Palantir CTO on The SaaS Apocalypse & Preventing The Next World War | a16z

He was the OG, like, fixer for everyone. You know, I think Trey Stevens, who's the co-founder of Andrel, came out on Twitter and said, he's single-handedly responsible for my career. John Doyle, so many of our founders have pointed to Shom as the person who made their career and introduced them to Palantir, supported them in Palantir, but also sort of gave them wings to fly away from Palantir and to start something new. And you hear that story time and time and time again. And Eric, you and I were talking about this. It wasn't until a couple years ago that I think Shyam actually became more of a public figure.

He was sort of the behind-the-scenes guy, the behind-the-scenes fixer. And I think the thing that really changed it was, Shyam, and I'd love to talk to you about kind of what was the inspiration for this, you sort of wrote this seminal piece about First Breakfast, about Defense Reformation, and were the first person to really start talking about it. But again, this was like 17 years into the journey of Palantir that you decided, I'm going to be a strident voice for what needs to happen in America. So I'd love to talk to you about this, Going from the behind-the-scenes person, the guy behind the guy in so many of our companies, to saying, I need to come out and be a voice for this movement.

What was the kind of impetus for that? It was kind of equal parts an act of desperation and an act of optimism. I felt like after years of just seeing the building, the Pentagon from the inside, seeing how defense was operating, I felt this frog boil that continued to happen, set in a historical context. But the reason to say something is actually I thought this was the moment that it could all be fixed. That alongside of that happening, seeing what was happening outside of the building, that the founders were reemerging, there was a huge amount of energy, people wanted to build in the national interest, and it was a moment to kind of crystallize what, at least put forth what I thought the fundamental diagnosis was, that really the things that we did to win in the past, we accidentally turned our back on.

and there's an opportunity to reclaim that with vigor. And we needed to do so quickly. That time was running out. There was a shot clock here that we have frog-boiled our way to a place where we've lost deterrence. Any one of these items in isolation, you can write off, you could say, OK, the Russians annexed Crimea in 2014. That's just one thing. Then you have the militarization of the Spratly Islands in 15. You have the failure of JCPOA to keep the Iranians from getting a bomb. You have a pogrom in Israel. And certainly after October 7th, it was kind of a radicalizing moment that, like, what is going on here?

We need to act. And I think we've only had more things since then. Now, I think the good news is, in the last year, more has changed in the department than I've seen change in the prior 19 years. and people are seizing that moment for a reformation. And it's been rewarding to kind of get it out there, get people to rally behind it, and all of us building the national interest. Yeah, I think you get this question probably all the time. What is it about the last, I mean, as you said, it wasn't a single moment, but there is some change in the culture and the zeitgeist. And I think you have a unique understanding too of culture and kind of how these mimetic shifts happen.

But what was it about 18 months ago where it's like everyone seems to agree on the thing that was so contrarian for many years where you were sort of banging your head against a wall saying, this needs to happen? Well, maybe unsurprising from my worldview, it all comes down to leadership. We call them the founding fathers for a reason. There is something special about the American spirit. Every founding story is equal parts heresy and heroism. And we had the right people who kind of saw, hey, this is not working. And the shot clock is running out and we have to do something. And we had those people both inside the building and outside the building.

So it's kind of a conspiracy coalition of the willing, coalition of the capable to go do that. So it's hard to point to any one single moment. I think the kind of the election is a big part of it, not to make it political, but just being able to get in leadership that viewed it with clarity and set the conditions to make this change happen. Yeah. So you've been busy. You've joined the army. You've written a book that's coming out. I'd love to get in to mobilize. But first, why did you decide now's the time to sort of write the canonical book of what needs to happen in America? and then maybe we can talk about this sort of fundamental thesis too.

But why now?

Yeah. No, I mean, and that's super interesting, yeah, because I think that, as you said, it's always been, you know, this sort of forced consolidation that we've picked the winners.

You know, we're post-history now. Like, we don't actually need to build for wartime. So it's your view that really that just expunged all of the talent that used to go to defense. And it's interesting because it's also, I mean, it's in some ways, it's sort of serendipitous that that's exactly when the Internet's rising. So it's like if you're this kind of weird personality, you're going to go work on this new thing that's so exciting. You know, I think of like, you know, Mark Andreessen, right? Like he could have been in the defense industry maybe 20 years earlier. But it's like, you know, the people who are building the Internet in the 90s, they wanted to build the new thing.

