Big Tech and investing in AI startups

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• Direct Revenue: As part of these deals, cloud vendors in particular have been able to informally or formally require that startup to use their particular cloud and so earn the corresponding revenue in what might seem like a bit of a quid-pro-quo arrangement. This is worthy of scrutiny and so worth touching on a bit more.

• Since the numbers aren’t being disclosed, we don’t have a sense of say how large a customer Anthropic is to GCP/AWS or OpenAI to Azure. But based on a rough assumption is that over the next 2-3 years, about 80% of their investment round may go into compute / infra, and a reasonable fraction of that goes to the cloud provider, you net out at $500M-1B/yr+ for now, though if they were to make more investments that would likely grow.

• Access to differentiated models: What started with Microsoft’s investment in OpenAI and then was followed by Amazon and Google’s investment in Anthropic, cloud providers have been aligning themselves to model developers in part to make their proprietary models available to their cloud customer base to offer a differentiated offering as they compete for AI and GenAI workloads.

• For example: Flying Taxi company Lilium received $41M as investment from Palantir and Lilium signed a five-year contract that paid Palantir $50 million.  Online grocery-delivery company Boxed Inc. received $20 million and signed a five-year, $20 million contract. Days after receiving Palantir’s money, Boxed paid $15 million to Palantir as part of the contract.  Fast forward a bit, and most of these SPACs are down 80%+ and consequently Palantir’s investments are not fairing too well. But Palantir was able to “buy revenue” with their investments and show additional revenue growth during the period, partly driven by these deals in what was in some ways a form of “round tripping”.