Privacy Debate May Hurt Palantir

According to a report by research firm MarketsandMarkets, the global big data market is projected to grow 26% annually from $14.87 billion this year to $46.34 billion by 2018. The report also estimates that the predictive analytics market is projected to grow 25% annually from $1.7 billion in 2013 to $5.24 billion in 2018.

Palantir’s Growth

Palo Alto–based big data analytic solutions provider, Palantir Technologies, is one company which is succeeding in making it big in the predictive analytics market using its data mining capabilities. Palantir’s aim is to find solutions to “the world’s hardest problems.” Palantir’s software solutions help integrate, visualize, and analyze big amounts of data to provide security solutions that can be used by the intelligence, defense, law enforcement, and financial communities.

Since its founding in 2004, Palantir has been using its data mining solutions to track terrorists, bank fraud cases, and even disease outbreaks. For the first few years of its inception, Palantir was supported and funded by the government sector. The CIA was its only customer, and the agency helped Palantir to test its software. But since then, Palantir has started offering its services to commercial organizations as well. Its technology helps identify connections between IP addresses, proxy servers and fund movement to help block cases ranging from cyber fraud to distressed mortgages. Its products have helped them deliver strong growth. The customer list of more than 200 clients includes names like the NSA, the FBI and JPMorgan Chase, to name a few. Today Palantir earns more than 60% of revenues from commercial organizations.

Despite this growth, Palantir has yet to make a profit. Recent reports estimate that Palantir will earn more than $450 million in revenues this year, compared with $300 million a year ago. Palantir’s management expects to sign contracts worth more than $1 billion by the next year.

Till date, Palantir has raised $650 million in funding from investors, including In-Q-Tel, Founders Fund, Glynn Capital Management, Ulu Ventures, Jeremy Stoppelman, Keith Rabois, and Ben Ling. This includes the most recent round of $58 million in funding raised in November 2013. The company is expected to extend this round of funding to more than $100 million at a valuation of over $9 billion. That is a significant increase from the $6 billion valuation at which it had raised $196.5 million in September 2013.

I remain highly skeptical of the tech industry’s current sky rocketing valuations. The company yet to turn a profit, following the strategy of growth first, profit later that its industry peers have adopted.

Also, one of the main industries that the company operates in is becoming shrouded with controversy. There are growing voices of privacy advocates fueled by recent events relating to former CIA employee and NSA contractor Edward Snowden and the NSA information leaks. These groups are not pleased with Palantir’s data mining capabilities. A recent Forbes article quotes an American Civil Liberties Union analyst, Jay Stanley, as having written about Palantir’s software’s capability to deliver a “true totalitarian nightmare, monitoring the activities of innocent Americans on a mass scale.” Yikes!