Silicon Valley Frenzy: Big Bucks, Big Data, and Spying

That furiously contested federal budget doesn’t all get spent on salaries and food stamps. Much of it is handed to corporate America for an unimaginable variety of products and services. From scrappy startups with big ideas to bureaucratic giants on the decline, they’re all jostling to feed on that big trough.

The government spy-services marketplace, a component of Big Data, is particularly juicy. Investors are clamoring to get in on it, and scores of startups have sprung up to profit from it. The hottest one at the moment is Palantir in Palo Alto, the heart of Silicon Valley. It’s in the process of raising another $100 million, of which it already pocketed $57.5 million. In September, it had raised $196 million. In the three months since, its valuation jumped by 50%. To $9 billion!

Palantir’s nosebleed valuation isn’t based on vapors alone; there’s also its place at the big trough of the government. It has 1,200 employees in the US, Australia, Singapore, and Britain. Hot spots in the spying business. Forbes estimates that it will hit $450 million in revenues in 2013. Profits remain elusive. Instead, it has been burning through investor cash, of which it has raised roughly $650 million since its beginning in 2004. Let the good times roll.

One of the early investors that is making a killing, at least on paper: the CIA. Its venture-capital branch IQT plowed $2 million into it in 2005. Why? IQT explains:

Palantir offers a suite of software applications for integrating, visualizing, and analyzing the world’s information. The technology supports many kinds of data including structured, unstructured, relational, temporal, and geospatial. Palantir’s products are built for real analysis with a focus on security, scalability, ease of use, and collaboration.

By 2009, Palantir hype had already infected the Wall Street Journal, which painted the picture of an omnipotent startup:

Palantir’s software has helped root out terrorist financing networks, revealed new trends in roadside bomb attacks, and uncovered details of Syrian suicide bombing networks in Iraq, according to current and former U.S. officials familiar with the events. It has also foiled a Pakistani suicide bombing plot on Western targets and discovered a spy infiltration of an allied government. It is now being used by the Central Intelligence Agency, the Pentagon, and the Federal Bureau of Investigation.

In Afghanistan, Palantir’s software was used “to analyze constantly shifting tribal dynamics and distinguish potential allies from enemies, according to current and former counterterrorism officials familiar with the work,” the Journal reported. In short, the software performed major miracles on a daily basis.

The idea originated in 2003 with PayPal founder Peter Thiel, now Palantir Chairman, and Alexander Karp, now CEO. By 2005, they pitched a prototype to the CIA. The demo used two hypothetical terrorists and followed their activities, travels, money transfers, etc. – a form of surveillance that is now universally applied to everyone. From that point on, Palantir engineers flew to Washington every two weeks with a revised version, based on what CIA analysts had wanted. In September that year, the CIA made its investment.

By 2009, Palantir’s work in Washington had ballooned to more than 50 projects. The Australian government had become a client, and, according to “current and former government officials” at the time, the UK and NSA were “eyeing Palantir.”

Palantir has become an integral part of the US surveillance apparatus. At first, it was focused on the “Customer” – the Intelligence Community and the Department of Defense. Since the same technologies might be beneficial to other government and law enforcement agencies, Palantir has branched out. Its data mining software has been adopted by numerous such agencies, including the LA Police Department. “To make sense of all the noise that’s out there,” explained Chief of Police Charlie Beck. A “really important tool for investigations, a really important tool for crime fighting,” he called it.

Palantir has become ubiquitous in California. Last year, it signed a juicy contract with the Northern California Regional Intelligence Center. Its job: to build a database for information captured by license-plate scanners and digital cameras deployed in 14 counties. Local and state law enforcement agencies along with federal authorities can access that database. In the Bay Area alone, at least 32 agencies use the technology. With this result: If You Drive, You Get Tracked.

Palantir has further branched out. Its software that the CIA has long ago fallen in love with and has helped develop and mold to its liking is already entrenched in the Intelligence Community, the military, law enforcement, and other agencies in the US and overseas. So Palantir is pushing its powerful, no-holds-barred data-mining software into the commercial world. An unnamed executive told the New York Times that by now 60% of Palantir’s sales fall into that category.

Indeed, technologies developed for the Intelligence Community to follow assorted “bad guys” and other characters (like you and me), have, after years of fine-tuning by the smartest minds, made the transition to Corporate America. It’s precisely this hand-in-glove cooperation between government agencies, big investors, and corporate America why the Snowden revelations are proving to be so hair-raisingly embarrassing. But in the end, government surveillance and corporate spying, already inextricably entwined, will only get more efficient and more effective. It’s where ingenuity and money coalesce into a relentless drive to perfect the seamless, borderless surveillance society – one where massive profits are to be made by leading today’s most promising growth industry and Silicon Valley religion, Big Data.

Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.