By Sam Mattera, The Motley Fool From Business Insider

Palantir is one of the most valuable start-ups in the world.

Last summer, it raised $450 million from investors in a round of financing that valued the company at $20 billion. Among fast-growing tech start-ups, only Uber, Xiaomi, and Airbnb are more valuable.

Palantir’s business has long been shrouded in secrecy, but as the company has expanded, and raised additional funding, more details about its operations have leaked out.

A powerful tool for data analytics
Palantir’s business model isn’t unique. It’s an enterprise software vendor. Yet its actual products are employed in a wide variety of fascinating pursuits, such as stopping terrorism, catching financial criminals, and halting the spread of infectious diseases. Its list of customers is equally impressive, and includes multiple U.S. government agencies and intelligence organizations.

Palantir was born out of co-founder Peter Thiel’s experiences running PayPal. In 2000, PayPal was growing quickly, but it faced a major challenge, one that was costing the company more than $10 million each month: credit card fraud. Back then, PayPal processed thousands of credit card transactions each minute. Unfortunately, some were fraudulent, and the company struggled to stop the thieves. Eventually, PayPal was able to solve the problem, but only after developing a unique security application. Rather than rely on computer algorithms alone, PayPal’s technology gave in-house security experts the tools they needed to analyze suspicious transactions.

Two years later, PayPal was sold to eBay, but its method for stopping criminals left a lasting impression on Thiel. In 2004, he founded Palantir with Alex Karp, and the pair set out to build a company that would give human analysts the tools they need to solve complex problems.

Palantir’s software is similar to a standard search engine, only with an emphasis on finding patterns in complex data. It isn’t meant for engineers, but rather, technical laypeople. A CIA agent, tracking a suspect, can scan through a database of phone records, credit card transactions, and addresses to find links to known terrorist networks. Other uses abound: In 2010, the Center for Disease Control used Palantir to analyze an outbreak of Cholera in Haiti. The Securities Investor Protection Corporation used it to help convict Bernie Madoff. The Los Angeles Police Department uses Palantir to fight crime on a daily basis.

Privacy is fundamental to Palantir’s business

In a 2012 interview, Karp told TechCrunch that many of Palantir’s customer agreements contain non-disclosure clauses. Given the nature of many of the problems Palantir is trying to solve, that’s not particularly surprising.

But for that reason, it’s not clear how many customers Palantir has, or how it structures its sales agreements. CNBC pegged its annual revenue at around $1.8 billion. Palantir is growing quickly, but hasn’t placed much emphasis on creating a salesforce or marketing department. Instead, management closes most of the deals. In his 2014 book Zero to One, Thiel writes that “[Karp] spends 25 days a month on the road, meeting with clients and potential clients. Our deal sizes range from $1 million to $100 million. At that price point, buyers want to talk to the CEO, not the VP of Sales.”

Palantir employs some of the world’s best engineers, and given its customer base and its software focus, it may be quite profitable.

Read the original article on The Motley Fool. Copyright 2016. Follow The Motley Fool on Twitter. Go to: http://www.fool.com/investing/2016/06/06/how-does-palantir-make-money.aspx

IMAGES:

Alexander Karp Palantir Palantir CEO Alex Karp YouTube/Screenshot

Palantir employees Palantir employees in their office. Palantir/Glassdoor

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