Facebook Investor Peter Thiel: Palantir Is The Next Facebook Or Google

By Oliver Chiang

Feb. 28 2011

Palantir CEO Alex Karp
Who isn’t looking for the next big tech company?

For a FORBES magazine story I recently wrote on cyber-security software-maker Palantir Technologies, I spoke with billionaire Facebook investor Peter Thiel, who said that Palantir is “tracking like the really great tech companies, like Facebook or Google.” Thiel thinks the company is the “most undervalued company in Silicon Valley” and will be worth around tens of billions of dollars in a few years’ time. Of course, Thiel is Palantir’s largest stakeholder, and his venture capital firm The Founders Fund has bankrolled much of the startup’s initial costs. But beyond the hype is a company that has accidentally stepped into the middle of controversy, is attracting some of the brightest engineers from top schools, and is making more money than anyone suspects.

Let’s start with the controversy. Up until a few weeks ago, only “Lord of the Rings” nerds knew what a “palantir” was (a seeing stone the company is named after). But recently, Palantir has found itself in headlines for putting together a proposal, along with HBGary and Berico Technologies, to launch cyber-attacks and other “dirty tricks” against Wikileaks and its supporters, on behalf of Bank of America, and against website ThinkProgress on behalf of the U.S. Chamber of Commerce. Pro-Wikileaks hacker collective Anonymous found the proposal and emails by hacking into the account of HBGary’s chief executive.

Palantir responded by issuing an apology and severing ties with HBGary. It has also put the 27-year-old engineer Matthew Steckman — who may have been responsible for putting the offensive tactics on the proposal (according to the emails) — on leave and launched an internal investigation. Some have implied that Palantir’s senior staff must have known about the proposal, given the importance of the clients. But Palantir chief Alex Karp says that’s not how the company works: “The idea that a 27-year-old wouldn’t have the ability to make a decision about our proposal is very foreign to how we work. It would go further up the chain if it was a proposal, but it wasn’t.”

Indeed, the 330-person company is largely comprised of 27-year-old “forward deployed engineers” who are given a lot of free rein to make decisions. But in an industry like cyber-security, young engineers may not have the experience to make the best judgment calls. Even Karp concedes, “There was an oversight breakdown on the proposal phase of our work and we regret that.”

Palantir will need to do some PR clean-up, especially among its applicant pool. The company competes with the Googles and the Facebooks for top talent. Palantir’s Co-director of Engineering Bob McGrew, a third-year Stanford Ph.D. candidate in computational game theory, turned down a job at YouTube offered by co-founder Jawed Karim to go to Palantir. McGrew says the company’s save-the-world “mission” sets it apart. Stanford computer science student Jake Becker says Palantir’s exclusivity in hiring the best of the best makes the company an attractive employer. But Becker also says that the Wikileaks flap “is seriously damaging their reputation on campus.”

Meanwhile, competitors sniff and say that Palantir isn’t doing anything particularly new in the industry. “They are taking a different approach which is trying to bring the Silicon Valley-esque to the beltway,” says i2 CEO Bob Griffin. A primary competitor to Palantir, i2 is a 20-year-old company whose cyber-intelligence software is known as the Microsoft Word of the industry. “The reality is at the end of the day there is no different approach. It’s all the same: it is what is the tool that allows customers to do what they do best.”

Recently, i2 and Palantir settled a lawsuit, in which i2 accused its competitor of corporate espionage. Griffin says only that he was “very satisfied” with the settlement.

But these controversies will likely wash over in time. Some investors have been betting big on Palantir. The company’s last round of funding of $90 million last June, led by an unnamed private equity firm, valued the six-year-old company at a whopping $735 million. Dave Kellogg, former CEO of business intelligence software maker MarkLogic, speculates in a blog post that “dumb money” might be involved here. “I think it means that… The company is trying to build and/or sustain a hype bubble and wants to be seen as hot. Most VC-backed companies do not disclose valuations,” he wrote. Kellogg also thinks Palantir is executing a “go big or go home” type strategy like PayPal did in its early days (Palantir was founded and backed by PayPal Mafia members), but he says he doesn’t see the same “landgrab market opportunity” here.

