Palantir’s technology is its competitive advantage. No other system allows users to draw associations between disparate data sets and to visualize the connections as easily or as quickly. On the back end, Palantir’s infrastructure uses cutting-edge data processing algorithms to search through huge data sets at lightning speed.
Palantir’s business model, like the company itself, is slightly furtive. They sell two main products: Gotham (aimed at military and government customers) and Metropolis (aimed at finance and retailers). However, pricing is quite opaque, except for this price list from the GSA Advantage ordering system, as reported by Hacker News (Source: http://news.ycombinator.com/item?id=8325441)
A typical Gotham installation consists of:
- $564K Price for a Palantir server, assuming 4 cores
- $112K Software Updates and Maintenance for server, per year (first year free)
- $100K Training, assumes 50 users
- $600K Engineering Services for integration. Assume 2-3 deployed engineers for 1 year
Next, looking at Palantir’s job listings, it’s even more obscure. They’ve made up their own titles for some positions.
- Designer - At Palantir Office
- Software Engineer - At Palantir Office
- Forward Deployed Software Engineer - Customer Site
- Deployment Strategist - Customer site
- Product Expert - Customer site
But wait - Is the company a product or services company?
This structure looks more like an Accenture consulting team, rather than a Silicon Valley product company. By bundling the product and services, Palantir can obscure where their allegiances lie.
Financially, it’s obvious from the breakdown that the engineering services are the highest margin. Assuming you can pay FDEs $100K/year with lucrative stock options, Palantir has a 60% margin per deployed engineer. Moreover, customers often keep FDEs longer than required because they are miles better than their own employees. Operationally, however, Palantir’s thought-leaders are the product engineers, who come up with advanced data processing algorithms. I speculate that these special titles are a HR move to compete for the best talent in the Valley. Top engineers wouldn’t respect working at a technical services company, so Palantir must re-brand as a product company to attract the best technical talent. This approach has been highly successful as Palantir is seen as a Silicon Valley darling.
The company states that they practice value-based pricing, which allows them to maximize WTP for each customer. For example, on the government side, Gotham’s only comparable product is the U.S. Army’s in-house Distributed Common Ground System that cost of $2.3 billion. A leaked document cites a 2012 study where 96% of the surveyed war fighters in Afghanistan preferred Palantir. So we can assume that Palantir can charge up to and over 2.3B for their product - to the Army alone.
Today, Palantir’s expanding to retail/CPG companies as they look for new-market opportunities with shorter selling cycles than government. Unlike the government, these companies do have comparison points to IBM BI, SAP, and in-house solutions. As they enter this industry, Palantir should expect to see its margins decrease due to increased competition, especially since IBM BI may even underbid just to keep out Palantir. It will be interesting to see if these lower margins will eventually spillover to the government side, as greater transparency should identity the true value for data analytics products.