Comment by jessaustin | Hacker News Reader

Comment by jessaustin | Hacker News Reader

Prof G on Palantir:

It took Amazon 8 years to get to profitability, Netflix 6, Facebook 5, and Google 3. Palantir is old enough to see an R-rated film, get a pilot's license or (with parental consent) join the armed services. But at 17 years of age, and after raising $3 billion, the “start-up” has never made money. In 2019, Palantir lost $580 million on approximately $740 million in revenues. The idiot client they serve (U.S. government) lost 25 cents on the dollar ($1 trillion deficit vs. $3.5 trillion in revenues) in 2019 vs. 78 cents at Palantir. Shouldn’t Uncle Sam be advising Palantir?

The firm spent $911 million in marketing over the last 24 months, roughly half of what Tide detergent spent over the same period. The firm has 125 clients, 3 of them accounting for 28% of revenues. Palantir feels more like a services firm, with tech at its core (e.g., Accenture), but one that, unlike a services firm, is massively unprofitable.

https://www.profgalloway.com/palanthiel-the-uncola

There is a lot of that going around.

Shopify hit a $140 billion valuation not long ago. The current incarnation of Shopify is 14 years old and has never generated an annual profit.

Workday is 15 years old; Splunk is 17 years old; Box is 15 years old; DocuSign is 17 years old; Proofpoint is 18 years old; FireEye is 16 years old; Spotify is 14 years old; Cloudflare is 11 years old; Palo Alto Networks is 15 years old; Zscaler is 13 years old; Airbnb is 12 years old; Quora is 11 years old; Uber is 11 years old; Okta is 11 years old; Pinterest is 10 years old; Crowdstrike is 9 years old; DigitalOcean is 9 years old; Snapchat is 9 years old; Elastic is 8 years old; Lyft is 8 years old.

None of them have ever generated an annual profit.

I think it took Salesforce 15 years to finally generate an annual operating profit. It took ServiceNow around 16 years to get to an annual operating profit.

The accumulated losses for all of these companies combined has to be quite staggering (and there are many, many more).

The capital markets (public or private) have generally been reluctant to punish these companies so long as there is meaningful top line growth (which, judging from Palantir's declining valuation, I'm guessing they do not have).

This is nuts. Some of this I can understand, but many of these are pure software companies. How can the C-levels _operate_ a company at a loss for so long and still have proper context?

And take huge cash+equity compensation.

They're learning to emulate biotech.

It's entirely rational behavior. Once a business adopts a technology, they will almost never switch to a different vendor, because the product gets deeply integrated into their business processes. Think about how often you switch your bank -- an enterprise switching vendors for any software that touches their core systems is much more complex.

So, if you're in a rapidly growing market where there are a lot of competitors, it makes sense to spend as much money as you need to to capture market share, because if your competitors get there first, you'll almost never be able to win a customer away from them. It's not a network effect -- getting GM as a customer doesn't help you get Ford as a customer, but once you're the software that GM uses for end-of-year performance reviews, for example, you've got that revenue for 10+ years.

In consumer, the dynamic is the same, but instead of switching costs that are high, it's attention costs. A business looking for PDF generation software will find and evaluate 10 vendors -- a consumer looking to play The Doobie Brothers will use whatever music app they heard about from their friends, so there is a superlinear bonus to being at the top of the market.

Wow.

Where did you get this list? I've known for a while that there sure seemed to be a lot of firms that never make money yet somehow never seem to fold. I think of them as zombie companies. They don't eat but somehow they don't die either. They just keep on shambling forwards, like the corporate undead. But seeing the list spelled out like that really rams it home, especially as it can't be complete.

eh? They are generating revenue. They just spend it on customer acquisition or r&d.

"Make money" means making profits, not revenues. That's standard English. Nobody gets points for selling $1 for $0.50, nor do they get money for engaging in "custom acquisition" after a decade. Customers can leave again. You have to make a profit at some point.

In the limit yes but I think this idea of making profit is a fundamental attribution error. But it is a fine line. It is better to be profitable than not but if you can raise capital it allows you to trade money for time.

You're wrong about Shopify. Their latest quarter has been their most profitable, but they've only had one loss quarter since the beginning of 2018.

https://www.marketbeat.com/stocks/NYSE/SHOP/earnings/

That's cute and all, but it's not about whether it makes a profit; it's effectively a government contractor or part thereof, and said government wouldn't let it go under (because strategic assets). Said government also pays for the most well-funded standing army and that one doesn't turn a profit, memes about oil in iraq aside.

One of the things I constantly see discussed (for good and bad) is whether or not to view Palantir as a way to make the military-industrial complex "attractive" to the startup world. It could be an interesting point as to whether Palantir is ever going to generate a profit, or if it's merely the government outsourcing some amount of software development, without making it seem as unattractive (to some) as working for Lockheed Martin and the like.

In terms of labor, it doesn't really matter, since the guest worker program can fill any shortages that occur either due to moral objection or the lack of benefits that one would get from an established MIC player.

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