Drones, Data, and Dollars: Anduril's Disruptive Play in the Defense Industry

Palmer Luckey, once synonymous with the virtual reality revolution through the Oculus Rift, catapulted into tech stardom when Facebook acquired Oculus for an astonishing $2 billion. This pivotal moment not only validated VR's potential as the next major computing platform but also marked a turning point in Luckey's career. His journey from crafting immersive digital worlds to influencing tangible, real-world outcomes began here, setting the stage for an unexpected pivot towards a sector far removed from gaming and entertainment: defense.

Transitioning from virtual reality to the defense industry, Luckey embarked on a new venture, founding Anduril Industries. This shift was motivated by a desire to innovate within a sector known for its resistance to change, leveraging cutting-edge technology to address modern security challenges. Anduril's inception represented a bold move into a domain dominated by longstanding giants, with Luckey aiming to infuse the agility and innovation of Silicon Valley into the traditionally conservative defense industry.

Anduril Industries stands as a testament to this vision, actively dismantling the traditional cost-plus model that has long governed defense procurement. By adopting a tech-driven approach, Anduril is navigating the "Valley of Death" – the daunting gap between prototype development and full-scale production that many defense startups face. Through strategic investments in autonomous systems and AI, Anduril is not just surviving this transitional phase but thriving, offering scalable, efficient solutions that promise to reshape the landscape of global defense, signaling a new era where technology drives strategy, and innovation ensures security.

Transcript

Jed Tabernero: 0:00

In 2012, the virtual reality landscape was forever altered with the introduction of a pioneering headset, marking the rise of VR into mainstream consciousness.

0:10

Facebook has acquired virtual reality headset maker Oculus VR for two billion dollars. Facebook CEO Mark Zuckerberg said the deal reflected his belief that virtual reality could be the next major computing platform after mobile

Jed Tabernero: 0:23

Palmer Luckey, the architect of the shift, has since pivoted from digital escapism to a domain where technology's impact is unequivocal and immediate. Defense.

0:34

So Andrall is trying to be the world's next major defense contractor.

Jed Tabernero: 0:38

Today's episode of Things Have Changed podcast delves into and real industries. A company at an intersection of technology and defense, far removed from the conventional startup focus on apps and enterprise software. Anduril is redefining defense by bringing cutting edge technology like the cloud, end to end software and AI at the fraction of the cost in this traditionally rigid sector.

Lucky Palmer: 1:04

I specifically got into this business because I wanted to change the way that the military buys technology.

Jed Tabernero: 1:10

Join us as we dive into how Anduril is proving that the pen Is mightier than the sword, especially when it's used to code.

Shikher Bhandary: 1:56

Having been in tech for such a long time, right, both of us, Jed, you and I, working in it, now talking about it on Things Have Changed, there's one key theme, the holy grail, that overrides everything, and that is to build an ecosystem. Everyone wants to build an ecosystem. You can go ahead and name top, top companies in the world, Apple, Amazon, Microsoft, Google. The one thing that they share is an ecosystem. Great ecosystem is when there's a seamless integration between the hardware and the software. That's the holy grail. Let's take Apple, for example, you know, we, we talk about Apple a lot and there's a reason because they've kind of perfected this ecosystem play. On the hardware side, they have the iPhone, iPad, MacBooks, great hardware, you know, latest chips, fast processing, lightweight, aesthetically very pleasing, all of that, checks all the boxes. On the software side, they have the macOS, seamless, very nice UI, you have iMessages, you can back up your iPhotos into your iCloud, you can listen to music on iTunes, so everything is in this ecosystem. You have the hardware and the software on the hardware side, you make incredible margins and on the software side, you take, you take a cut of all transactions on, um, the app store. Right. Another example. Um, and one that I don't think we talk a lot about and we don't give credit where it's due at least, uh, with Tesla, you know, they have the cars. And which other car manufacturer can, can push out software updates to the car through the cloud?

Jed Tabernero: 3:56

I mean, they're starting to do that, but you know, they got it from somewhere and Tesla was, was one of those people, dude, every time I plug in my car, there's an update. You know what I mean? So it's, we've gotten to a place where our cars are now simply like our iPhones and Mac books, where we have to spend like maybe 20, 30 minutes, just updating it. And we know that it's going to be better.

