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How Palantir And Its Data-Mining Empire Became So Controversial - YouTube
Channel: CNBC
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After 17 years on the private
market, data analytics company Palantir is
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ready to make its
public market debut.
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Co-founded by Peter Thiel back in
2003, i ts mission: Providing software
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that customers use to integrate volumes
of data, from images to
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spreadsheets, into a central platform where
it can then be securely
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analyzed and interpreted.
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News of Palantir's plans to go public,
as well as its recent announcement
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that it will be relocating its headquarters
from Palo Alto to Denver has
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put the secretive software
company in the spotlight.
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Best known for its work with U.S.
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government agencies like the CIA, the
Department of Defense and, most
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controversially, Immigration and Customs
Enforcement, the company was
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founded following 9/11 with the
goal of defending American interests.
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The core mission of our company always
was to make the West, especially
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America, the strongest in the world, for
the sake of global peace and
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prosperity. But in recent years, Palantir
has also courted customers like
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Airbus, Chrysler and BP.
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Commercial customers now make up about
50 percent of the company's
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revenue, a number that's trended
upwards over the past decade.
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And even though Palantir has never
turned a profit, revenue has been
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growing as losses have narrowed.
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Perfectly normal for a software company
to show that sort of trajectory
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going into their IPO.
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The question is, does the economic model
over time look like one that will
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eventually produce profits?
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And you can certainly get there.
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But while longtime investors are eager for
the company to go public, for
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others, confusion remains about what it
is exactly that Palantir does and
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why their work with law
enforcement agencies has raised eyebrows.
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The name Palantir comes from
the Lord of the Rings.
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In the fantasy series, Palantiri are
spherical stones that help powerful
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users see what is going on in
other parts of Middle-earth and communicate
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with each other. Founded in 2003
by billionaire Peter Thiel, alongside
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current CEO Alex Karp, Joe Lonsdale,
Stephen Cohen and Nathan Gettings,
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Palantir's tech helps detect unusual
or suspicious patterns in large
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datasets, using techniques that the
founders learned working together at
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PayPal. The CIA was one of the
company's earliest investors and its only
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customer for a number of years.
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Eventually, other intelligence agencies like the
FBI and the NSA jumped
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aboard, using the company's customized
data analytics capabilities to
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track and capture terrorists,
insurgents and drug smugglers.
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They cite Afghanistan and Iraq as
two examples of places where soldiers
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were mapping networks of insurgents and
makers of roadside bombs by hand.
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So they actually were bringing in
technology to do things that
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intelligence agents on the ground were
having to do manually in very
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dangerous places.
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The company's software has been credited
with helping to find and kill
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Osama bin Laden. And though this
has never been confirmed, Palantir
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certainly has not disputed it.
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The tech's also helped to uncover
Bernie Madoff's Ponzi scheme and rooted
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out Chinese spyware installed on
the Dalai Lama's computer.
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We work hand-in-hand with most of
the special operators in the Western
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world. We work hand-in-hand with
most of the clandestine services.
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We're in over 40 countries.
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Today, the company increasingly
works with high-profile commercial
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customers too. Its first was JPMorgan
Chase, which adopted the software in
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2009 to monitor employees
who might go rogue.
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However, the partnership ended in
scandal when JPMorgan's Special
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Operations Lead used it to
spy on top executives.
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Others have continued to
express interest, though.
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Fiat Chrysler now uses Palantir to
identify potential faults in car parts.
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Airbus uses it to respond
more quickly to manufacturing problems,
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accelerating the production of
its 350 aircraft.
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And BP uses it to analyze drilling
data, reportedly leading to a 10
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percent increase in oil production
in the North Sea.
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This is a hefty piece of software
that runs across an enterprise and is
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used for understanding everything that a
company faces, whether it's their
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customers, their supply chains,
downtown, geographies where there's
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growth, where their competitors
are gaining share.
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As revenue from the commercial sector
has increased over the years, CEO
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Alex Karp has had to rethink
his historical dismissal of salespeople.
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We don't look like a
classic enterprise software company.
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We have no salespeople.
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Almost everyone here is an engineer.
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Not anymore. Karp's been building
out a sales team.
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And in 2019, the company spent 61
percent of its revenue on sales and
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marketing. However, long-standing government
contracts remain integral to
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the company's revenue as
well as its reputation.
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And during the coronavirus crisis, Palantir
has formed a number of new
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partnerships too, with the VA, the
National Institutes of Health and
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Britain's National Health Service, helping these
agencies, as well as the
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CDC, to track the spread of
the virus and allocate resources.
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In order to make decisions r ight now,
in order to know where the PPEs need
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to go, in order to know when and
where you're going to reopen , you want
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all the analytical models, all the
pieces of information, all in one
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place. Palantir is really designed
to thrive in a crisis.
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But especially under the Trump administration,
t he company's work with ICE
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and police departments has raised
considerable concern in the
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liberal-leaning Silicon Valley, leading Palantir
to double down on its
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commitment to law enforcement
and national defense.
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So I do think this idea of
like nationalism and libertarianism is kind of
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intersecting in a very interesting way
and Palantir seems to represent all
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of that. Protests against Palantir
first gained traction in 2018,
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primarily in response to the
company's contracts with Immigration and
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Customs Enforcement, which are worth
up to 92 million dollars.