So I guess like is that sort of the fundamental problem is that like it just became a place where anyone who was interesting or anyone who had a different view just could not thrive. Yeah, exactly. And then we compounded on that problem by, you know, the nature of the monopsony. So unlike a monopoly where you have one seller over a thing, a monopsony is where you have one buyer over a thing. The Department of War is a monopsony. The nature of the monopsony is it forgets, it starts imposing all sorts of constraints on its suppliers and how they behave and what they need to look like. And that led to, it's like putting, we put all of these companies on the Galapagos Islands.

They're not on the mainland anymore. And so what do you get on the Galapagos? You get these exquisite giant tortoises. They're really amazing. It's like alien life. It's very cool. Except when you take the tortoise back to the mainland, they're not competitive. They're going to get eaten alive by the wolves. And so we started creating a huge number of barriers for these people who, even when they had ideas, could those ideas come back into defense? I like to say, like, when we started Palantir, there was no front door in the Department of Defense. You know, you had to, the only front door, there was exactly one, it was in the intelligence community, it was In-Q-Tel.

If you were an outsider, there was no other way in. The only people that worked here were insiders. Of course, now that's part of the sea change that happened starting really in 2015, but that means putting forth the 18 theses and the Defense Reformation in 2024 makes a lot of sense because we have 10 years of heretics who have been knocking at the gate ready to come help the department. Yeah. And so much of the book, I mean, you talk about these sort of heretical heroes, you know, in doing the research, and I mean, you're now sort of like the walking encyclopedia for the defense industry in tech.

Who are the most exciting heroes? Like, who's the person you look at and you say, like, gosh, that is the person that people don't know about they need to know?

Yeah. And you just said something interesting, which is that it really takes leaders inside the building to model the change, to encourage it, to protect the people who are those heretics.

And you've joined the Army, and it's a program from General George and Secretary Driscoll. Maybe tell us a little bit about the origin of that and then what you're doing specifically inside the Army now to support that change. Well, the origin story of this is really, so I've worked with the Israelis in some capacity since roughly 2014. This is a very technical country, and they're proud of how technical they are. After October 7th, I mean, October 8th, they mobilized roughly 360,000 reservists. By definition, all these reservists are prior service through national conscription, and most of them now had 20 years of experience in industry.

And when they got back to the IDF, they were horrified at the state of technology in the IDF, which is actually an implicit self-critique, which is, hey, when I was 20, I was really good at coding, but I didn't know what I was doing. Now I have 20 years of experience building Internet-scaled things, and I actually know how to do these things correctly. So I saw them modernize more in the four months after October 7th than I did in the prior 10 years of working with them. And that was just, I couldn't unsee that. So of all countries in the world, we are drowning with that talent. You know, the skills we have at building things in the Valley, the companies that A16Z backs, like, we know how to do this as a nation.

The 20-year-old version of our green suitors maybe did it. You know, there's the will, there's the intelligence, the capability, but there's also then the tradecraft, the know-how, the experience. All the dead ends that I've run into in my career, the mistakes I've made. if you're going to make mistakes, please make new ones. Don't make the same ones I already have done. You know, how can you stand on the shoulders of American industry to go faster and do this? And so I'm not sure I really had a lot to give the Army at, you know, 24, but I think at 44, there's a lot I can do to accelerate certain things. And that's not just a narrow statement about me. I think that's a whole statement about the Valley, this whole statement about American manufacturing, everyone in El Segundo. You know, how do we make sure if the Chinese make civil-military fusion compulsory, why do we make voluntary civil-military fusion impossible?

And when I look back at history, we didn't used to make it impossible. In World War II, we direct commissioned 100,000 people that look like what we now consider detachment. 201 into the military. And we should be doing that again. The authorities exist. They're just laying there dormant and we're basically underutilized. So I was proud to join the Army with three other colleagues. So we have Bob McGrew, former chief research officer at OpenAI, Boz, the CTO of Meta, and Andrew Weill, the former chief product officer of OpenAI, head of science now. And I think we've been able to work on different projects that really, We act as senior advisors to Army senior leaders, and there's different projects that we kind of get our hands dirty in and help.

But I think it's been a really – I've learned a lot by doing it. Hopefully, the Army's benefiting from it. But I think more broadly, we would like to catalyze this across all of the services and a broader call for folks who are listening to this now in industry. What's been the biggest surprise?

