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No Mercy No Malice

PalanThiel: The Uncola

September 18, 2020

8-min read

Variation is an aspect of natural selection that helps a population’s gene pool to develop new traits. Those traits allow the next generation to adapt to changing environments. Symmetry of facial features is attractive, as it indicates an absence of maladies. We’re also drawn to people from different places, as it’s less likely we’ll cross the same two defective genes, like Tay-Sachs or hemophilia. 

The subtle instincts of natural selection play out in our consumer choices, such as choosing branded denim or which artificially colored carbonated water, mixed with phosphoric acid, to stock in the fridge. Our subconscious desire to have more adaptable offspring rears its symmetrical head and decides that if Dad is wearing Nikes, I need Adidas. 

In the sixties, the 7UP company faced a dilemma — how to carve share from brands Coke and Pepsi, who had the good judgment to put an addictive substance, caffeine, in their product. 7UP’s “Uncola” campaign was a breakthrough, positioning the cola brands as the establishment when the country was feeling especially anti-establishment, in the sixties. Featuring Trinidadian dancer and actor Geoffrey Holder, 7UP’s “Uncola” campaign broke racial barriers and held the promise of a different type of soft drink — and diversifying your gene pool with a Trinidadian dancer. (Note: Mr. Holder played a Bond villain, was married to a spectacular dancer/choreographer, Carmen de Lavallade, for 59 years, and passed away at 84 — a nice life.)

The Uncola of a sector gains relevance around the time everyone throws in the towel, all new entrants mimic the leader, and the sector has the variance of your Dockers-wearing dad. The most innovative Uncola of the last decade is Shopify, who became the non-Amazon Amazon. Shopify taps into a reservoir of ill will from third-party retailers, who were forced to surrender data, custody of the consumer, and merchandising options so they could access the largest ecommerce platform in history. 

Shopify boasts a market cap greater than Boeing and Southwest Airlines, combined. Shopify should acquire FedEx and Simon Properties. This would enable NewCo (“Shopify-Ex”) to offer small- and medium-sized commerce firms the second-best last-mile solution and the best retail real estate in the country, possibly on a short-term basis. Shopify would maintain 60% ownership of Shopify-Ex and provide a new generation of brands and retailers access to technology, fulfillment, and brick and mortar that were previously unavailable to any firm sub a billion. Truly disruptive. But I digress.

Apple has brilliantly positioned itself as the Uncola, despite being a Cola — one of the incumbents. A focus on privacy depositioned Google and Facebook, making their business model (harvesting personal data) feel “drunk uncle.” Since Tim Cook told Kara Swisher “Privacy is a human right; it’s a civil liberty,” the firm’s stock has tripled, adding $1.3 trillion in value. 

PalanThiel

The firm attempting to position itself as the non-tech tech firm is Palantir, who filed for a direct listing last month. Instead of smearing lipstick on a pig — Facebook’s pages of grandmothers rescuing dachshunds and Ms. Sandberg pretending to be an advocate for women while condoning lies for profit — Palantir has decided to put the prize hog up front. As Google and Facebook employees conduct virtual walkouts in protest of their firms’ work with the government (that’ll show ’em), Palantir has wrapped itself in the flag, claiming:

“Our software is used to target terrorists and to keep soldiers safe. 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. We have chosen sides, and we know that our partners value our commitment. We stand by them when it is convenient, and when it is not.”

I agree with that statement, and think that Facebook/Google employees doing their best impression of Cesar Chavez, if Mr. Chavez was a total bitch, is performative … at best. The U.S. government is the most noble customer in history, whether you support the person in the White House or not. In addition, Palantir doesn’t work with nations viewed as adversaries. However, wrapping yourself in a flag when your founder, Peter Thiel, is a libertarian is a bit like wearing a chinchilla to a PETA benefit. The definition of libertarian, according to the Institute of Humane Studies at George Mason University is:

“One who advocates maximizing individual rights and minimizing the role of the state.”

Minimizing the role of government? The firm has worked with U.S. Customs and Border Protection to track immigrants at the border, and it secretly tested its predictive policing software in New Orleans. So, minimize the state … unless they are our client … and we can help them surveil others. It only gets stranger from there. The S-1 claims:

“Government agencies have faltered in fulfilling their mandates and serving the public. Some institutions will struggle to survive. Others will collapse.”