Shikher Bhandary: 4:17

There are so many things that can now be controlled because there are so much data. There's so many sensors on the car. Right? So this ecosystem is what everyone's striving for. And one example which connects the company that we're talking about today, the startup, to one of the big, big tech companies is Anduro. But I'm not talking about that for now. Let's talk about virtual reality. So there's a reason why Facebook decided to get into the virtual reality game. It's because Facebook has always been a software play. They had the software component of Instagram, Whatsapp, Facebook locked down. But they were still paying the the tax of the hardware. They didn't own the hardware. And that's why they really wanted. To get onto the next wave of computing, which was virtual reality, which was supposedly virtual reality. So yeah, they paid huge sums to make sure they have the ecosystem of both the hardware and the software aspect locked down for the next 20 years because Apple won the previous 20.

Jed Tabernero: 5:31

Yeah. In the story of VR becoming like a household name, like we mentioned in the intro, that company who made it really, really popular. Was the Oculus Rift and then Meta made this huge shift, right? I think we talked about that a ton in the last two years where Meta was like, look, VR is the future. So we are going towards VR. They've literally changed their name to Meta, right? In the last two years. And so VR became kind of a huge part of that story. And so I think it was, I don't know, 2017 or something when Facebook bought Oculus, the company. Right for 2 billion, dude. Palmer lucky who had sold Oculus to face gets his 2 billion and doesn't go by five islands and, you know, change his life forever and doesn't do anything. Stay, stay as quiet, right? He moves. Into an industry that was largely untouched from Silicon Valley world. Now where we're seeing it in the news, that startups are coming into defense. And this was the whole conversation we had in the last episode. If you haven't listened to it, check it out. Um, it's where we talk about the shift of Silicon Valley, having a stronger relationship, um, with the defense industry, right. With traditional militaries. And so this company, um, was founded by Palmer lucky. Andrew industries, the, the theme of our conversation today, and very similar to what she was talking about earlier on, um, the ecosystem of, of apple and how they've made such a, an amazing product, right? One, the last 15 years, whatever we're looking at Andrew today is one of those companies who is striving for this type of business model. Right. Okay. For our tech enthusiasts here, you're probably thinking, okay, this is nothing new tech companies come up with this all the time. This is, this is their walled garden. You know, this is the place where kind of startups really are striving for today. But this is entirely different because this is defense. We talked in the last episode about how complex kind of the procurement systems are of the defense industry, right? The whole cost plus methodology where we'll spend whatever we want. You'll compensate us on on the basis of that. And then we get a cut

Shikher Bhandary: 7:58

Cash money.

Jed Tabernero: 7:59

money. Exactly. These conglomerates be making money, man. So it's kind of yeah. It's a very different space to enter for them. And dude, now that you mentioned Apple, something just came to my mind, right? I just bought a DJI for, okay, that's a drone for everybody who's not familiar. That is under the ecosystem of DJI.

Shikher Bhandary: 8:25

Ah, interesting.

Jed Tabernero: 8:27

Wonderful stuff, dude. Wonderful stuff because DJI, you know, they deal with drones. It's a company that originated from China. The American consumer cannot get enough of it, dude. We buy so much drones on a yearly basis now. And can you imagine this? Like before we thought about drones as a military application, okay. There were consumer drones popping up left and right shitty ones. Okay. If you go to amazon. com and type drones, you'll see a bunch of like shitty drones, but DJI is a clear winner in the space of drones, right? Non military applications, just consumer friendly drones.

Shikher Bhandary: 9:07

Big drone guy. Jed's

Jed Tabernero: 9:09

I'm a big drone guy. I'm a big drone

Shikher Bhandary: 9:11

Uh, he, when he, before he goes to bed and this is, I'm not even joking. He just puts on these videos. Actually, they are really, really fun to watch. And it's just these drones that are flying through different landscapes, mountains, waterfalls. It's stunning. It's stunning. But yeah, he puts himself to sleep with these videos. So yes, he is a big drone guy.

Jed Tabernero: 9:34

And I've loved the DJI ecosystem using the drone. And it just proves to you that like, that's a step towards, you know, maybe some defense applications.

Shikher Bhandary: 9:45

I mean, things still traditionally rely on like radio. You know, and a lot of it is manned. So the interesting thesis here is global defense has moved from like having a ton of people to more about data collection of data Knowing what's happening at all times across your border and across the different states. So it's more about Being aware, having these drones and sensors that can compile all that data. And you have like one ecosystem that, that manages this data. Think of it like the, you know, the iOS, the Apple OS, right? It's like the, the brains behind your entire iPhone. The startup is aiming to be that where they not only have a software platform that serves as a command center. Right, to coordinate autonomous devices, autonomous robots, drones, underwater submarines. They've done it in a way such that the software is super user friendly and the hardware syncs almost seamlessly with the software system.

