Silicon Valley that represents its failure and what comes next.
Palantir is a bit like the kind of company that does well in surveillance capitalism that is truly thriving today as the future trend that outweighs all of the other trends in the future of technology. So long as there are competing nation states, companies like Palantir will do incredibly well.
Palantir must reckon with privacy legislation that is the backlash against Silicon Valley. We live in a world today where virtually every jurisdiction in which Palantir operate has established its own legal framework relating to privacy, data protection, and information security matters where it does business.
How Tech Companies Evolved Beyond the Law
Government technology companies like Microsoft, Amazon and Palantir become in a sense “above the law” — just as major Chinese companies like Huawei, Alibaba and ByteDance aren’t just tied to Beijing but work actively with the PLA and the Chinese Communist Party to further their own ends. As corporate entities become weaponized by competing nation states, the corporations themselves become technology island states themselves.
As tech becomes more powerful, their products become more political as we have seen with a massive ban on Chinese companies and apps in places like India and the U.S. and possibly spreading to Australia too in 2020.
That Palantir is going direct IPO in 2020 now is not a coincidence. The company derives more than 20% of its revenue from two unnamed customers. And with firms going IPO that act like Government sub-contractors of data, one has to wonder where surveillance capitalism evolves — to a point where business models are are entirely weaponized by Government money.
In a fight for global supremacy in a cold-tech war, Palantir is a “Death-Paladin” of the U.S. Government, just as SenseTime or Huawei are “Golden Knights” of Machiavellian forces within the Chinese Communist Party (CCP).
Coupled with a stock market that’s fueled a tech boom driven primarily (40%) by Fed liquidity, we have a dangerous environment where business fundamentals have broken down with the pandemic. Silicon Valley mostly disregarded privacy rules in how it collected data.
Why would we be surprised if China pushed its AI and facial recognition and surveillance state companies on the world? Silicon Valley’s ethical stance basically framed the 21st century evolution of technology, much to the detriment of human rights with regards to our data.
Palantir is a unique looking glass into the new world of data and the future of capitalism. Its software is used to target terrorists and to keep soldiers safe, among other things. As China leverages its own tech dynasty to be weaponized against the world, you can block Huawei from 5G and ban TikTok but you cannot do it to them all.
Eventually Chinese companies will win. The reason is simple. China’s economic growth will dwarf that of the United States. China will own not just AI, but the space race and the first great push to other planets.
The United States during the pandemic has shown a total inability to self-regulate and an unwillingness to practice antitrust against its monopolies with data-harvesting values that have infected the world.
This will be its downfall, as it refused to put truly liberal values of human rights against its top corporations out of fear of their inability to compete with Chinese companies. But how long before Alibaba and its children cannot be contained?
The Billionaires Born of Data Harvesting
Palantir might never be profitable. In an era when Facebook, Google and Amazon can be leveraged to know nearly everything about someone with a digital footprint, Palantir exists even where legal requirements have been formally adopted.
California’s Consumer Privacy Act (CCPA) that became effective in 2020, and the European Union’s General Data Protection Regulation (GDPR) that became effective in 2018, both lay out standards for processing, moving and disclosing personal data.
Palantir, the secretive big-data company, has published its S-1 ahead of its initial public offering this year and is valued at about $20 Billion dollars. How the U.S. has been leveraging expertise at Microsoft, Google, Amazon and Palantir in 2020 is no longer an open secret.
However China is weaponizing its technology companies, AI sector, and specialized startups (as in the case of facial recognition) at a much faster rate. Palantir’s financial troubles, even after 15 years, demonstrates the ineptitude of Silicon Valley to keep pace.
However Palantir exists in a different sphere with clients so powerful it doesn’t matter whether it’s profitable yet. Palantir will exceed $1 billion in annual revenues soon. It has cited revenues of $481 million for the first half of 2020, up 49 per cent from the year ago period.
If Palantir receives so much privilege from “unique clients” what’s to say that the Chinese Government won’t elevate companies like SenseTime, ByteDance, JD.com and Ant Group in ways the West doesn’t understand and cannot replicate?
We have to admit more innovation has come out of ByteDance in 2 years than Facebook in the last 15 years. This does not bode well for the future of Silicon Valley. For every Google in the U.S., there are dozens of smaller companies in China that are very much more native to the very same new laws of surveillance capitalism that companies like Google and Facebook pioneered.
When we talk about digital transformation, rarely do we afford ourselves the freedom to speculate on the nature of Government backed data, software, cloud and AI companies.
