From Last Supper to First Breakfast: The Defense Tech Ecosystem
Dawn of Palantir’s 3rd Decade Working with the U.S. Government
When Palantir was founded in 2003, there was no defense innovation ecosystem. As a consequence of then-Deputy Defense Secretary William Perry’s Last Supper and a desired Peace Dividend, the primes were allowed to consolidate in exchange for an oligopoly on the market. Structurally, the only way for Palantir to break in, deliver value, and build a business was through the creation of vertically integrated products that could be delivered as complete, opinionated, end-to-end solutions, just like the primes.
Twenty years after Palantir’s founding and thirty years after the Last Supper, we want to flip the script and go all in on expanding Palantir’s mission by supporting and growing today’s nascent but inspiring defense tech ecosystem. Specifically, we are providing emerging and existing companies in the Defense Industrial Base (DIB) with the enabling software to quickly operationalize their mission critical capabilities at scale. This is vital to ensuring credible deterrence against our great power adversaries, and it is Palantir’s contribution to the First Breakfast.
The defense tech ecosystem is ready to scale in a way it was not in 2003. The late, great Ash Carter had not yet created DIU, and Eric Schmidt was not yet beginning the work of transforming the Department as chair of the Defense Innovation Board. Trae Stephens had not yet changed Founders Funds LP agreements to enable investing in weapons or founded Anduril. Katherine Boyle hadn’t defined American Dynamism. 8VC hadn’t yet launched Build to form new defense companies. Lux and Thomas Tull’s US IT weren’t yet allocating capital in defense tech. In-Q-Tel had just been founded (1999) to focus on investing in new tech capabilities for the intelligence community (and thank goodness for this, as Palantir would likely not exist today otherwise, and In-Q-Tel would not have had a >100x return on the investment to fund even more players in the ecosystem).
From drones to AI to autonomous vehicles and mission software, innovation and a robust industrial base are coming back with full force. By the first half of 2023, venture capital had invested more dollars in military tech startups than it did in all of 2019 combined. Now the challenge is determining how to mobilize these companies, and their technology, to get to the starting line at scale.
The Myth of Mobilization Day
When WWII started, America did not have an industrial base equipped for the fight, partially due to our nation’s lack of immediate involvement. As Arthur Herman writes in Freedom’s Forge, many were comforted by the illusion of Mobilization-Day, or M-day, where the government would, when necessary, “effortlessly mobilize an economy of war with the throw of a fiscal switch.” But M-day was a myth. Although America ultimately was successful in mobilizing its industrial base in an unprecedented way to reboot the arsenal of democracy and outproduce the enemy, it took 18 months: “One year to build new plants and retool the old ones, 6 months for conversion.” Fortunately, the U.S. had the luxury of time, as war production ramped under Lend-Lease and supplied the Allies while we were still at peace.
We find ourselves in a similar situation today. Xi has stated a 2027 invasion of Taiwan as a readiness requirement for the PLA. What is fielded and operational Jan 1, 2025 determines our deterrence for 2027, which is fewer than 18 months away at the time of writing. The defense tech ecosystem doesn’t have the same luxury of time afforded to WWII — it needed to get to scale yesterday. We must once again mobilize our industrial base in a novel way, but this time with the recognition that software is the accelerant.
Mobilization at this scale will be hard — our competition is fierce. The CCP forces its best companies and people to work with the military. Recent intelligence estimates reveal the true Chinese defense budget at closer to $700bn. The Pentagon’s efforts to integrate Silicon Valley innovation into national defense have faced challenges, with the top 100 venture-funded defense start-ups raising $42 billion from investors, but generating only $2–5 billion in government contracts. To compete, America needs to facilitate as many defense tech companies achieving scale as possible. Of course, this facilitation is also in Palantir’s best interest. We need partners. As a software prime, we want to bring complete solutions as commercial items to our customers’ hardest problems. Achieving this vision presupposes a robust and scaled ecosystem. We need to help the Capital Class realize returns, both monetary and mission, so they stay invested. We need to help entrepreneurs get to scale faster and less expensively.
Pioneers Get Arrows. Settlers Get Land.