Other analysts and companies in the space agree, saying that Palantir’s revenues were probably around $25 million to $50 million last year. Gartner analyst John Pescatore says the market for “situational awareness tools” like Palantir’s is in the tens of millions of dollars, a fraction of the overall security intelligence services’ budgets, which are dominated by the likes of Raytheon, Boeing and Lockheed Martin.

But Karp says that he sees a “clear path” to $1 billion in revenue within the next five years. How close is he to that? Palantir’s 2010 revenue was “significantly north of $80 million”, said a highly reputable source familiar with the company who did not wish to be named. Karp says that Palantir’s revenues have been tripling every year since 2008 and that it became cash-flow positive in 2010.

Still $80 million or so is a long way from $1 billion. A lot will depend on how Palantir expands beyond its cyber-security niche. The signs could point either way here. It would not be a surprise if Bank of America did not end up using Palantir’s services anytime soon, given recent happenings. On the other hand, Palantir has already been able to line up a number of other top banks and hedge funds. One of these is JPMorgan Chase. Palantir signed a multi-year contract with the bank in December 2009 in the $5 million to $20 million range, and JPMorgan Chase Chief Information Officer Guy Chiarello gushes about the company, calling Palantir “the best bet I’ve made in quite a while.”

There’s no doubt that Palantir has a lot of bright young engineers working for them, but to really kick it up to the level of a Facebook or a Google, the company may need to start growing up.


Deals, Dips, Discounts: Companies Risk Losing Customers Down the Road

Retail America Is Having a Big Sale — but for How Long?

by Al Ries

Published: February 07, 2011

The day I received a Christmas card with a coupon from my automobile dealer, I knew the bubble was getting ready to burst.

Last year, 3 billion coupons were redeemed out of the hundreds of billions that were printed. But that’s only the tip of the discount iceberg. Not only is Retail America awash in coupons, it’s also awash in discounts, sales, doorbusters and loyalty programs.

Such esoteric ideas as strategies and slogans have all but disappeared in retail marketing as store after store across the country has focused its media guns on sales and more sales.

DOUBLE TAKE: Burger King goes the two-for-one route.
Consider Burger King’s recent TV commercials. Two chicken sandwiches for the price of one. What’s the strategy? To get people to switch from burgers to chicken sandwiches? Or perhaps to position Burger King as a two-for-one place like Little Caesars did decades ago? Instead of “Pizza. Pizza,” perhaps we’ll see “Chickie. Chickie.”

Even many high-end stores are joining the rush to slash prices.

Lord & Taylor … “60%-80% off. Save big all over the store.”

Saks Fifth Avenue … “50% off already reduced prices for a total of 65% to 70% off.” Brooks Brothers … “Savings up to 50% off regular retail prices.”

And what newspaper or magazine sells subscriptions at their full prices? As The New York Times says, “Stay 100% informed, for 50% less.”

In fact, 50% off seems to be the magic discount. Our local newspaper, The Atlanta Journal-Constitution, runs a weekly column under the heading “This week’s big deals,” the vast majority of which are 50% off or “buy one, get one free” in everything from soup to plastic surgery.

(Will Geico someday have to change its slogan to “15 minutes will save you 15% or more on car insurance”? Saving 15% is so yesterday.)

Like most marketing fads, the coupon craze is typical of the follow-the-leader thinking rampant in the marketing community — if everybody is using coupons, then they must be an effective marketing tool.

And they are — in the short term. It’s easy for a company to check sales and redeemed coupons to decide if its couponing program is financially successful or not. But what happens in the long term? How many customers will a company lose tomorrow because they stocked up on sale products today?

The end of a bubble is often marked by a spectacular development and the coupon bubble reached a climax on Dec. 3, when news began to circulate that Groupon had rejected a $6 billion buyout bid from Google. A shade more than two years after its founding in November 2008, Groupon is worth in excess of $6 billion? Or maybe $15 billion, the figure quoted in a New York Times article about a planned Groupon initial public offering.

The Groupon concept is to give consumers the opportunity to buy coupons for something like 50% off regular prices. Then Groupon splits coupon sales 50-50 with local retailers. Sounds like a great deal for Groupon, a lesser deal for consumers and a road-to-ruin deal for local retailers.

But hope springs eternal, of course. Presumably, all those consumers who bought products and services for 50% off are going to be happy to return to their local retailers and return to buy those same products and services at full prices.