Totally. And that's so interesting, too, about just, you know, that is something I hear time and time again, like the level of technical ability of someone very junior in the Army or the Navy today. It's like they came up tinkering. And yes, as you said, like now the tools are there. They can just build something where it's you're not only learning from startups, you're literally learning from individuals who are enlisted who have a great idea, which is it's it does feel like, as you said, like this is a revolution.

time for the military where they can actually learn from their, you know, junior people who have a great idea and that can be deployed very quickly. Which plays to the American military strengths of bottoms up innovation, mission command type control. It's really something that our military can uniquely do. and no one else could. Let's get into the SaaSpocalypse.

right now it seems like the hardware layer has the highest margins, whereas in the internet economy, the applications have the highest margins. I'm curious if you think AI will be like the internet, where sort of the entities that control the end-user relationships accrue the most value, or if you think it'll be more like the cloud, where the infrastructure layer accrues the most value or has the highest margins.

How do you think about how it'll play out? If you thought about the stack as like chips, models, AI infrastructure, AI applications, what I see happening empirically is the models are being commoditized and always under pressure. So the model companies are expanding up. Sometimes they almost call it. in a diminutive way, a harness, but it's actually they're building software around it that is AI infrastructure to do something like code. And then the people who started as narrow vertical AI solutions are kind of earning their way down the stack to realize like, oh, I need this actual AI infrastructure to be able to scale to my customer base and handle more use cases.

So our theory has always been the value is going to accrue in two places, at the chips layer and at the AI infrastructure layer, what we would call ontology. But those two layers, I think, are going to be pretty defensible. There's this funny chart in The Economist the other day about what's going to happen to the economy, and it gives three predictions. Either everything goes vertical, AGI, either we're all dead, or we're all economically dead, everything collapses, or 2% growth. And so The Economist is hedging just like many others. I'm curious how you, what's your sort of mental model for what AI is going to do to the economy in terms of, you know, the productivity stats and GDP growth, but then also the job market.

And I mean, AI, as it achieves its goals over the medium term, and we sort of, you know, start to reach the potential that people have been talking about. You know, people say AI 2027, even if it's 2030. How do you think it's going to impact the economy? I have a lot of thoughts here, so hopefully we'll hit them all

which is the co-location of R&D and production, which is something we very much understood. That was sort of, you know, that's the Henry Ford style, right? Like that's how we used to build things in the physical world. And then, of course, globalization led to this sort of separation of them. And even you still see it in companies, right? It's like the engineering team in many companies is not the same as the production team. You can be a production company or an engineering company. We see this a lot in our American Dynamism portfolio. What was the impetus for sort of that philosophical division? You know, I think a lot of people point to policy changes in the 90s, but what was like the real impetus from your research that sort of led to this sort of divorce between production and engineering? And how are you seeing it come back together again in companies today? Europe has created exactly zero companies from scratch in the last 50 years

worth more than 100 billion euro. We have created all of our trillion-dollar companies from scratch in America in the last 50 years. The difference is founders. You know, you have really good companies over there, but they're like 300 years old, 100 years old, whatever it is. We kind of had the Europeanization of our mega-cap companies until recently. You know, Intel at some point, there was this fork in the road where they could have promoted their CFO to be the CEO or Pat Gelsinger as CTO back then, this is before he came back later, to be CEO. Who did they pick? They picked the CFO, the person that Wall Street would understand, not the person who could actually determine the future roadmap.

And by the way, it really looked like it was working for 10 years until it fell off a cliff. But that was all financial engineering, not real engineering. You know, when was the last Boeing CEO to be an engineer? I think it was 2004. You know, there was a way, So you think about there's a period of time in our economy where we understood that the engineering was leading these things. Elon says the pathway to the CEO is through the CTO, which sounds like a crazy heretical statement because, like, certainly for my generation, the way we grew up, that's not true. That's not what we were taught. Now, I'm not saying that because I'm the CTO here.

Don't read anything into that. I just mean that, like. Yeah, we won't infer that you're breaking news today. Andy Grove, who was the president of Intel, used to start his annual sales and marketing kickoff meeting by reminding all the salespeople, just remember, it's the engineers who create all the value. You guys just move it around. You know, it doesn't mean the salespeople aren't important or aren't necessary, but there is kind of a sequencing here. And I think we kind of got very confused about that, that we became very good at financial engineering and forgot about engineering.

