The Exchanges

Q Right. It's not totally intuitive to somebody who comes from outside of defense. Why higher volume of systems is suddenly a need, or is it more the idea that you're placing something that would have been people before? Um, so can you sort of explain that as a thesis?

A Yeah. So when you look at how the U S has operated, we have very expensive, very exquisite systems that are largely manned. So, you know, you can think aircraft carriers, fighter jets, bombers. These are outrageously expensive platforms, uh, that cost, you know, just huge amounts of money to build, to maintain, to train pilots on. On top of that, we have a pilot shortage, right? We don't have enough pilots to be able to fly all these things. We have recruiting shortfalls consistently. Uh, and, uh, and even more so, we have an industrial capacity issue. Our ability to make, uh, you know, nuclear submarines is going down. We are producing less nuclear submarines per year, year over year than we have in the past. So we're like, like, 1.7 per year we can produce these submarines. It's not getting better, and the workforce to make these is retiring. It's a very artisanal process. It's hard to train up people. We have very few suppliers in the industrial base to do it. So we're not going to outbuild China. That's not an option. On these large, you know, very expensive platforms. It's just, it's not going to work. It's a bad strategy. Um, the other part of this is you look at what happened in Ukraine, where, you know, a lot of how we thought warfare would progress is kind of playing out. It's almost like surprising to the degree to which you don't see even the Russians deploying fight…

AI assessment note: “we have very expensive, very exquisite systems that are largely manned.”

Q those are on the scale of hundreds of millions or billions of dollars. And many of these contracts end up being public, right? Or in the, in the public record. Are there any contracts that you can talk about or just so people get a sense of the scale at which, you know, some of the, the contracts that you've closed or programs or records that you've won have been?

A Yeah. So that, that's, I think that's kind of like how we view success is this sort of, can we get to scalable programs? And we sort of measure our success by, are we getting things to field In volume, uh, in a way that this is actually getting out. And so the, you know, the first one we had was with Customs and Border Protection doing border security. I think it was like two and a half years into the company. We had, uh, I think it was like a, Two hundred fifty million dollar kind of contract to start to deploy that. Um, and then I think maybe about a year or two later, we had landed a counter drone contract with SOCOM for a billion dollars, uh, to, you know, kind of scale out and get these technologies deployed. So, you know, these are pretty meaty contracts. Uh, you know, the, the, the nature of the defense business is, uh, you have these sort of very concentrated, large, uh, captures you're going after, which is, Uh, a bit high stress at times, but it's sort of the nature of what it is. Um, and, um, but that, that's what you have to do to succeed. Now, to, to actually be able to, to do those, to convince the government you are a good partner and trustworthy to do this, we've established a lobbying group day one of the company, right? We were on the Hill talking about what we do, why it's beneficial to national security and why it's beneficial to the taxpayer, why this is a …

AI assessment note: “landed a counter drone contract with SOCOM for a billion dollars”

Q history of these things being intertwined. Um, and more recently, a number of new companies in AI, like Applied Intuition, Scale, obviously, Anduril, Are strongly engaged in defense work. And again, I think that's in sharp contrast to even five, six years ago where it was a quite controversial or at least unpopular thing to do. How do you think this Renaissance came about? Like what changed or what shifted?

A Well, I, I think Vladimir Putin has a way of changing people's minds about the necessity of defense. And I, I think the, uh, invasion of Ukraine was, was a pretty large sea change in people's view of this, where prior to that, I think there was a belief that State on state conflict wasn't real. This wasn't gonna happen. Nobody was crazy enough to do it. But I think we've seen that if a dictator thinks that force can be successful as a means of getting to their political ends, that is on the table. They will try to use it, right? And so I, I think the recognition that we need to provide the best technology to the U.S. and to U.S. allies, that we need to be able to, you know, kind of solve these problems in a more ethical way. Um, be able to, you know, kind of deter this sort of aggression. That has been a massive shift from what we've seen, where this has become, uh, a very clear cut issue. I think the other side of it is, you know, you kind of look at US policy, uh, and views towards China, and I think we're in, still in the middle of the shift, but, you know, G has kind of made clear in a lot of ways, his intentions, like just listen to what he says, right? It is a very aggressive posture. Uh, he does not view the U S as like, we're gonna have some, you know, highly, uh, friendly relationship. Like, you know, the, it is a very tricky situation. And he has said repeatedly that …

AI assessment note: “invasion of Ukraine was, was a pretty large sea change in people's view”

Q Where else can the tech industry engage or support the DOD or other branches of the government further?