That’s not going to happen. What is going to happen is that those same consumers are going to go back to Groupon and wait for the next 50%-off sale.

You see the same phenomenon happening across the retail spectrum. Macy’s, Kohl’s and most department stores seem to have ditched the idea of positioning their brands, instead relying on discounts, sales and coupons to keep consumers coming back into their stores.

Nobody is more sale-crazy than the folks at Jos. A. Bank. They’re creative, too. Every week or so, the clothing chain gives its discount strategy a different twist. The latest Jos. A. Bank twist: “50% off entire site. 60% off any second item. 70% off any third item.”

In marketing, the advantage is being different. When everyone else is running sales, it’s hard to be different by running a sale. Today, a chain can be different by not running a sale. The biggest beneficiary of the coupon craze is Walmart, which seldom runs sales or issues its own coupons.

A recent Walmart ad compared the prices of featured products at leading national drugstore chains with its own prices. Walmart prices were “20% less, on average, than the leading national drugstore chains.”

Someday, some leading consumer-packaged-goods brand will run an anti-coupon campaign that could shake up the industry. “No coupons. Never issued them. Never will.”

Notice how effective Southwest Airlines has been with its “No change fees” and “No baggage fees” campaigns. As a matter of fact, Southwest has been successful by doing almost everything just the opposite of the strategies employed by the big carriers. No first-class service. No international flights. No food. No pets. No advance seating reservations. No inter-airline baggage exchange. No corporate discounts.

One of the secrets of Zappos’ success is the absence of deals; it stands out as a paradigm of price stability. Consumers don’t have to worry that someone will buy the same shoes next week for 50% off.

As America becomes more monolithic, I think you’ll see the value of sales and coupons inevitably decline.

In the past, discount devices like coupons were effective in broadening a brand’s customer base, especially if a company could keep them out of the hands of its regular users. With the advent of social media, that’s getting more difficult do. The word about deals can spread rapidly.

Look at a website called Coupon Sherpa, a source for online coupons, grocery coupons, printable coupons, restaurant coupons and coupon codes to over 5,000 stores. Slogan: “Never pay full price again!”

Is that the future of retailing in America? Only time will tell.

‘You’ve Got to Tell Stories That Grab People by the Collar,’ Says Risk-Taking CEO

How Chrysler Chief Olivier Francois Is Selling Detroit

By David Kiley

Published: February 21, 2011

Joel Martin, principal of Eight Mile Style Music and co-owner of Eminem’s song catalog, is used to getting the cold shoulder from Michigan automakers who have generally found the rap artist’s song lyrics too spicy for their mainstream audiences. So, imagine his surprise when he got a call on his cellphone one day last December from an assistant at his Ferndale, Mich., office that said “The president of Chrysler is here looking for you.”

The assistant didn’t have it quite right. Olivier François is CEO of the Chrysler brand, as well as chief marketing officer for all of Chrysler, which includes the Dodge, Jeep and Ram brands. He’s also CEO of Fiat’s Lancia brand in Europe and CMO of Fiat. And to know how Mr. François operates is to know that it was very much in character for him to drive over to Mr. Martin’s office with no appointment, hoping, or even expecting, that he would be there to discuss using a classic Eminem song, “Lose Yourself,” in a Super Bowl ad. In the end, the meeting took place at 10 p.m. on a Sunday night.

Mr. François, 49, on the job at Chrysler for 15 months, is gaining a reputation among his ad agencies, dealers and staff for surprising them and taking the kinds of risks that make them feel more confident than they ever did while owned by German carmaker Daimler or private-equity firm Cerberus Capital. His latest roll of the dice was a two-minute, $9 million Super Bowl ad, featuring Eminem’s anthem and the rap star himself, to launch a new strategy and tagline around the Chrysler brand: “Imported From Detroit.”

“He’s a maniac,” said Mr. Martin of Mr. François, noting that he and Eminem turned down over 100 deals to use the song in ads before agreeing to sell it to Chrysler. “The whole thing had a surreal quality to it … this French guy and all this he was telling us about loving Detroit and how important [Eminem] is to the city.” If it weren’t for Mr. François’s salesmanship, “We never would have done it,” he said.