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The agency has cracked down on
illegal immigration through workplace raids
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and separating families
at the border.
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My house has been protested for
many months, almost every day.
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Our office has been protested.
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Many Palantirians protested
against it internally.
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Some people were so upset
about it that they left.
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These are very hard decisions.
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Co-founder and board member Peter Thiel
is probably president Trump's most
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famous Silicon Valley backer, donating 1.25
million dollars to his 2016
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campaign. Karp's politics differ, but he
says that Palantir remains fully
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committed to aiding the U.S.
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government. I've never stopped being
critical of this administration.
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I'm not planning to
vote for this administration.
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So there are things
I would do differently.
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The core issue though
is, who decides?
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The small island in Silicon Valley that
would love to decide what you eat,
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how you eat and monetize all your
data, should not decide who lives in
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your country and on what conditions.
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There are elections. There are rules.
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They should be enforced. Karp's ethos
also holds true for Palantir's work
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with police departments, from New York
City to Los Angeles, New Orleans
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and Chicago, who have used the
tech for surveillance of criminal suspects
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and predictive policing, a tactic that
civil liberties groups say leads to
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over-policing of
minority neighborhoods.
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But can Palantir really claim to
be above the political fray?
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I understand the desire to be neutral and
to kind of say, hey we're gonna
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play by the rules.
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That is a logically coherent stance
if companies are also neutral with
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regard to who makes the laws.
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But hold on, if you're willing to
back political factions with your own
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money, you can't say while in this
aspect of our business, we do influence
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policy and politics. But over
here we are politically neutral.
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It doesn't work that way. Other tech
companies like Google have backed out
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of controversial contracts with
the Defense Department.
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But Palantir sees that as
an abdication of responsibility.
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Peter and I built
a very patriotic company.
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Google is clearly not
a patriotic company.
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Karp also hit back against the culture
of the Valley in the company's S-1
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filing to go public.
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Here's what he had to say: The
engineering elite of Silicon Valley may know
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more than most about building software, but
they do not know more about
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how society should be organized
or what justice requires.
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Our company was founded in Silicon Valley,
but we seem to share fewer and
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fewer of the technology
sector's values and commitments.
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In August, the company announced it
will move its headquarters to Denver,
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Colorado, likely both a
financially and morally-motivated decision.
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The Valley has basically sold its soul
to an advertising model where it's
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OK to sell your data, but it's
not OK to support the country.
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And they didn't want to be part
of that ecosystem and didn't feel that
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that ecosystem was aligned
with their values.
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So what does all this
controversy mean for investors?
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For those who believe in Palantir's
mission, it could be an asset.
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And for those with qualms, while
it ultimately may not mean much.
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The general belief around the Valley
is that public market investors in
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particular talk a big game about
governance and about things that they
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view as acceptable and unacceptable, and
then they buy the stock anyway.
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Though Palantir has yet to turn a
profit, t his isn't of considerable
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concern to investors, who are used
to betting big on tech companies
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operating at a loss.
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What will affect the company's value is
whether investors view it more as
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a high-growth tech company or
a lower-margin consulting firm.
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That combination makes this a bit of
a Rubik's Cube for investors, because
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it's not a pure play software model.
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For most of its history, Palantir
has spent heavily on software
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customization services for both
government agencies and large
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corporations. It is a very
costly business to run.
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But if they can automate their own
processes and have a more efficient
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sales process and get the biggest customers
to continue to buy more, then
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their operating metrics do
improve over time.
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As of late, that's what Palantir
has been trying to do.
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And now it offers two fixed-fee
platforms, Gotham for government clients
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and Foundry for the private sector.
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The company's target market is said to
be the 6,000 companies that make
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500 million dollars or
more in revenue.
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So the average customer spends over
five million dollars a year on
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Palantir's product.
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The top 20 customers account for
roughly two thirds of their revenue.
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They say they only
have about 125 customers.
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So this is fundamentally different than
your Zoom and your Slack.
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It is not for everyone.
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In 2015, when Palantir raised its
last funding round, the company's
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valuation was upwards of
20 billion dollars.
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But lately, share prices have been
all over the map, indicating a
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valuation range of anywhere from less than
10 billion to over 20 billion.
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They're trying to show investors that they
do have this really big market
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opportunity, that they have a bunch
of potential customers out there.
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And that's where the skepticism is.
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The true value will be clarified at
the end of September when Palantir
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completes its direct listing, a process that
is similar to an IPO, except
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that the company won't
sell any new shares.
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It will just unleash those
held by existing investors.
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Thus, the shares will be priced based
on investor demand and if the stock
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trades higher than expected, that value
won't be handed to brand new
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shareholders. I think the Palantir IPO
is going to signal to venture
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investors and others that serving the
Department of Defense and military
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business is going to be worthwhile.
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Karp certainly hope so, saying that the
future of our nation depends on it.
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The country with the most important
AI, most powerful AI, will determine
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the rules. That country should be
either us or a Western country.
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Palantir doesn't do business with China,
the U.S.'s main competitor when it
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comes to AI. So if we bring
our A game, we will win.
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If we bring our D plus game because
most people in the Valley live on an
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island where this seems like a
questionable project, they will win.
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