Ok, so buy our stock, as our growth is only limited by how stupid our customer (the government) is … and they’re really stupid. And so is any tech firm that is not Palantir. Again, from the S-1:

“The engineering elite of Silicon Valley may know more than most about building software. But they do not know more about how society should be organized or what justice requires.”

But Palantir knows how society should be organized, as they (wait for it) relocated their HQ to Denver and have several dozen engineers who reached level 20 in Dungeons and Dragons in high school. Does this mean Western Union and Liberty Media, also in Denver, are better suited to save the world?

A word cloud of the S-1 reads like a survivalist manifesto. Pro tip: if you interview at Palantir and everyone is wearing black Nikes that day, skip drinks with the team after work.

Palantir is the Rudy Giuliani of tech — just give them a few minutes/pages and they’ll begin contradicting themselves, making no sense and muddying the waters in hopes that investors will ignore a central truth. 

Another red flag — the idolatry of Thiel and Karp as reflected in the S-1:

The Most Impressive Group of People

What do Ken Chenault, Susan Desmond Hellman, Erskine Bowles, and Reed Hastings have in common? There are few groups of people (i.e., none) one could better trust to lead a business or government, or to raise our kids. The thing that unites them is they all decided they couldn’t stomach the leadership and governance at Facebook — they left early. Instead, the constant on the board, the invisible hand of delay, obfuscation, election interference, rage, hate, and teen depression is Peter Thiel. 

Shavings of Sh*t on a Sh*t Salad

Palantir states their mission is to become “the default operating system for data across the U.S. government.” So, is Peter Thiel the person (and do we ever want “a” person) to default to for influence/control of the operating systems for relationships, and now government? Is Mr. Thiel our go-to for who controls the guy who controls the media for one third of the planet, and now the data behind the surveillance apparatus of America? 

Do we look at the outcomes from Facebook and think, “We should definitely put the guy overseeing Mark Zuckerberg in charge of the algorithms controlling what data the government collects on us, and what behaviors it/he deems as a security threat”? The shavings of sh*t on a sh*t salad here are the proposed Class F shares, meaning the invisible hand of Facebook (Thiel) could control Palantir, and the operating system of government, until he dies. 

What. Could. Go. Wrong?

The Men of the Night’s Watch

What stands between us and the White Walkers — Zuck and Thiel? Is it our institutions? Our elected officials? The public, who will rise, as they have a sixth sense for this type of threat? Or the media, which will cover the story without fear or favor? No. The only thing standing between two men grasping for control of media, the economy (Libra), and government surveillance is capitalism. Specifically:

Palantir. Is. A. Sh*tty. Business.

It took Amazon 8 years to get to profitability, Netflix 6, Facebook 5, and Google 3. Palantir is old enough to see an R-rated film, get a pilot’s license or (with parental consent) join the armed services. But at 17 years of age, and after raising $3 billion, the “start-up” has never made money. In 2019, Palantir lost $580 million on approximately $740 million in revenues. The idiot client they serve (U.S. government) lost 25 cents on the dollar ($1 trillion deficit vs. $3.5 trillion in revenues) in 2019 vs. 78 cents at Palantir. Shouldn’t Uncle Sam be advising Palantir? 

The firm spent $911 million in marketing over the last 24 months, roughly half of what Tide detergent spent over the same period. The firm has 125 clients, 3 of them accounting for 28% of revenues. Palantir feels more like a services firm, with tech at its core (e.g., Accenture), but one that, unlike a services firm, is massively unprofitable.

This is not to say that unprofitable firms (Uber, Snap) don’t have value. Brand, distribution, customer relationships, and IP can be assets that should fling the bling or splash the cash down the road. As we are now 17 years in, it feels as if the pitch here would be something around the IP or customer relationships. There is little mention of defensible IP, but the deep relationship with the deepest pocket, Uncle Sam, is a huge asset. Except, with Palantir, it’s also the biggest risk.

Oligarchy for Dummies

The key to being a successful oligarch is to leverage your proximity to power, without becoming so close that you become contaminated should “your guy” lose power (be voted out of office). Peter Thiel is no dummy and recognizes this. It’s not an accident that about the time Biden’s polls numbers went up, the president went from Mr. Thiel’s bff to bffn (best friend for never). (Note: people close to Thiel say it’s the president’s poor handling of the pandemic that has come between them. Right.) Expect Palantir’s valuation in the private markets (approximately $19.9 billion) to be inversely correlated to Biden’s poll numbers. Do you think Senator Kamala Harris will ever agree to be in the same room with Peter Thiel, who recently agreed to be in the same room with white nationalists?