While the gambit took a lot of ad-watchers off-guard, the idea of featuring the city of Detroit and playing up the heritage and history of making cars is not a new idea. “This idea has come up for Chrysler, Chevrolet and Pontiac a handful of times in the last 20 years,” said Gary Topolewski, an independent creative director who has worked on Chrysler, Dodge, Jeep and other car brands. “But it always got shot down by the executives who have worked in Detroit their whole lives, fearing it wouldn’t play on the coasts.”

But Mr. François greenlighted the idea, which originated with Wieden & Kennedy.

“Maybe it takes people from outside the city to see the possibilities and passion,” said Mr. François. Of the four brands he took over, Chrysler has been the biggest challenge. It is not generally viewed as a luxury brand, but he is positioning it as “new” luxury. “Beautiful, passionate design and comfort for people who don’t forget where they came from,” said the Paris-born Mr. François, who thought he would enter the diplomatic corps after getting a political science degree in the late 1980s. An advertising and marketing degree from Sorbonnes Celsa, however, led him to Citroen and then Fiat.

When Fiat took control of Chrysler after the federally assisted bankruptcy, it didn’t take long for Mr. François to hit on the need to change the way the company thought about its messaging. Long-time agency BBDO was served notice after working on the Chrysler business for 65 years. A review ensued in which agencies had to prepare strategies for Chrysler, Dodge and Ram Truck brands. The Richards Group of Dallas won Ram; Fallon Worldwide took Chrysler and Wieden & Kennedy took on Dodge. Global Hue retained Jeep and multicultural duties.

Since then, Mr. François has restructured things, separating agencies by job rather than brand. Wieden now leads on all national branding for Chrysler and Dodge. Global Hue remains lead agency on Jeep, though Wieden produced the launch campaign for Jeep Grand Cherokee in 2010, and will continue to compete for national Jeep model launches. Doner, Southfield, Mich., replaced Fallon when the latter resigned Chrysler to take on General Motors’ Cadillac, and handles the retail-driven ads for all four brands. Richards retains Ram, with the thinking that the truck market is a unique ad space, and also because Chrysler plans to introduce more models — such as commercial vans — under the “Ram” brand. And Global Hue handles multicultural ads on all four brands.

“Things sorted themselves out based on which agency was doing the best job at each function,” said Mr. François, who admits it can be tough for agencies to work with him because of how much he gets involved “as a creator.”

Quick on his feet
He is known for making fast decisions mostly on instinct. “Meetings tend to run fast, and ideas don’t get a lot of wind-up,” said Richards Group CEO Stan Richards. In November 2009, Mr. François approved putting “rip” videos (mood videos created with stock photography and voiced by agency staff used largely for internal use) produced by Richards for Ram truck and Global Hue for Jeep on national TV as commercials despite low production values. “I was shocked, but I did not object,” said Mr. Richards, whose voice was on the ad, with a laugh.

Last August, Mr. François approved an idea after just a few minutes of brainstorming with Wieden staffers on how to respond to protests from animal-rights groups over the use of a chimp in a Dodge retail ad — the chimp was removed, but the clothes he was wearing were left behind, giving the ad an odd “invisible chimp” effect. Not only was PETA pleased, but the new commercial went viral; the original hadn’t. And for an Independence Day-timed Dodge ad, he approved a spot showing George Washington leading a column of Continental soldiers into battle against British redcoats driving Dodge Challengers. “Some of our team had a lot of doubts, but I knew right away and approved it off the storyboards,” Mr. François said.

Advertising “American” for Detroit automakers has been a kind of taboo, especially since, until recently, they badly lagged Asian companies such as Toyota and Honda. But Mr. François and his agencies have injected images of Americana and messages of pride, hard work and reward into their ads. “We’re from America,” proclaimed the Super Bowl ad. “The things that make us American are the things we make,” go the Jeep ads. Mr. François hints that he has much more in store to link the Chrysler brand to the comeback of the city of Detroit, in which he wants Chrysler to be a key player.

“You can do this sort of thing very badly,” said independent marketing consultant Dennis Keene. “But I have to say that Chrysler is bringing so much art to the messaging that I think it flies, though they are walking right on the line.”