Jed Tabernero: 10:55

Yeah, no. And you know, just a nod to the data thing, you know, data is King. What can you do with a ton of data? Right. Where does it become helpful to have a shit ton of data? Well, makes it easier for us to make decisions, right? I'm sure a ton of our listeners also work in a corporate space where you understand now metrics are key to understanding how progress goes, how much you can do with what another thing that has come from the advent of data, a shit ton of data is AI. AI can then use this data manipulated to kind of understand how to respond to certain situations, you know, and as we evolve by collecting more of these data points, understanding the users better, which is, you know, maybe traditional defense users, militaries, you know, to understand how that space kind of works better. AI is now being used in that space to innovate on these things that you learn AI, right? So there is now an active role that AI plays in defense and in military applications, which I think is something that's completely, you know, it's something that's coming also from the tech industry. We're starting to see a lot of AI applications. You see all these VCs only investing in AI centered companies. You know, we're seeing that in that space and now we're seeing it as well in the defense industry.

Shikher Bhandary: 12:19

Jed and I, we talk about satellites a lot. You know, the whole Starlink thing, reusability is such a big, big aspect of what made SpaceX the company that it is today. They send rockets, a sizable portion of that rocket actually comes back. and lands safely. That itself was, is saving close to 95 percent of the cost of building that rocket, because now you can use it again and again. And Angirol has taken that same mindset of reusability to drive costs significantly lower. Um, so their products, you know, they, they came in, we were talking about the software aspect, right? The lattice, um, ecosystem, uh, which is what their product, which is their software product, but they have hardware products, which are, which are making waves. Right now, they have one which is called the Roadrunner. It was, it had a big reveal. Um, and the defense industry has not seen anything like this. Right. And it's a big, big advancement to traditional defense systems where it's just one and done. Right. It's just used once and it's done. But this, you know, this is more like for surveillance to intercept transport. Right. And it can be safely recovered. And it sits in a box. Such that you can transport it and, um, rapidly launch it as well at near zero cost. So they are aspect, they are thinking behind it is, Hey, we need to be a lot more agile in this new, always on high data world. So what better than a reusable? autonomous air vehicle. While I was doing my studies, uh, in mechanical engineering, I was working at a startup, which was designing underwater autonomous vehicles. So I used to do the, the CAD design for it. So the 3d design

Jed Tabernero: 14:27

UAVs.

Shikher Bhandary: 14:28

UAVs, underwater autonomous vehicles, this product. Dive LD from Andural is 3d printed and it's not only for defense, it's for exploration. So like seafloor mapping, deep water surveys, inspection, which is actually the use case that, uh, the startup I was working on, we're trying to lean into.

Jed Tabernero: 14:49

It's kind of crazy how all of this information is public and these companies are trying to get into this space where we can share these things, you know, with the public talking about like traditional defense differences in our previous episode, we kind of covered a ton of like, why is this industry, um, having such a difficult time innovating and why prices are so insane? Why the military spends so much money. Anderle is, is one of these companies. That are trying to, to change that defense industry perspective. And one of the things I'd point out is in the previous episode, we talked about how DOD released this report, right? Every year they release this report about what are they going to do differently? You know, what kind of stuff is changing? And one of the things that they had a nod to end of 2022 and 2023 was that, Hey, we need to be more conscious. About spending, we need to be more conscious about, um, how we're innovating in this space, you know, because we spend a ton, we spend a ton of money on these things and taxpayers are not, not having it. Right. So Andrew comes in with this thesis and says, also, we're going to make sure that we're designed from a business perspective, completely differently than, um, a traditional Boeing, a traditional Northrop Grumman. They're defined so differently, they're attacking the problem from this concept called, um, valley of death. This is basically, it's a period of time in the defense industry where you create a prototype, And you're basically roadshowing this prototype until you get to production into full scale production, right? This is the time the government kind of goes through all the approvals. There are some regulatory hurdles that you got to go through. It's called the valley of death because a lot of companies, they don't have enough capital to be alive and awake during this time. So they typically die off. Right. And then all these bigger conglomerates are going to be coming in to, to kind of take those contracts because they're the ones who can stay alive for that long. Andrew does not like this model. It tackles it from that perspective saying, Hey, listen, we want to bridge the gap between prototype development and government procurement. When the government actually makes a decision, Tate, make this right. Streamline that path. Um, from deployment and adoption by the military. So it's kind of, it's kind of the big difference where Andrew comes in and operates like a big tech company. Like we were pointing out earlier. Right. Um, and getting away from the cost plus procurement more into a money ball military style. Right. And this is where the business model comes in will be really interesting to see, because she was pointing out, look, software is the center of this story. Lattice. It's a software name, right? Single operated by lattice. But he also mentioned the hardware components that we just, we just talked about, right? And real strategy is buying up tiny defense companies that may already have a product that could compliment lattices capabilities. So that that's, yeah, that's something I just, I just learned out of just reading through, um, you know, how Andrew operates and they are buying up tiny defense companies that have a hardware component to it and they see, okay, does, does lattice play into this hardware product? Right. Can we extend this hardware products capabilities by gathering the right data, by giving the right inputs, right? Like this is very interesting. And I called it money ball military because you know, if you haven't read the book or, or watched a show, um, watch the movie money ball, you should. Very interesting. They're on a budget and they're trying to make a baseball team. Right. Similar to this company. Um, and they're on a budget and they're trying to create the most efficient defense capabilities out there. Crazy.