With more consumers, more data and more economic weight in the future, there’s no way China doesn’t win the AI-wars of the 21st century. So how does a company like Palantir or the strategy of the U.S. Government keep up? Companies like Microsoft, Google and Apple win by playing both sides. That’s how they survive the great disruption and the bifurcation of the internet.
The U.S. is losing to China in the cold-tech war, and it doesn’t really matter how good Palantir performs in counter-terrorism and in providing the Military with big data opportunities. Palantir identifies one potential risk as its unwillingness to work with China, which could hamper growth, given that it’s the world’s second-largest economy.
History has shown it’s quite the opposite for Microsoft, Google and Apple. Are Facebook, Amazon and Palantir somehow more “American” for not being able to work with China?
Where Tech Meets Politics, China Does Surveillance Better
In a world where data is the new oil, companies can grow by serving the powerful and the elite. And what is more so than the Governments of the world’s superpowers? Palantir, which is named for an all-seeing orb from “The Lord of the Rings” universe, has been working with the U.S. government for years.
That’s not unlike Microsoft or Google, whose activities with the U.S. Government in various forms are more than a bit alarming to observers and even their own employees.
Palantir’s founders will control about half of the total voting power. The company currently has two classes of shares and plans to add a third class that carries a variable number of votes. This is the same voting hegemony as previous Silicon Valley companies have done.
How are Palantir’s values truly different then? Peter Thiel is a Trump supporter. That’s interesting. Its 2019 revenues of $746 million were up 25 per cent from the previous year, the company said. Oh, really?
Complying with the GDPR or other data protection laws and regulations as they emerge may cause us to incur substantial operational costs or require us to modify our data handling practices on an ongoing basis. Are we supposed to be concerned about this hiccup, how this kind of big data analytics provider essentially allows the U.S. to kill potential targets?
Palantir’s growth included a big boost from the U.S. Army, from which it has earned $135 million since a favourable September 2018 court ruling forced the Pentagon to consider commercially available products in building its systems. That ruling opened a big door to Palantir.
In a world where Microsoft, Palantir and Google have become part of the core infrastructure of the U.S. Government, how are you supposed to make antitrust cases against them with all their lobbying? How does the U.S. self-regulate in the age of powerful AI companies emerging where the leaders disrupt the rest of society and the rest of small businesses, as we have seen with the pandemic?
This is essentially the problem that’s too hard for the U.S. to solve. Its rules of capitalism, justice and democracy have began to break down. AI is still in its infancy, and China is getting ahead both economically and with new powerful companies that the U.S. cannot replicate.
Palantir is like a younger son of Silicon Valley born into a new world. Palantir, the instrument of Government kills:
“I mean, our product is used, on occasion, to kill people,” he said, adding, “If you’re looking for a terrorist in the world now, you’re probably using our government product, and you’re probably doing the operation that actually takes out the person in another product we built.” – CEO of Palantir
Palantir makes a sizable chunk of its revenue by selling U.S. agencies software that weaves together data streams to monitor individuals. Born from Surveillance Capitalism, in a world where Silicon Valley is no longer the heir apparent.
Karp will continue to keep society safe with Palantir, but the U.S. just doesn’t have enough companies like this to compete against China. The U.S. Government needs its monopolies whole (forget antitrust actions or breaking up tech) just to keep the figment of it being the world’s leader still alive for a little while longer.
Palantir goes direct-IPO as a 17 year old company. It’s said that its software is used across 36 industries and in more than 150 countries, excluding China, and that its government work is “central to defense and intelligence operations in the United States and its allies abroad. In the age of cybersecurity and global tech politics, I suggest it has a bright future under the $PLTR ticker.
Let’s see about Palantir’s promise. Let’s see if American companies keep their word:
We do not work with the Chinese communist party and have chosen not to host our platforms in China, which may limit our growth prospects,” the S-1 states, calling work with China “inconsistent” with the company’s aims and culture.
In a brave new world when the majority of knowledge workers will be working from home in 5 years, Palantir’s also is a symbol of the exodus from Silicon Valley. Running away from a world where the average cost of a house there is now $2.75 million, to Denver where it costs $450,000 for the same thing.
The exodus out of San Francisco is real, since rent comes at about a third the cost in Denver compared to San Francisco, and the corporate tax rate in Colorado is 4.6% — nearly half that of California.
Palantir is on to something: getting Governments addicted to tech as the new norm of surveillance capitalism.