Because I think this is something that is overlooked. A lot of people think it's a technical problem or a production problem. And I agree with you that I think it's a seriousness and a will problem. And you have now been investing in film, which is totally different than what you do at Palantir. So I would love to understand, you know, why did you start a film production company? And how do you think that's ultimately going to change the culture around having more will about doing these hard things?

Well, it really starts with my own assimilation journey. I came to the U.S. as a young child. I settled in Orlando. And my assimilation journey as a four-year-old, five-year-old was watching movies with Dad on the couch. And what were the movies of the 80s and 90s? It was Hunt for a Red October, Red Dawn, and Rambo 2 and 3. And, you know, I like to say as a five-year-old, I knew what it felt like to be an American before I knew civics. That was way, way down the line. And I think a lot of people experience that again after a long period of time when they watch Top Gun Maverick. And so, you know, we sometimes over-intellectualize these things.

Like, there's a feeling to it. Even subtle things like I heard from the guy who made the movie 300, that after 300 came out, Navy SEAL recruitment went through the roof. And he was kind of perplexed. Obviously, it's a movie about Spartans. What does this have to do with Navy SEALs? But it clearly inspired so many people to be like, I want to look like that. I want to be that strong. I want to be that heroic. You know, and so the virtue of entertainment as first of all, it's got to be entertaining. It's not Pravda here. But then it lets us reflect on ourselves and who do we want to be and what do we want to be like?

And if our entertainment is all Terminator AI ruins the world, technology is a force of evil, it's all dystopic future scenarios, that sets a sort of condition, which I would juxtapose to my youth in Orlando growing up in the shadow of the Space Coast, which was just like science and technology is amazing and we're going to be living on other planets and, you know, as a sixth grader, write a report on how are you going to get to Mars. And it just inculcates a fundamental belief that the future will be better and that science, technology, the will to invest in these hard problems is worth it. It's worth it.

And so I think we have a moment to reclaim storytelling in a way that's both entertaining and inspiring. Yeah, no, I love that you point out that you grew up in Orlando. It's funny, I also grew up in Florida in the 80s and 90s, and it was like, you know, people made fun of Florida, right? Like, they didn't understand there was anything good there. But Orlando, I mean, you say it's the shadow of the Space Coast. It's also Disney World, right? It's the best stories of a century. It's American culture. And so I'd love to, I mean, were you a Disney kid? I mean, like, was that something that, like, also spoke to you of, like, these stories of good and evil that are passed down through cartoons?

Like, how did that develop? So, also, I mean, there's a part of this story, which is the business, like, why did we end up in Orlando? You know, after we fled violence in Nigeria, my dad had a childhood friend who was living in L.A. who sold knickknacks to theme parks. And he's like, hey, look, I know this horrible thing just happened to you. There's this up-and-coming place with theme parks. I don't live there. I need someone I trust there. Why don't you go to Orlando? So literally, it's not just that was I a Disney kid. My parents' job was to provide knickknacks in the theme park stores. So like after school, they would take me to SeaWorld and I would pet the stingrays while they restocked the shelves.

You know, and so I grew up very much imbibing the storytelling, the Asper, I mean, Epcot. Epcot was all about painting an optimistic vision of the future and what technology was going to be like and the stories of heroes and, you know, that there was both evil and bad in the world and there were clearly heroic actions that you could take and it was all super inspiring. And do you... I mean, that's what's so interesting, too, is, like, I feel like the height of the sort of good and evil battle inside of Disney film was sort of the, you know, Lion King 90s, right? Like, I mean, they were different films then.

How do we get back? I mean, maybe it's not back. Maybe it's forward. But how do we get back to those stories for children, for people to feel optimistic again? I mean, you know, in some ways you don't hear, oh, I grew up in this city and it's the height of optimism. You don't hear that about California anymore. What will it take for movies to transform that? Well, you know, this is kind of a personal opinion, but I'm really excited that David Ellison is going to have Warner Brothers. Because, you know, if you think about Hollywood, the original studio heads, they were founders. Like Jack Warner, in the 30s, Germany was the third largest export market for American entertainment.