Doner CEO David Demuth says working with Mr. François is “like working with a creative director on the client side.” He doesn’t just approve or reject ideas or storyboards like most CMOs. For example, trained early in his life in music, Mr. François sits down with composers and tells them exactly what he wants or is looking for. For the Super Bowl ad, he worked with composer Luis Resto on the adaptation of “Lose Yourself.”

The ad did not include Eminem’s lyrics, just the music. Wieden cast Detroit gospel choir Selected By God to perform in the Super Bowl ad, but it was Mr. François, said Mr. Resto, who directed the crescendo leading into Eminem’s line: “This is the Motor City. This is what we do.” Added Mr. Resto, “How many car marketing guys can sit down and tell you why he wants a ‘melancholy piano’…that was a first for me.” Indeed, Mr. François, who does not play piano, has nevertheless composed or co-composed music for numerous Lancia and Fiat ads. He gets no royalties or payments.

What he’s doing is importing the strategy to Chrysler that he has long used in Europe on Lancia ads. “You’ve got to tell stories that grab people by the collar, and that’s what we try to do,” said Mr. François. In a 2007 ad for the Lancia, he approached fashion designer and gay icon Stefan Gabbana to appear in an ad. Mr. Gabbana initially refused. But after Mr. François laid out the storyline of the ad in which Mr. Gabbana, driving a Lancia Delta, would be tempted by a beautiful woman and end up in a passionate kiss, he not only agreed, he agreed to do it for no fee. The ad created a publicity sensation in Europe and a sequel was produced.

Mr. François coyly said he does not like to use “spokespeople.” But his two ever-present BlackBerrys run deep with celebrities who have appeared in his ads: Carla Bruni Sarkozy, Richard Gere and even the Dalai Llama. Of those, only Mr. Gere took a fee, and it was for his charity. Even Eminem sold Chrysler rights to his song for 20% of what he could have gotten just to be part of the ad. Oscar-winning actor Adrien Brody directed a Chrysler ad late last year, his commercial directing debut, and voiced the ad as well.

No stranger to risks
Clearly Mr. François doesn’t mind poking at beehives. He launched the Richard Gere ad spotlighting the plight of Tibet the week the Beijing Olympics kicked off. And for the past three years he created Lancia ads to run the week of the annual World Summit of Nobel Peace Laureates to spotlight the imprisonment of Nobel Peace Laureate Aung San Suu Kyi, a Myanmar pro-democracy leader. The ads show laureates arriving in Lancias, and close to show a Lancia’s rear door opening with no laureate riding in the backseat, representing Ms. Suu Kyi’s absence. Mr. François was editing the latest ad when he got word Ms. Suu Kyi would be released, necessitating fast changes to the ad, which he directed from a Delta Airlines flight.

Given his track record, few doubt Mr. François’ ability to get attention for Chrysler’s slowly recovering brands. The Super Bowl ad, for example, generated more online buzz and news coverage than Chevy’s five ads combined. Dodge brand CEO Ralph Gilles defends Mr. François’s penchant for risk-taking. “People get all the product information they need online … the role of the ads should be to light a fire under them, and drive them online to check us out.”

But Mr. François has to turn those bursts of attention into sales and favorable opinion. Chrysler’s retail market share before Fiat took it over in 2009 was 8.9%, according to Automotive News figures, and by 2010, it hit 9.4%. In the three years Mr. François ran Citroen in Italy, the brand more than doubled market share to 6.5%.

The Chrysler-Fiat team has worked at breakneck pace since summer 2009 to make dramatic improvements to core vehicles. The 300 makeover alone cost $1 billion. “We are no longer ashamed of the products we are selling,” said brutally frank CEO Sergio Marchionne.

The biggest obstacle is the mostly terrible quality ratings from Consumer Reports and J.D. Power. The makeover has corrected many past sins, but it will take two to three years for the ratings to move up to reflect it because of how the organizations work their rankings, and even longer for consumers to trust.

Chrysler this year plans to do its initial public offering in the fall. It’s imperative that institutional investors and stock analysts believe Mr. Marchionne’s team and operation is headed in the right direction. Not only do retail sales need to climb, but the overall operation, from product to marketing, needs to have credibility with investors and the public.

Last year, Mr. François commissioned a corporate ad effort from Gotham, New York, but decided not to run it, deciding instead to plow the money into the Jeep Grand Cherokee launch. Said one Chrysler insider, “He knows where the priorities are: sales.”

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