A You know, I, I think a big part of this is things you started to see with Amazon, Microsoft, Google, and being able to provide, you know, kind of infrastructure, cloud capability, all of those things into kind of classified spaces and working in the ways the DoD needs to work. I think there's a lot of areas on, um, talking with like Flexport about how do you start to help the defense department on logistics and be able to do this more efficiently. There's a lot of areas where I think Silicon Valley has figured out efficient ways to Operate in a lot of these conventional industries and modernize a lot of these, um, you know, kind of traditional ways of, of doing business that have direct application into the DoD. It's, it's not easy. It's not straightforward. Um, you've got to really figure out how to, uh, adapt your products to what they need. Um, but I think the, that is a, a huge part of it. Um, the, the other component is I really believe Silicon Valley does itself a disservice by not engaging in Washington. There's sort of a belief that we should, you know, leave us alone. We're going to figure out the tech. Don't regulate us. Uh, you know, let the tech mature, and then we'll figure out the consequences later. Uh, I think we're seeing blowback on that, right? We've seen blowback on crypto. We're seeing blowback potentially on AI, on social media, these things. Washington do…

AI assessment note: “help the defense department on logistics and be able to do this more efficiently”

Q And you met your co-founders besides Palmer at Palantir. Is that right? Did you all work together before?

A That's right. So, um, you know, Matt and I actually knew each other in college and then Trey, we met at Palantir and we were all really good friends. And having folks with the background in the defense space is incredibly important. How you sell, what that looks like, the types of problems they want to work on, how that whole mechanism works is so different than any other, you know, sort of enterprise sales and certainly different than any consumer space. So having people who really understand that mechanism of what does that look like? How do you, what is that sales motion? How does this really work? Cause that's kind of a, probably the most important part of doing defense is understanding how you actually get your technology scale deployed and sold, which is like nothing else. Uh, it is a very unique and challenging problem.

AI assessment note: “That's right. So, um, you know, Matt and I actually knew each other in college”

Q that you build into some of the systems? So for example, you mentioned Sort of the bus size autonomous submarines that you folks are building or things like that. How truly autonomous are they and what do you need to develop from a machine learning or technology basis perspective to be able to drive these systems for the periods of time where there is no operator actively engaged with them?

A So the, the autonomy in the defense space. So, you know, it's probably best to talk a little bit about the principles of what's actually going to work here. The U S is not going to adopt systems that have autonomous robots going out and making sort of lethal decisions about, you know, what to attack or not. That's not really how the U S works. We assign accountability to the person that employed a weapon system. That's how it works, right? We have a real accountable system. Around employment and use of force. That is a good thing. I like that. I want that to be the case. So when we think about autonomy for these things, it's, it's very much how do we have a very predictable system that the operators can trust and they know what the effect is going to be when they deploy it. And so in a lot of ways, we've advocated for kind of a crawl, walk, run strategy for this, because the challenge with it is the adoption, because the issue is that the operators have to trust it. They have to know what it's going to do when they hit a button. Um, and so a lot of these areas that are more non-deterministic, so, you know, things like reinforcement learning or, you know, potential applications of LOMs into the space, they are inherently non-deterministic, and that is a risk. And so kind of quantifying that, knowing how to bound it, knowing that it is kind of, even if non-deterministic, very pre…

AI assessment note: “things like reinforcement learning or, you know, potential applications of LOMs”