In 2003 the DoD could only perceive two types of companies: small businesses and primes. Small businesses were supposed to win small contracts and stay small — fulfilling more of an aesthetic need to support the little guy rather than a deep-seated belief that the Department was funding disruption and creating new potential primes (so much so that VCs view small business innovation research (SBIR) contracts as red flags).
Today, the Department and Congress see the re-emergence of a third category: venture backed startups that raise significant private capital (not taxpayer money), enabling them to invest in meaningful R&D ahead of contracts. Historically, the Capital Class has provided this capital because they believe these small disruptors have the potential to become huge quickly, and consequently, they need venture-scaled returns to justify the risk. This third category was largely dormant in the defense sector after the Cold War, partially because the DIB consolidated during the Last Supper, and innovation moved from government to the commercial sector. Intel, founded in 1968, may well have been the last venture-funded company explicitly serving the government to reach a $1bn “unicorn” valuation until Palantir and SpaceX became unicorns. As a first-mover, we suffered a lot of teething pains that are associated with defining a new category (it was painful for us; it was painful for the Department too).
Over the last 20 years, we have built foundational technology infrastructure that is modular, open/non-proprietary, and capable of accelerating the ramp to revenue for other defense innovators. We do this by making it easy to deploy software in complicated, air-gapped environments, and to enable access to enterprise data securely and with appropriate guardrails. Modern software initiatives require modern software, but so does every airplane, satellite, drone, and all associated manufacturing processes. We want to make this entire category of foundational technology available to the defense tech ecosystem — not only to the Capital Class’s innovative portfolio companies — including everyone from government innovation units like Army Software Factory to DIB bedrocks like the primes.
How Palantir is Enabling the First Breakfast
The most well understood barrier to a First Breakfast is the much discussed Valley of Death on the procurement and contracting side. Much less frequently discussed but equally perilous are the technology infrastructure gaps that contribute to defense innovation failing to achieve the scale necessary for operational success. Accreditation, data access and interoperability, and deployability of solutions to the farthest edges of government networks are essential First Breakfast capabilities that are too expensive today in both dollars and opportunity cost. We want to offer everyone the technology we have used to solve these problems for ourselves.
Deputy Secretary of Defense Kathleen Hicks’ recent speech The Urgency To Innovate confronts the problems in delivering capabilities to warfighters at speed and scale (emphasis ours):
“We all know the challenges and we all know the stakes. This is not about understanding the problems, or lack of leadership focus, or insufficient resources. This is about systematically tackling the highest barriers to enabling and unleashing the potential of U.S. and partner innovations — some in DoD or our labs or elsewhere in government, but most of all outside of it. That means we first must see the whole of the defense innovation ecosystem to lower the myriad barriers that get in our way. And then, we must do the hard government work of removing those most damaging innovation obstacles.”
Hicks is right. The government has a big part to play in removing innovation obstacles for the ecosystem. But at Palantir, we are ready and able to remove obstacles right alongside the government.
This is Palantir’s equivalent of a Windows-to-Azure Moment. Microsoft shifted from providing a stack of vertically integrated Windows products to providing the Azure cloud and open-source offerings, revealing the value and secrets of enterprise infrastructure to a community of builders. By unbundling various internal components and continuing to invest in Modular Open Systems Approach (MOSA), Palantir is enabling defense tech and government programs alike to leverage some of our core innovations to go faster and further.
There are lots of places we want to help — we need only take an inventory of our arrows to figure out how to help the settlers. The two places we are starting with are (1) software delivery with FedStart and Apollo and (2) easy, secure access to authorized data via APIs. Both of these things are focused on getting to the starting line quickly and inexpensively so customers can spend capital on the things that truly differentiate their technology and deliver for the warfighter. These two items are also likely to make the greatest difference in fielding defense tech mass on a timeline relevant to the deterrence of a threat from China or other adversaries.
Software is a product of culture, and in turn culture is influenced by software. Embracing this dynamic has led to American dominance in this domain. We must wield American technical might and American culture in the service of U.S. national security. Palantir has nearly two decades of experience doing just that. Now, at the beginning of our third decade, we will continue in our resolute support of this mission but as an open platform that government programs, traditional primes, and the next generation of defense tech companies can leverage to help protect this country and our allies from today’s urgent threats.
Learn more about how Palantir is expanding the defense tech ecosystem in the Technical Annex.