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NSA's Prism Could Cost U.S. Cloud Companies $45 Billion

Losses may total between $35 billion and $45 billion in next three years due to lost business stemming from disclosure of NSA monitoring, new research predicts.

Staten pointed out that the U.S. isn't the only country conducting government surveillance of traffic flowing through Facebook, Google, Microsoft, Yahoo, Apple and other big Internet-based services -- but it's the only one in the news. Germany has its own equivalent to the NSA, the BND, but little is known about what its surveillance practices are. The U.K. maintains a strong surveillance system over public transit and city centers and is likely to have one over its Internet pathways as well. India reportedly mounts its own electronic watch against potential intruders and terrorists.

Staten said the fallout from the Prism news on U.S. companies is likely to be "particularly acute because cloud computing is a rapidly growing industry. This means that cloud computing vendors not only have to retain existing customers, they must actively recruit new customers to retain market share."

Global spending on the cloud will grow 100% between 2012 and 2016. The global IT market is growing 3%, he pointed out. "If U.S. companies lose market share in the short term, this will have long-term implications on their competitive advantage in this new industry," he concluded.

But it may be too soon to estimate the long term effects of Snowden's revelations and subsequent flight to Hong Kong and Russia. Data Center Knowledge, a news site devoted to the latest data center technology, pointed to a survey by Netcraft, a U.K. firm that tracks Internet servers. It found the number of websites hosted in the U.S. from overseas has grown since the Snowden disclosures. In the month of July, 3.6 million websites left the U.S. to hosts overseas. That sounds like a large number, but about 3.9 million moved into the U.S. from other countries, for a net gain of 270,000 additional sites.

Germany, with its strict rules on data privacy, was the most popular point of departure for websites moving to the U.S. "Nearly 1.2 million sites moved from German hosting companies. This was followed by Canada, where 803,000 sites hopped across the border to the US," Netcraft reported.

"Netcraft's monthly Web Server Survey suggests that if multi-national customers have concerns about being hosted in the U.S., they're not acting on them -- at least not yet," wrote Data Center Knowledge editor in chief Rich Miller.

Netcraft also reported that of the 10,000 most popular websites in the world, 40 had moved away from the U.S. since the Snowden revelations. But 47 moved into the U.S., leaving the U.S. with a net gain of seven.

It may take more than 30 days for major cloud customers to decide to move their business, or the sensitive parts of their business, away from U.S. providers. The Netcraft Web server and website data is one indicator. But Netcraft doesn't look down into the repositories of business data, customer data and international patient data that may in fact be starting an outward migration, one that will make Staten's projection of a $45 billion loss by 2016 a reality.

Staten and others agree with the ITIF recommendation that the U.S. must state what data it has access to and the rules that govern that access. It must also establish a judicial check on what security agencies may do to obtain data.

He also recommended that the U.S. lobby other nations at the next G30 economic summit to jointly draft "international surveillance transparency rules that will take any potential chill off the burgeoning cloud computing market."

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User Rank: Author
8/15/2013 | 3:46:55 PM
re: NSA's Prism Could Cost U.S. Cloud Companies $45 Billion
Staten, a longtime cloud industry expert, is not known for over-estimating, which makes his prediction all the more worth noting.
Thomas Claburn
Thomas Claburn,
User Rank: Author
8/15/2013 | 8:13:03 PM
re: NSA's Prism Could Cost U.S. Cloud Companies $45 Billion
Former Citibank CEO Walter Wriston observed that capital goes where it's wanted and stays where it's well-treated. Since modern currency is just data, data flight from the U.S. cloud industry isn't a surprising outcome given the unwillingness of U.S. authorities to accept limits on surveillance.
User Rank: Apprentice
8/16/2013 | 5:03:35 PM
re: NSA's Prism Could Cost U.S. Cloud Companies $45 Billion
Agreed (and most people don't get that currency is not stored value; much better described as information, so very key point).

