Thread by @NeckarValue

How Paypal led to Palantir, a quick thread:
Peter Thiel and Palantir's CEO Alex Karp were roommates at Stanford. Both received their JD's from Stanford Law in 1992.

stanfordpolitics.org/2017/11/27/pet…

Karp then moved to Germany to pursue a PhD in philosophy at Goethe University in Frankfurt.
He was told he could write it in English but wanted to learn German and wrote a 129 page dissertation:

quora.com/What-was-Alex-…

Meanwhile, Thiel was building Paypal. Early on at $PYPL, fraud became one of the key challenges.

Max Levchin: "It was like an avalanche of losses. 2000 was basically the year of fraud. At one point we were losing $10mm per month. It was crazy."

"It became clear that we either figure out how to beat the fraudsters or they will take us under. And the company more or less refocused itself as a research entity towards figuring out innovative technological ways of destroying fraud on the internet."

Paypal had 20+ human investigators to "try to unravel particularly large fraud cases."

But they were outmatched by the complexity. Levchin found one investigator in a cubicle covered in paper printouts, trying to trace a $80,000 loss.

"If you had a well-coordinated fraud, with thousands or hundreds of thousands of accounts involved, you basically didn't know how to follow it."
"The tools we had available to us allowed you to look at only a couple of accounts."

Levchin built a new suite of software tools to support the investigators:
"We built this system that was part visualization package, part graph balancing tool, that would try to represent large-scale travels of money in the system in a visual form."

A key idea was to identify the networks and be predictive rather than reactive:
"We built all these different tools that would allow computers to predict where particularly expensive losses would be and then represent the networks of losses to the investigators"

They didn't build an automated approval engine. Instead, the software was built to enhance the human decision-making. Apparently one of the investigators was so happy about the software she started to cry: "you don't understand what you did."

Within a year they cut down the fraud by identifying networks and anticipating the likely sources of losses.

"I think a good way to describe PayPal is: a security company pretending to be a financial services company."
"Everything else that PayPal built is sort of a commodity."

Also, they broader applications became evident: "Eventually, various federal and state authorities wanted to use it too, because they started to see that we were getting pretty good at this stuff."

In 2002, Paypal was sold to Ebay. Meanwhile, Karp had finished his dissertation, returned to the US, and reconnected with Thiel.

"He called me one day and said, 'Hey, Alex, there's this methodology we had at PayPal. Think it would make a great company for stopping terrorism."

Post 9/11, Thiel was worried about the threat of terrorist networks and the erosion of civil liberties in response.
In 2004 he wrote the essay The Straussian Moment:

evernote.com/shard/s542/cli…

That same year, he assembled and funded Palantir's founding team: "It was a mission-oriented company. I defined the problem as needing to reduce terrorism while preserving civil liberties."

quora.com/Why-did-Peter-…

Lonsdale:
"After 9/11 we were reacting to a world full of scary asymmetric threats. Information had become more important than anything.. yet the US had a defense-industrial complex that didn't understand how to build modern software."

quora.com/Did-Palantirs-…

WSJ 2009:
"Mr. Karp showed a prototype. The software was similar to PayPal's fraud-detection system. Instead of identifying and connecting cyber criminals, it focused on terror suspects and followed their activities, including travel and money transfers."
wsj.com/articles/SB125…

Forbes 2013
"Something like this will exist," Karp insists. "Societies will build it, precisely because the alternative is letting terrorism happen or losing all our liberties."
forbes.com/sites/andygree…

From a 2011 letter "Perspectives on Palantir"

"Silicon Valley has transformed every individual with access to the Internet into a researcher"
web.archive.org/web/2011110218…

"We are being forced to answer questions...with an intelligence analyst’s ability to find anomalous patterns upon which exceedingly important developments."
"We facilitate human-computer synthesis. You ask the questions and you visualize the data in ways that are useful to you."

Personally I really enjoyed scrolling through the software screenshots in the S-1, describing users as both analysts and investigators
sec.gov/Archives/edgar…

Also check out @ByrneHobart write-up
diff.substack.com/p/palantir-on-…