Distancing

Based on recent news, I would venture that Thiel’s better judgment has him distancing from Trump: 

Distancing, Norweigan Style

In another Giulianiesque move, after paying himself $12 million, CEO Alexander Karp began pimping his self-proclaimed socialism. Yeah, he feels Norweigan … if they paid their CEOs tens of millions to operate firms hemorrhaging cash that surveil people.

I reached out to early Facebook investor, and total gangster, Roger McNamee for his take:

“Palantir exists to allow law enforcement to investigate citizens without obtaining a warrant. The data sets come from third parties and (presumably) are filled with the errors and implicit bias that infect almost all data sets, whether by design or accident. The business model of Palantir undermines civil rights.”

— Roger McNamee

What happens:

The success of the Palantir listing is a bet on one of two opposing forces. If we get another stimulus, chased by young men on Robinhood in their parents’ basements, and Trump is reelected, then the consensual hallucination between Palantir and the markets — a 17-year-old firm, hemorrhaging cash, that is not growing that fast but is valued at 27x revenues — may continue. The opposing forces that may stop Palantir at the border? Capitalism and math.

The analytics firm is attempting to position itself as the “Uncola,” the non-tech tech firm. A more apt metaphor is Zima. Palantir is all of the calories of Facebook (scaled sociopathy) with none of the great taste (profits).

Life is so rich, 

P.S. This week on YouTube: If you could buy a get-out-of-jail-free card for less than 1% of your net worth, what would you do? #Robinhood

54 comments

  1. Andre says:

    As much as I agree/disagree with some points- I’m LONG on this company. I expect Government overreach to continue so you might as well profit off the ride no one asked you to get on.

  2. jack says:

    That was the funniest thing I’ve read in a long time. However, still long the stock. Great content man

  3. DAVID BRAUN says:

    Does DuckDuckGo qualify as unGoogle?

  4. Keng says:

    Thank you for sharing your thoughts on palantir and this was eye opening above the financials review 🙂 the puppeteer game !

  5. Jeanie Diva says:

    What a lot of words to say a couple of simple things. Watch out for Palatir, be wary of internet companies having consumer wars and capitalism is important. Lots of blah blah. Not everyone is interested in making as much money as possible. Not everyone cares about the internet. My advice is: get a life. Take up a musical instrument. Breathe.

    • Nick says:

      Highly recommend a service called “Twitter” to you. It’s short messages by lots of breathing people and the company doesn’t make much money at all!

  6. Greg Randall says:

    I was unaware of the Palantir business, but after reading this post, not only have I gained a view, Scott’s method of articulating their position was brilliant. Thanks Scott! Great read.

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  8. Rohit Mehrotra says:

    ‘…. “Palantir exists to allow law enforcement to investigate citizens without obtaining a warrant. The data sets come from third parties and (presumably)….’ – Palantir calling FB.

  9. Rohit Mehrotra says:

    This is the best analysis I have read on Palantir and Prof, trust me when I say this – You have outdone yourself here. Trust me even more when I say that I am really happy I came across your blog and channel, all thanks to Pivot. Thank you so much for doing what you do. Love from India

  10. Dwight Threepersons says:

    The best way to see what they really are and what they want to become is to go to your movie archives and dig up “Brazil” with DeNiro.

  11. Yellow Belt says:

    Stop. With. The. Overdone. Periods.

  12. Andrew says:

    “like wearing a chinchilla to a PETA benefit”? Not really, running the military is an acceptable role in the eyes of a libertarian or someone who believes in limited government – similar to regulating interstate commerce. Also, having the government outsourcing something (data crunching) that the private sector does better falls well within the libertarian view. C’mon Scott, that line was a stretch. Wit and humor is appreciated in your writing but please keep commentary accurate.

  13. Arjun says:

    Smells a lot like Pivotal Software – gobs of hype concealing a mediocre product with armies of professional services to spread value hallucination.

