Odd Lots Podcast Episode Summary: "This Is Palantir's Vision for Changing How the US Does Defense Spending"

Release Date: February 6, 2025
Hosts: Joe Weisenthal and Tracy Alloway
Guest: Shyam Sankar, CTO of Palantir

Introduction

In this compelling episode of Bloomberg's Odd Lots podcast, hosts Joe Weisenthal and Tracy Alloway delve into the intricate world of defense spending in the United States. The episode features an insightful conversation with Shyam Sankar, the Chief Technology Officer of Palantir, one of the leading companies at the intersection of software and national security. Released on February 6, 2025, this episode sheds light on how Palantir envisions transforming U.S. defense expenditure through innovative technological solutions and strategic reforms.

Background: From Blogger to Defense Innovator

Jill Wiesenthal, co-host alongside Tracy Alloway, begins by sharing a personal anecdote about her early days on Twitter, where her handle "hestalwart" originated from her blog, The Stalwart.com. This story sets the stage for introducing Shyam Sankar, whom Jill met through a serendipitous lunch meeting in San Francisco back in 2006. Shyam, now the CTO of Palantir, is highlighted as a pivotal figure in the defense technology sector, bringing decades of experience to the discussion on defense reform.

Discussion Points

1. Palantir's Vision for Defense Spending

Shyam Sankar articulates Palantir's mission to revolutionize how the U.S. approaches defense spending. He emphasizes that the current system’s inefficiencies stem from a lack of accessible and actionable data, which hampers effective decision-making.

Shyam Sankar [05:04]: "It's not that we don't have this information. It's that we don't have it in a way that we can easily access it to make a decision."

Sankar challenges the notion that "data is the new oil" and proposes that the true value lies in enhancing human decision-making processes. He references Colonel John Boyd's OODA loop—Observe, Orient, Decide, Act—as a framework for improving strategic and tactical decisions in defense.

2. Challenges in Defense Procurement: Monopsony and Lack of Competition

Tracy Alloway introduces the concept of monopsony in the defense industry, where the government stands as the sole buyer of defense equipment and services. This creates a challenging environment for defense contractors, as failing to secure government contracts often means limited alternative markets.

Tracy Alloway [06:18]: "Monopsony klaxon. Okay, monopsony."

Shyam elaborates on how this monopsony leads to a lack of competition within the government, stifling innovation and allowing established "programs of record" to dominate the market.

Shyam Sankar [06:54]: "The monopsony is strongest in D.C. it's where the opinion of a single buyer really matters."

3. Historical Perspective on the Defense Industrial Base

Sankar provides a historical overview, contrasting the robust and diverse defense industrial base of the early Cold War era with the current scenario dominated by a few large contractors. He attributes the decline in competition and innovation to significant defense budget cuts post-Cold War and the subsequent consolidation of defense contractors.

Shyam Sankar [09:51]: "When the Berlin Wall fell, only 6% of major weapons system spending went to defense specialists. The rest went to what I call dual-purpose companies."

This shift has led to a "financialization" of defense companies, where shareholder interests overshadow long-term innovation and national security priorities.

4. Palantir's Role and Product Offerings

Jill Wiesenthal probes into Palantir’s offerings, seeking clarity beyond the Hollywood-esque visualizations often depicted in media. Sankar explains that Palantir focuses on data integration and AI-driven decision-making platforms rather than hardware like missiles.

Shyam Sankar [32:50]: "We provide an AI decision-making platform that spans the breadth of your enterprise, allowing you to get better and faster."

Sankar compares Palantir’s software capabilities to enhancing decision chains in both military ("kill chain") and commercial contexts, ensuring that decisions are made more efficiently and effectively.

5. Cultural and Procedural Challenges in Defense

The conversation shifts to the inherent bureaucratic hurdles within the Department of Defense (DoD). Sankar critiques the extensive regulatory frameworks that stifle innovation and agility.

Shyam Sankar [26:08]: "The 5000 series has turned into 2000 pages. People love to look at the 5000 series and they complain. Look what Packard did to us."

He advocates for reducing "barnacles of bureaucracy" to allow for more dynamic and responsive defense procurement processes, enabling faster adoption of cutting-edge technologies.

6. Recommendations for Defense Reform

Sankar outlines strategic recommendations to revitalize defense spending and procurement:

• Introduce Strategic Competition: Delegate more decision-making authority to combatant commanders, allowing them to express specific needs and fostering competition among suppliers.

  Shyam Sankar [43:45]: "Push more decision-making authority on what to buy and how to buy these things to our combatant commanders to introduce strategic competition."

• Encourage Intra-Department Competition: Reintroduce the concept of multiple competing programs for the same defense capability to spur innovation and prevent monopolistic stagnation.

  Shyam Sankar [47:24]: "We need to have mini competitions amongst each other all the time so that we're continuously innovating."

Sankar emphasizes the importance of cultural change alongside procedural reforms, drawing parallels with historical figures like Admiral Hyman Rickover and modern innovators like Elon Musk's SpaceX.

Insights and Conclusions

The episode concludes with reflections on the necessity of blending commercial innovation with defense needs. Sankar highlights the success of SpaceX as a model for how private sector agility can complement national security objectives.

Shyam Sankar [38:08]: "SpaceX has achieved nonlinear benefits and now dominance in this category, it has become a national security strength."

He underscores the importance of fostering an environment where defense contractors are incentivized to innovate without the constraints of excessive bureaucracy. This involves creating more opportunities for competition, embracing failures as part of the innovation process, and reallocating defense budgets to prioritize future threats and technological advancements.

Tracy Alloway and Jill Wiesenthal wrap up the discussion by acknowledging the complexities of implementing such reforms but agree on the critical need for evolving defense procurement to maintain strategic superiority.

Tracy Alloway [49:05]: "There's a little bit of attention there. Bigger than a little bit I should say."

Key Takeaways

• Monopsony in Defense: The U.S. defense industry suffers from a monopsony, limiting competition and innovation.

• Data-Driven Decision Making: Palantir advocates for leveraging AI and data integration to enhance strategic and tactical decisions in defense.

• Historical Shifts: Post-Cold War budget cuts and consolidation have led to a less dynamic defense industrial base.

• Cultural Reform: Significant cultural and procedural changes are necessary to foster innovation and agility within the DoD.

• Strategic Recommendations: Introducing competition, decentralizing decision-making, and reducing bureaucratic overhead are crucial for defense reform.

Notable Quotes

• Shyam Sankar [05:04]: "It's not that we don't have this information. It's that we don't have it in a way that we can easily access it to make a decision."

• Shyam Sankar [06:54]: "The monopsony is strongest in D.C. it's where the opinion of a single buyer really matters."

• Shyam Sankar [32:50]: "We provide an AI decision-making platform that spans the breadth of your enterprise, allowing you to get better and faster."

• Shyam Sankar [43:45]: "Push more decision-making authority on what to buy and how to buy these things to our combatant commanders to introduce strategic competition."

• Shyam Sankar [38:08]: "SpaceX has achieved nonlinear benefits and now dominance in this category, it has become a national security strength."

This episode of Odd Lots offers a thought-provoking analysis of the U.S. defense spending landscape, highlighting the imperative for technological innovation and structural reforms. Shyam Sankar's insights provide a roadmap for how companies like Palantir can lead the charge in reshaping defense procurement to better address contemporary and future challenges.