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PLTR: The Biggest Networks Start Small
By changing the framework we can visualize the priorities more clearly.
Without the proper framework, we can misjudge Palantir’s strategy.
To understand the rationale of Palantir’s decisions we should take a look at Palantir not as a product company, but as an enterprise network.
By changing this paradigm we could start seeing some controversial choices in a different way and have better clues on the possible future steps.
In this article, I’ll focus on the Commercial side, but similar thoughts are also valid on the Government side.
Palantir as an Enterprise Network
From Palantir’s perspective, the total number of clients can be seen as the number of active users operating on the platform.
Each client should not be considered as a self-operating company but as a node of the network exposed to a multitude of suppliers and clients which could later join the network and reinforce it.
Palantir at its heart is a data integrator and a problem solver to manage operation complexity in any sector. Therefore, every additional client exposes Palantir to its suppliers, customers and partners.
Why doesn’t Palantir immediately pursue the mass market?
The lesson comes from Facebook:
Big networks start small and from exclusion.
As a reminder, Peter Thiel, Palantir Founder, was the first outside investor in Facebook in 2004 and helped shape the group’s early strategy.
Facebook’s priority was network growth
Facebook wasn’t initially open to everyone, it followed a specific path:
monopolize Ivy League universities (Columbia, Stanford, Yale, etc.);
open access to the world.
The irony is that to create a big network you have to start small.
Dominate a niche and expand.
Peter Thiel’s “Zero to One” shares the key to obtaining successful network effects:
“Network effects can be powerful, but you’ll never reap them unless your product is valuable to its very first users when the network is necessarily small.
Paradoxically, then, network effects businesses must start with especially small markets. Facebook started with just Harvard students–Mark Zuckerberg’s first product was designed to get all his classmates signed up, not to attract all people of Earth.
The early network is the foundation of the future network. Ivy Leagues were so precious as they tend to be:
considered as the reference for college students;
Palantir’s early network
Palantir's first cluster of Commercial clients has these characteristics. In particular BP, Merck, and Airbus, which are considered Palantir’s main Commercial clients could be compared with the “Ivy League students”:
leaders in their vertical sectors.
having many clients/suppliers.
For instance, Airbus:
is a global duopoly with Boeing;
has over 12.000 suppliers and over 400 customers.
Palantir initially partnered only with clients with the potential of $100mn contracts, leading them to have the “very best client list in the world”.
It’s very hard to evaluate software. If you are a software engineer we can explain it to you technically, but you can also call these five clients.
Palantir has the very best client list in the world despite having me as a frontman.
-Alex Karp, Palantir CEO
We can have a clue of the standing of Palantir clients from the following dashboard:
Since software is very hard to evaluate, having a strong collection of companies endorsing the product is crucial to making it spread with word of mouth.
The best way to evaluate software is “let me talk with someone who has used it, let me do a pilot and do that on some problems you actually care about.” -Alex Karp, Palantir CEO
With the early clients, Palantir:
created the first branches of the network;
improved its product while working with highly engaged customers.
Now Palantir is gradually opening up, fueled by much faster sales cycles (Palantir: This Time it’s Different), which are operational constraints to target the mass market.
How Palantir’s network increases in value
A network increases in value the more users join the network. Why will Palantir’s network becomes more valuable as the network expands?
This topic requires a dedicated focus, but here are a few key considerations that happen as Palantir’s network expands:
More clients = more incentives to create partnerships;
More users = more developers are incentivized to build applications;
More data = Foundry helps users make better decisions;
More problems = more archetypes generated to support other clients.
Palantir could be considered an early-stage enterprise network in the first stages of opening.
By looking at Palantir through the lenses of network effects, we can see why the growth in client count is the most important metric, as shared in the previous article (Palantir Q2: Really a Disaster?).
With this framework, we can better understand the key priorities and the strategic role of some initiatives.
In the coming articles, I will explore how these strategic initiatives are pieces of the puzzle.
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View expresses are my own. Do not represent Financial Advice.
I own (many) PLTR 0.00%↑ stocks.