Lessons from Palantir in the AI Age
Notes from 8VC on the new wave of "AI Services"
Dear Readers —
In case you need a break from reading about US politics with just days until the election, my 8VC colleagues and I published a new piece on “AI Services” today.
One of the most interesting mega-trends in the innovation world is how advances in AI, paired with modern SaaS (Software-as-a-Service) and operations expertise, are beginning to disrupt huge parts of the legacy services economy. See this chart for what I’m talking about:
At 8VC we’ve deployed hundreds of millions of dollars into these opportunities. The new wave of tech-enabled services companies should significantly increase productivity growth in the USA within the decade. And it turns out that the lessons and playbooks from Palantir are highly relevant. More below.
— Joe
Last month, the first company I co-founded, Palantir, joined the S&P 500. For most of 20 years, the naive mainstream view of Palantir was that it was a “glorified consultancy” – a services firm and not a real tech innovator building SaaS “products” or “platforms”. To dismiss Palantir early on was short-sighted, given they’d hired some of Silicon Valley’s top tech talent, but it was based on a factual observation: unlike most software businesses, many of our engineers spent significant time working alongside our customers. We called this team “Forward Deployed Engineers”, and they obsessed over the intricacies of our customers’ daily work, business models, and pain points.
We started this way by necessity. While Palantir had a strong product, including an advanced data integration platform, revisioning database, and more, we (unsurprisingly) didn’t have much experience with the complexities of workflows or data sources of our early defense and intelligence customers. That necessity became our unfair advantage. We iterated and extended our platform alongside our customers, improving their mission effectiveness by understanding their needs, and improving our products by abstracting those needs into universal components we could then apply to other problems. We ‘productized’ our services. Year over year, the labor and configuration required to establish value have decreased, while the scope of what Palantir can do has exploded. What’s been consistent throughout is that services have supported product revenue, not vice versa. This remains unintuitive for people who think a business must be one thing or the other.
Our success relied on boldness and talent, and a unique approach to mapping customers’ data and processes and encoding it in our solutions. We call this map an ontology, and it enabled us to serve the world’s largest organizations, where outcomes require complex workflows across numerous functions, systems, and data formats. But it’s only possible through a depth of customer partnership unimaginable to classic “product” companies. A “product” approach works best when solving a common pain point for countless customers (like payment processing). When serving the world’s most complex organizations, a special operations “services” mentality is what actually lets you build complete solutions which, in the end, are worth more than out of the box products.