Shikher Bhandary: 18:50

Yeah. And I mean, they've seen so much excitement from VCs and investors. They raised, I think more money than any other startup in 2022. This could be a trend. Like we mentioned in the previous episode, there are so many gaps in the procurement cycle, the efficiency gaps that tech looks at and thinks, Hey, this is another trillion dollar opportunity. We should jump into this. What is the future of defense look like? So, I mean, the future of tech is AI. So you can just imagine, um, you know, bad actors using those open source AI platforms, uh, and algorithms to do harm, right? So you need to be prepared even on the defense side. Now, we have to mention that there are concerns that not everything should be AI because the people that even work in this industry. fail to understand why certain things are done or certain decisions are made. So I think there needs to be a careful review and due diligence done to make sure that this is done correctly and humanely.

Jed Tabernero: 19:59

It's a good point, man. That's a good point. Cause I think as we get into kind of this world where AI is used in even military and defense, um, applications, we need to be really careful about reviewing these algorithms, making sure, you know, that they align with kind of our values. It's not lost on the DOD, I guess we've seen some documentation around our research about reviewing these algorithms, making sure that, you know, it's not, it doesn't have some like super evil, um, underlying cause or goal, right? So there are ways where you can have this type of greater, greater scrutiny and regulation around it. And companies like Anduril is that's out there. Right. They're constantly scrutinized by these things. Um, and hopefully that, that continues, um, while the shifting power dynamics happen within this defense industry, right. Is that we can hold them more accountable than the incumbents were before. A part of that as well as, you know, one of, um, lucky Palmer, Lucky's goals is that he wants to be a publicly traded company. Right. Andrew wants to be, because just like any other massive company, the government's not worried too much about the financials of publicly traded companies, because they're subject to scrutiny from external auditors, right? They have that public practice themselves. So, you know, just making sure. That they get into a space where they're constantly audited, they're beholden to stakeholders, um, you know, makes it a more promising, promising, uh, venture for the government. Um, so what is, what is defense basically look like going forward, right? We're talking about this, this regulation and how things are changing in the space and how we have to be careful, you know, what are the major themes that we're seeing? Well. This is basic, but this is a things have changed theme as well. Is that ton of robots coming into the space? Ton of robots with AI as one of the major focuses in this space. And so the defense industry, yes, I think we've expected this before that there's like a ton of labs creating AIs and creating robots for the future of defense, right? Right now we're seeing it. We're seeing it in action, right? We're seeing MIT labs come up with robots that are completely autonomous, um, serving different types of purposes and industry. And this may extend to different types of industry as well, right? Another major theme I want to point out really is like speed, dude, we've never been in a place. Where we could come up with military applications that will be faster. I have to point out, although we mentioned all this stuff about procurement and about how Andrew is going to change the game for procurement, there's still a ton of regulatory hurdles that they have to get through, right? Like it's not just because they can come up with a product faster that all of a sudden we're going to have a completely different procurement cycle for the military. It's not going to be that case. Always military has to adjust. Government has to adjust its policies to be able to procure things that come from Andrew. Right? Because the traditional defense industries, they've also built a wall around this industry that revolves around understanding how to get out of the valley of death, right? It's not that simple. So we're going to see this speed factor, you know, slow down a little bit. Once we understand the regulatory hurdles, each one of these companies have to go through. So as we wrap up I think it's important for us to highlight that the research that has gone into this episode and the previous episode about startups in defense was actually pretty uncomfortable. Shikhar and I acknowledge that it's really difficult to go into topics like this. When we started, things have changed. We wanted to highlight the changes in industry tech place in this industry. This happens to be one of them. Defense is one of those industries that tech is touching undeniably.

Shikher Bhandary: 23:58

Yeah. And also we have a slate of incredible founder episodes coming up next founders based out of France. building incredible new telecommunication applications, as well as our first guest returning to Things Have Changed, talking about their expansion, the startup's expansion to a different continent. So yeah, super interesting, super exciting to be a THC listener. And as always, stay curious.

24:28

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