  14. John Pope says:

    This may be the greatest – and most accurate – piece of irreverent satire written since Hunter S Thompson. Listening to recent Prof G podcasts, I was beginning to wonder if The Dog was warming to Thiel and his cretinous brand of digital sociopathy and megalomania. But my faith in humanity has been restored by this fully deserved and masterful takedown of the least moral and palatable human being west of the White House. Thank Heaven I no longer need to cringe at the prospect of Peter Thiel, Jared Kushner, Steve Bannon and Professor G getting together for strategy spit-balling sessions to allow Trump another four years of vandalising the most sacred residence on Earth – short of Graceland, of course. If there’s one thing we can always count on, besides death and taxes, is that Scott will invariably come to the right conclusion, even after, sometimes, exhausting all other options along the way.

  15. Kelly says:

    Peter Thiel’s buddies funded Kamala Harris’ career. You’re screwed either way. I’m buying the stock.

  16. John Bussmann says:

    👍 Yes, I read it but how do you really feel about Palantir?

  17. Fateh Madani says:

    Great thoughtful piece Pr. Scott. I was brought up, like most of us with classic education, thinking humans are rational beings. Now as I grow older (entry level 40s) I discover humans are emotional beings first and foremost. Tech (a very rational sector) is harvesting emotional consumers and investors money. Old companies harvested only consumers money and against a known consensual product, investors were still a rational class expecting dividends or returns of some sorts. So Pr. Scott I like your optimism that capitalism and maths are saviours but the former is broken and the latter I realize is an extremely rare skill indeed FB and the others understood about humans that we statistically prefer likes, arguing and color blue more than we are able to estimate a circle length is about 3x its diameter. So beware of Dr. Nos. Our stupidity is threatening our freedom. We need a class of Bonds.

  18. Miles Thomas says:

    Shopify. Not FedEx or UPS, but a collection of “gig economy” tier 2’s with global reach. E.g. GLS (Goldenstate US, RoyalMail Parcelforce UK), TNT, DPD, Laposte (France), Hermes. Add in a vendor with a supply chain control tower solution (but not Infor or IBM-HCL..too much baggagge). And maybe also WestfieldUnibailRodamco alongside/instead of Simon property. NB most European catalogue retailers had their own parcel company, usually spun out late ’90s early ’00s. Amazon and maybe Shopify repeating that pattern.

  19. Omar says:

    Brilliant piece ! Still not sure what to think of Palantir as an investment but great points and delivered with style too.

  20. Andrew Varlamos says:

    Scott, interesting analysis, however, one important point you have got wrong regarding libertarianism and small government, is that it does not follow that libertarians necessarily favor open borders. Robust government control over borders, in order to maximise freedoms within the state, is entirely consistent with mainstream libertarian thinking. I would go further and argue that a state that doesn’t control its borders will inevitably become so dysfunctional, it ultimately ends up as an un-state.

    • Manny Corpus says:

      Anything and everything is entirely consistent with mainstream libertarian thinking, as it is fundamentally intellectually dishonest.

    • Michael Turner says:

      libertarianism is astrology for mediocre white men and IT sociopaths

  21. holmes says:

    Given Reed Hastings advocacy of “Cuties”, I can think of endless numbers of people better suited to raising children in this leftist deranged Country.

  22. Mark Cherniack says:

    Isn’t the phrase ‘Trump (Thiel) Loves Hate’ ?

  23. GE Stecher says:

    You nailed it. From Thiel and that government stooge company to Zuckhead & and the data vacuum & advertising company he runs, cause, well they are all vapid sucksters who deserve it. I remain astounded by the ridiculous of the Palantir operating history, business model and fantasyland valuation. If you run a $750 million company with the US government as your biggest customer and you still lose over $500 million….you just suck at your job. Full stop.

  24. Doug says:

    Professor G shooting a flame thrower today! Really enjoyed reading but come on anyone who says they are libertarian are Democrats who no longer want to associate with the Democratic Party. I can’t stand anyone who says “I am fiscally conservative and socially liberal” because only half that is usually true. They are political sign people who have “love trumps hate” signs in their yards – word salad with no nutritional value. As for Peter Thiel being a libertarian has anything to do with a corporate business model is a bit of a stretch. And As for reed Hastings teaching my kids I’m gonna take a hard pass on that one.

  25. Laura Peck says:

    Always fascinating to read about Shopify’s success . The founders are my friends and neighbors. It is amazing to watch them grow!

