Palantir: the Billion-Dollar Firm You've Never Heard Of

TechCrunch recently interviewed the CEO of Palantir, Alex Karp. Very intriguing stuff.

Palintir, under 5 years old, has a team of 250-plus engineers nestled in downtown Palo Alto and has just raised $90 million in Series D financing at a $735 million valuation. The round was led by co-founder Peter Thiel’s The Founders Fund and included Youniversity Ventures, Glynn Capital, Miriam Rivera’s Ulu Ventures, Jeremy Stoppleman, Ben Ling, and a couple of high-profile NY funds.

In a nutshell, Palantir’s analysis program is becoming a major player in the war against terrorism and cyber espionage, stimulus spending accountability (Palantir is literally powering the administration’s efforts to identify fraud in stimulus projects), health care, and even natural disasters like the recent earthquake in Haiti. 70% of Palantir's revenues are from government spending.

This year, the platform famously helped researchers at the Munk School of Global Affairs at the University of Toronto expose a cyber espionage ring called the Shadow Network, which was stealing classified materials from India’s Defense Ministry.

Firms that make data sets very user-friendly and easy to manipulate are poised for huge market growth, in my opinion.

Palantir's product is a child of PayPal, born from the start up’s methodology for combating fraud:

Karp said: “They (PayPal) had this massive problem of essentially cyber fraud…they tried algorithmatic approaches…one of the things about that is it doesn’t work really well because the opponent is highly adaptive…What you need is a human mind that’s adaptive."

That would form the foundation for the Palantir platform, which merges human-based algorithms and a powerful engine that can scan several databases at once on an incredibly fine, granular level. The basic system accepts huge databases and allows users to slice the information in seemingly innumerable ways.

Economists Treasure Onling Gaming Data

What economists are doing with EVE is one of the most fascinating concepts I've seen in a while. EVE, a gamer's dream created by CCP Gaming, is an imaginary place set 20,000 years into the future in a galaxy known as New Eden. There, imaginary citizens of five different imaginary empires fight imaginary wars in a bid for imaginary domination over each other. 350,000 real world subscribers to EVE Online from all over the world.

These people’s actions, economists say, offer a treasure trove of information to study and analyze, primarily because each one of their decisions leaves a trail, creating a vast database that economists can only dream of in the real world.

In effect, it creates a giant laboratory within which to study human behavior, dramatically scaling up the kind of classroom-based experimental economics that were pioneered by 2002 Nobel Prize winner Vernon Smith.

Some people scoff at the viability of EVE's data, but CCP Chief Executive Officer Hilmar Petursson, who could be thought of as EVE’s head of government, disagrees.

“People say the real world in a casual way, where it sounds like something fundamental,” he said. “But people tend to forget that the world we live in is just a game designed by our governments. Our economic systems are just a game.”

The Fragmented E-commerce Platform Industry

The e-commerce platform industry is an interesting one. The top five players - IBM, Microsoft, Oracle, ATG, and GSI Commerce - have less than 40% of the total addressable U.S. market. Other top-tier platforms - Venda, Demandware, Fry - have another 5% total. And then there are literally 100+ other platforms who remain competitive, even when stacked up against the big guys.

After 10+ years of e-commerce platform, the industry remains relatively fragmented.

Will the industry ever consolidate?

At its base, that answer depends on the retailers who buy the platforms, and retailers come in all shapes and sizes. All have different needs, whether its a flashy interface, or robust merchandising tools, or solid product search functionality. And all sell to different demographics.

It's hard to predict if the industry will consolidate in the long-term, but if I could make one prediction, it would be this: the platforms with the best partnership programs will win the market. Those firms who focus on best practices in bringing on technology vendors which compliment their own technologies will be best positioned to please their customer base.

Because the industry is so diverse, technology platforms need to be prepared to offer everything - and the beauty of technology is that they can - if they make it easy for partners to plug into their systems.

IBM and Roche - an All-Star Partnership

Often times, I'm reminded of the beauty of corporate partnerships. Yesterday was one of those times. I read the title, "Roche and IBM Collaborate to Develop Nanopore-Based DNA Sequencing Technology," and thought to myself, "What a perfect partnership." Here's two companies leveraging their core capabilities in a perfectly complimentary way.

The collaboration will take advantage of IBM's leadership in microelectronics, information technology and computational biology and Roche's expertise in medical diagnostics and genome sequencing.

The article went on to say, "Ultimately, the technology has the potential to improve throughput and reduce costs to achieve the vision of whole human genome sequencing at a cost of $100 to $1,000. Having access to an individual's personal genome could allow personalization of medical care."

Obviously, this has enormous implications for the future of health care - implications that would take five more blog posts to cover. But one thing is for sure: if the partnership proves successful, this could be a major disruptor in drug development.

Google: Stick to Acquisitions

Google is good at acquiring. Sure, they've dabbled in a few markets through organic expansion, such as television, radio, and e-commerce, but this has historically led to limited success. On the other hand, in other markets, Google decided to jump in head-first by making large acquisitions, such as mobile ads with AdMob and most recently online travel with ITA.

These latter two acquisitions were strategically solid. Both moves contained remarkable market characteristics. With AdMob, Google bought its way into a market with an enormous growth trajectory, at a moment when the market was fragmented and consolidation-ready. For a cash-laden, agile firm like Google, the mobile ad market was perfect. Perfect timing and perfect target company.

The online travel market is similar. A large ($80B+) market, online travel will experience solid growth for the long-term. The acquisition, ITA, also brings Google a huge customer advantage. Alaska Airlines, Continental Airlines, Hotwire, Kayak, Orbitz, Southwest Airlines, United Airlines, US Airways, Virgin Atlantic Airways all utilize ITA's core technology. Talk about a golden customer base. That alone made the acquisition worth it.

It appears that Google's market entry strategies are slightly better when they enter a market via an acquisition (as opposed to organically). This, of course, is a generalization and shouldn't be taken across the board. But, I do think it's interesting that Google hasn't hit many home runs with organic innovation.

Look for Google to create value with AdMob and ITA. In an age where 1 in 10 acquisitions actually works, I think Google has chosen wisely here.

The Google Machine

Everyone uses it (at least, something north of 70% of internet users), but how many people know anything about how it works?

Well now you have no excuse.

Click here to see how Google actually works.

Square, iPhone - Perfect for SMB Payments

Square, the latest in the person-to-person (P2P) payments space, is making a splash on the scene. Depicted above, any person with an iPhone can accept credit card payments. This is especially helpful for small business owners who don't want the hassle of investing in any kind of point of sale system.

Does the Square application have legs? Is it a sustainable solution?

I think so! The card processing rates aren't too bad. It's 2.75% + $.15 per transaction, which is slightly less than PayPal's 2.9% + $0.30. Visa and Mastercard's rates are slightly less than Square's, but suffice it to say that Square's rates are at market value. Beyond this, I believe that the convenience of using your iPhone as your payment terminal is highly attractive to artists, shop owners, and other SMB (small to mid-size business) owners - not to mention average people who need a one-off payment.

Look for Square to have growing penetration into payments - it won't get too high, but it will grow its customer base within its niche for the next 3-5 years at least.