So, I'm looking at these developments with no small amount of dread. Cross border data management is a high enough hurdle to manage, both with complex, conflicting regulations and double-standards in many jurisdictions. Favorite quote, ". ... If all the data of enterprises is going to be under the control of the U.S., it's not really good for the future of the European people.''' My interpretation: a lot more attention will be payed, and it will get much more difficult to manage multi-national operations. Costs will go up, efficiency down.

Lack of "rule of law" creates friction. Friction is bad.
User Rank: Apprentice
8/15/2013 | 11:05:29 PM
re: NSA's Prism Could Cost U.S. Cloud Companies $45 Billion
I don't understand this. The ITIF report says "the reality is that most developed countries have mutual legal assistance treaties (MLATs) which allow them to access data from third parties whether or not the data is stored domestically."

This tells me that no data is secure nowhere no how. So why would US cloud providers suffer such losses? It doesn't make sense unless the assumption is they don't know how to fight back with the facts.

I think the real threat to cloud providers across the globe is coming from the rise of private cloud providers like Cloudlocker (, at least on the consumer side. I think it's new products like this plug n play device that pose the biggest threat to the old-line public cloud services, which have always suffered from fatal flaws in privacy and security.

The private, personal clouds like the Cloudlocker eliminate these flaws, and that's why I see them taking over this space, soon to be followed by enterprise-level versions of private clouds, once good ol Yankee ingenuity kicks in. One door closes, another door opens.
User Rank: Apprentice
8/15/2013 | 11:08:01 PM
re: NSA's Prism Could Cost U.S. Cloud Companies $45 Billion
The estimates make me think of Rob Preston's recent column on grabbed-out-of-thin-air statistics. (Though Laurianne's comment gives me pause.)
Michael Endler
Michael Endler,
User Rank: Author
8/17/2013 | 6:05:18 AM
re: NSA's Prism Could Cost U.S. Cloud Companies $45 Billion
If and when Snowden finally stands trial, I wonder if stats like this one will be used to demonstrate how his leaks hurt American interests. It wouldn't be much different than what prosecutors argued in the Bradley Manning case. The Manning case involved national security, whereas these stats refer to economic consequences-- but still, several parallels. As Snowden's many supporters demonstrate, a lot of people would argue the United States damaged its own interests by deploying PRISM to begin with. In a legal court, I have the feeling this sort of argument might be allowed to stand-- but in the court of public opinion, much more interesting question.
User Rank: Strategist
8/21/2013 | 7:44:46 PM
re: NSA's Prism Could Cost U.S. Cloud Companies $45 Billion
When you have a world-leading industry in cloud services and you give your best potential customers an excuse to temporize and build a local alternative, which they wish they had anyway, you're probably making a mistake.
User Rank: Author
8/21/2013 | 9:31:43 PM
re: NSA's Prism Could Cost U.S. Cloud Companies $45 Billion
Not surprised that Prism on top of the Patriot Act would be a real headache for U.S. cloud providers. European cloud companies reportedly have been using the Patriot Act as a marketing tool against U.S. cloud companies.
User Rank: Author
8/22/2013 | 8:41:39 PM
re: NSA's Prism Could Cost U.S. Cloud Companies $45 Billion
There is a certain irony that federal agencies are still investing in their own private clouds to protect their data.
User Rank: Apprentice
8/30/2013 | 4:51:23 PM
re: NSA's Prism Could Cost U.S. Cloud Companies $45 Billion
"The rivalry is already well entrenched, with European governments investing in future competitors of U.S. companies."

It doesn't matter who.

All those Co. mine and sell data all day long 24/7 365. They all do. They don't all tell you about it ether or who they had sold it to.

The Corp.'s WORLD WIDE have been doing it since the release of the internet in the public venue.

They all make more money off of your blind trusts. If you are going to get down on one entity. You would be foolish, and even negligent not to address all of the problems. And that is all of the Co.'s, and Corp.'s, and all those that mine our data.

They haven't paid a dime to any of us, but are getting rich off of our data. They should have to pay modern market rates for every bit, and byte. Or just stop doing it period.

If you knew everything they did with it. The NSA probably wouldn't be the top of the list.

That's if it really is about what is right, and not what is profitable at any cost.
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