"the government reimburses the contractor for all of the contractor’s costs developing the product, plus some additional fixed fee. That meant that there was very little incentive for large defense contractors to make cheaper, better products!"
Isn't the fixed fee a percentage and thus the actually incentive is to inflate the cost to make the product/service.
2. I'm note entirely convinced the bundling and strong sales relations is the key. Isn't a lot of the success of Palantir and Anduril a feature that the founders are billionaires. In other words, both could operate at a loss for a long time while developing expensive technology they believed the US defense and national security agencies needed. This means that when Pentagon officials saw what they were doing and wanted to buy/deploy, Palantir and Anduril had the upper hand and could sell at a beneficial fixed cost (i.e., if they can lower their costs then the margin is all profit).
Different contracts have different structures, but you're right -- some contracting structures do actually encourage spending! And you're not wrong that the ability to operate at a loss, funded by billionaire founders, helped Palantir and Anduril to succeed. I do think their sales relationship with the government is one of the reasons they have such eclectic product portfolios, though.
Brilliant post. Digging deeper into Palantir's moat on sales relationships:
1. What exactly goes on in the sales process? From what I understand, government sends out open tender invitation for a certain product (hardware or software), bids are evaluated on technical parameters and cost, and the supplier is selected accordingly. At least this is how it happens in India, where I'm from. What might be Palantir's differentiation on the sales process?
2. Given that Palantir is about undifferentiated technology sold to DoD in an efficient sales mechanism, how do they hire and train their sales staff? Are there certain "feeder" industries or organisations from where they hire?
Thank you for these wonderful insights! :)
P.S. Peter Thiel did a Reddit AMA 10 years ago. Someone asked him "Is Palantir a front for the CIA?" His reply: "No, the CIA is a front for Palantir."
Superb post. Some questions:
1. With respect to:
"the government reimburses the contractor for all of the contractor’s costs developing the product, plus some additional fixed fee. That meant that there was very little incentive for large defense contractors to make cheaper, better products!"
Isn't the fixed fee a percentage and thus the actually incentive is to inflate the cost to make the product/service.
2. I'm note entirely convinced the bundling and strong sales relations is the key. Isn't a lot of the success of Palantir and Anduril a feature that the founders are billionaires. In other words, both could operate at a loss for a long time while developing expensive technology they believed the US defense and national security agencies needed. This means that when Pentagon officials saw what they were doing and wanted to buy/deploy, Palantir and Anduril had the upper hand and could sell at a beneficial fixed cost (i.e., if they can lower their costs then the margin is all profit).
Different contracts have different structures, but you're right -- some contracting structures do actually encourage spending! And you're not wrong that the ability to operate at a loss, funded by billionaire founders, helped Palantir and Anduril to succeed. I do think their sales relationship with the government is one of the reasons they have such eclectic product portfolios, though.
Brilliant post. Digging deeper into Palantir's moat on sales relationships:
1. What exactly goes on in the sales process? From what I understand, government sends out open tender invitation for a certain product (hardware or software), bids are evaluated on technical parameters and cost, and the supplier is selected accordingly. At least this is how it happens in India, where I'm from. What might be Palantir's differentiation on the sales process?
2. Given that Palantir is about undifferentiated technology sold to DoD in an efficient sales mechanism, how do they hire and train their sales staff? Are there certain "feeder" industries or organisations from where they hire?
Thank you for these wonderful insights! :)
P.S. Peter Thiel did a Reddit AMA 10 years ago. Someone asked him "Is Palantir a front for the CIA?" His reply: "No, the CIA is a front for Palantir."
https://www.reddit.com/r/IAmA/comments/2g4g95/peter_thiel_technology_entrepreneur_and_investor/?sort=confidence