And the Nazis actually deployed censors into Hollywood to control what was being made. and every studio capitulated except for Warner Brothers. Jack Warner was the only person willing to stand up and speak truth. And only a founder can do that because if you're a professional CEO who's employed, you can't survive that. And so I think in some ways, there's a mirror to the present-day Hollywood and the defense industrial base. It's conformity. It's kind of lack of opinion. It's lack of a normative view of what is it trying to communicate. then if you go a little bit further down the line you look at the vietnam era like we had very cynical hollywood content in vietnam as a reflection of how we felt about ourselves yes uh in 73 george lucas made american graffiti because he was tired of it he's like i'm tired of it i just want to make a movie about boys driving cars chasing girls and it was a palate cleanser that kind of like yeah the american people remembered like okay we went through our period our cycle of grief and cynicism, and we're ready, and it set the conditions for the movies of the 80s and 90s that we all love.

I think we're also kind of tired of it right now. We're tired of the cynicism, that everything's going to be worse. And you see that in the performance of stories. Top Gun Mavericks, the easy one to point to, but the content that's doing well right now is American-oriented. There are inspirational figures. The heroes aren't antiheroes that are drug addicts that you wouldn't want your kids to grow up to be. There's actually some sense of inspiration in it and some pride in terms of who we are and how that reflects in the entertainment itself. So I think we're, you know, if you think about the next two to 10 years, we're going to see a lot of content like that.

That's what I see in the development pipeline from these studios themselves. That's exciting. So maybe talk to us about some of your projects or things you're working on and what you're most excited about. But then also, yeah, that's so interesting. We've had these conversations, Eric and I, with Mark and others about how, you know, the pipeline for the last 10 years has been dour. We're sort of getting the end of the pipeline. You're seeing it in sort of the Oscar nominees this year. You know, it's like they're not optimistic. But as you said, like maybe 10 years from now, we're going to see this pipeline of just like pro-America, exciting, optimistic, enthusiastic, golden age sort of content. What are you seeing and what most excites you?

Well, you know, I don't want to give away too much of my own development pipeline here. But I would say like you see like Call of Duty is being made right now by Pete Berg and Taylor Sheridan. You see the entire Taylor Sheridan universe. I mean, and talk about Sicario. It was like 2014 Sicario basically came to life with the Jalisco New Generation cartel, right? Like, there's a sense in which the storytellers have exactly the frame that we're kind of excited about. I think there's recent events are very interesting to tell stories about right now. Even a movie like War Machine, which just came out, from watching the trailers, it was not yet clear.

You could imagine like five years ago that the storyline would have been something more like the U.S. government build evil robots that the human soldiers had to defeat. In this case It was more like aliens, basically. Sorry to give away the plot if you haven't seen it, but, you know, you have an alien robot and brave American rangers have to defeat them and do through their own ingenuity. That itself is, I think, showing you, it belies the shift in the narrative and storytelling that's happening. I think world events remind us that there are actually, there is actually evil out there. Russian tanks can just roll across the border.

You know, October 7th, just horrendous barbarism is still possible, that these things don't maintain themselves. So what would I say? Like, I think, so putting this back in a geopolitical lens, you know, as much as I've been saying, we shouldn't call China near-peer, we should call them peer, because calling them near-peer is like a shibboleth that lets us off the hook. When you look at operations like Maduro or Midnight Hammer, it's hard to think of more you have done to restore deterrence in the world, a reminder that we do have the will. Maybe because we didn't have the will, you forgot that we had the capability, but we have both the capability and the will to do things that are quite amazing.

At the same time, it signals a very obvious truth, which is somehow none of the Russian and Chinese shit worked. So if you're a third-party country and you're thinking about what is the future of the world and how do you want to be allied, and maybe you've been hedging because you've been seeing America in retreat, it's also a reminder that the Chinese did not come to save Maduro, and none of the equipment they provided actually seemed to do anything. So is that really an option for you?

What else is there to do? You're doing everything. So what else is on the radar for you? Well, you know, in some sense, maybe it's enough. But all of these things have a through line where it's really about American greatness and inspiring the next generation. And it's driven home to me when I think about my kids and recognizing that the America I grew up in is something that every generation has had to fight for. And I'm in that phase now where I'm fighting for the prosperity that the next generation ought to have.

And so whether it's soft power and inspiration in movies or hard power and deterrence of adversaries and preventing World War III, it's all about American greatness and the prosperity of the American people. Thanks for listening to this episode of the A16Z podcast. If you liked this episode, be sure to like, comment, subscribe, leave us a rating or review and share it with your friends and family for more episodes go to youtube apple podcast and spotify follow us on x a16z and subscribe to our sub stack at