Is Palantir Just A Fancy Consulting Firm?
This is one argument that has been used against Palantir for the past couple of years - it is truly just a fancy consulting firm?
Critics make this argument of Palantir when they find out how long it takes them to deliver a customer a product. In many situations, Palantir spends month customizing a product for a potential client, losing money in the short term on the costs it takes to customize the product in hopes of closing the deal after the client is satisfied. In order to do this, Palantir sends FDEs, or forward deployed engineers, in order to go work with the client and build a highly customized solution.
Most critics argue that this is a consulting project - Palantir talks with a client, understands their needs, builds them a custom product, and then collects revenue.
What Is A Consulting Firm?
I understand consulting firms very deeply, mainly because I have run one for the past 4 years.
During my time running a consulting firm, I have done many things similar to Palantir:
Talk to clients
Understand their concerns
Build a highly customizable product that they would benefit from specifically
Take months to negotiate contracts
What I have not been able to do that is similar to Palantir, is have 80% gross margins with the clients I work with.
Consulting firms are essentially strategetic think tanks. Clients all around the world come to Deloitte, BCG, KMPG, and a bunch of other firms with letters to represent acronym that have a specific task they need to solve.
A management consulting firm may be hired to address how a company can create an innovative culture within it's company. The consulting firm will then have their smartest consultants work through the problem that the client currently has, create models and presentations with solutions on how to solve it, present those solutions to the clients, and then help them implement the solutions. They will take a hefty fee on this.
The reason consulting firms don't have amazing margins is because they are not selling software, they are selling the critical-thinking of their human capital(employees), which usually runs at a steep cost.
Palantir Does Consult, But They Sell Software
I understand why some people would be confused around Palantir being a consulting firm. If their software isn't something a client can open up out of the box, may a subscription for, and get to work - then isn't it not really a SAAS?
The problem with this argument is that it doesn't understand why Palantir needs to customize their product so deeply. Now, this will change as their products become more modular and companies will be able to use them out of the box.
For now, many clients that adopt the full suite of Palantir need to make sure it is in sync with their entire organization. This requires consulting and customization - but the end deal is a contract that Palantir is averaging 80% gross margins on.
Consulting firms get paid a flat fee for their time and strategic thinking. In my own consulting firm, I have always exchanged my time and intellectual labor for dollars.
Palantir is making reoccurring revenue off selling a piece of software.
While the selling process may require consulting for the first few months, the dollars generated off of that contract for the next 3-5 years are solely rooted in the client choosing to keep the product operating in their business, paying a subscription every year.
Maybe you have seen it before, but I personally have never seen a consulting firm achieve 80% gross margins on a subscription product years after they did the initial sell of that product.
You can watch a video of me talking about this here.
Thanks for reading the article. If you'd like to get in contact, please @ me on twitter hereor email me at amit@dailypalantir.com.