  26. Randy says:

    Do you believe that Harris, as Sock Puppet control hand, will not utilize any source possible for data/intelligence/warning of harm to the US? While I rail at the loss of our privacy by any US department or vendor, I as cannot stomach the arrogant-snot Googlers hate on everything American. We want security and safety over all else. For ourselves, our families and our country. Ask around, how many people who were of voting age in 2001 DIDN’T want US troops to take down whom we thought were behind the attack on the twin towers. Hell, most Democratic Senator backed Bush in Iraq war. Security over all else then and now. I have no love for Thiel, but access to his people to prevent another major attack makes sense. We live in dangerous times. Everything is a balancing act. .

  27. Tracy Squillante says:

    Giulianiesque – I had to read this word twice to make sure I was reading it correctly- so good.

  28. Ryan says:

    Don’t despair. Diversification is underway. Here in the UK it appears our very own Government big brains are kneeling before/bending over readily. We have our own overblown border stories, Oligarchy at the ready, division, disruption, dismay. It is almost like the conditions were set up perfectly for an nerd in shining kevlar like Palantir. I wonder how that happened? I guess we’ll never know unless someone with bigger/better tech comes along in the third act.

  29. dmec says:

    NM/NM… crisp and clean, and no caffeine; never had it, never will.

  30. Susan says:

    I forgot to say that when I was a contract negotiator for the Air Force I got to attend the trade shows and Palantir’s swag was bitchin’. Thanks, citizens.

  31. John says:

    When defense contractors, who have enjoyed great monopolies are joined by the lunatic liberal left in hating Palantir, it should draw the attention of those who can think for themselves. Karp is an ego maniac but Thiel has delivered and is measured. If however they are right about the Frankenstein stack being tossed in favor of their fast and simple software, then 17 years of hard work could be like other overnight success that were anything but. ps, until you can prove Darwin or disprove creation, it may make sense to avoid them in favor of other subjects where your excellent insights, like Peloton and universities sucking have been validated.

    • Ben Frank says:

      priceless ps, John – 100% agree re darwin/creation – the Prof has tons of valid insights but I don’t show up to be educated on personal evolutionary theories… also, and I say this as a fellow hypocrite, I find it rich when someone who so heartily bites the University hand that feeds him point out the problem with a professing libertarian relying on a large and growing state — Thiel needs Palantir as much as you would seem to need NYU—-neither of you are putting a huge dent in your respective hosts–they’ll live on long after you’re gone either way…

    • Doug says:

      True true

    • Yeahbutt says:

      Yeah but Darwin proved himself. The math is pretty vanilla for anyone inclined to spend time on it. I can see you all have plenty of wanking your manliness in front of each other to do instead though. Totally no homo.

    • Manny Corpus says:

      “those who can think for themselves” As you recite the dogma.

  32. Susan says:

    Okay but if Palantir’s primary client is the U.S. government, how does capitalism ever put its weighty invisible hand on the scale? I mean, Boeing produces shit products, too but I don’t see their stockholders running for the exits. Palantir will keep its nose in our taxpayer trough as long as the ‘need’ exists. The need is defined by the premise “oh, yeah, well, if those Marines need something I don’t want to be the guy who says they can’t have it.” Given the sober, disciplined budetary process the government usually engages in Thiel can probably rely on letting the good times roll for the foreseeable future. How’s that for some mixed metaphors!

  33. Jose Araujo says:

    Scott, there is a reason why in Political Science Libertarians come just after fascits in the political spectrum. Actually I think we can redefine Fascism has a Social Darwinist Libertarian..

  34. Mark says:

    Thank you for this post. Most informative. It is astonishing that after 17 years their business model seems to be as an aggregator of data from random, unverified sources. I would think the intelligence community would see this for the shitshow it is.

    • Randy says:

      Since there is not necessarily BETTER data, smart people in the intelligence community will throw it in the blender. If it could help, why not consider?

    • Strawman says:

      @Randy it could also not help, but we’ll never know, since everything went into the blender. setting up a questionable idea and knocking it down with a terrible answer. FWIW, I worked in intelligence. There are not many smart people. Just bland computer users making comically biased choices towards their nation states interests. There’s little in the way of information advantage to be had these days. Just riding out the brains from yesteryear, programmed to believe their generations bullshit.

  35. Alex Giedt says:

    That Roger McNamee quote stopped me in my tracks. I re-read it several times. “The data sets come from third parties and (presumably) are filled with the errors and implicit bias that infect almost all data sets,” As someone who works with marketing data of this nature I can tell you this rings true with my experience. This is some scary stuff.

    • Doug says:

      Same here, when someone puts their name on a statement like that it says to me that we should take a closer look.