Monday 08 February, 2016

The NSA Spying Scandal and Its Fallout for US Cloud Services

Revelations of the U.S. National Security Agency’s electronic spying has become a full-scale scandal that affects not only American citizens and companies, but those abroad as well. One of the major effects is that foreign firms are more reluctant than ever to use US cloud service providers and the trend may worsen in the coming months, causing an even bigger negative impact in the U.S. tech industry.

The Flight from the US Cloud

How bad is it? In January 2014 a Canadian cloud computing company called Peer 1 released a study saying that a quarter of worldwide firms are taking their data out of U.S. storage providers’ hands.

Actually, the report is somewhat misleading. The report asked only 300 firms in the UK and Canada, hardly the entire world’s business community. They were all small companies with 250 employees or less. Although not a worldwide survey, the results are still quite scary.

Tech pundits have expressed surprise that the number was so low. It has also been pointed out that this may indicate a growing trend in the near future. Smaller companies are much faster at implementing changes than larger companies. In other words, bigger companies may soon follow.

From Bad to Worse

Last August, when the allegations of spying were first made, Forrester analyst James Staten made a much doomier prediction. He said that worldwide cloud vendors, not only the United States, would see a $180 billion drop in sales over the coming three years because of fears of government spying. A more conservative estimate was made by think tank Information Technology & Innovation Foundation (ITIF) predicting a loss of $35 billion over the same period.

The Patriot Act and Privacy

Actually, this isn’t anything particularly new. Ever since the U.S. government rushed the Patriot Act through in the days after the World Trade Center attacks, overseas companies have been reluctant to trust IT firms on U.S. soil. The Patriot Act eliminated much of the privacy and protection people enjoyed under the United States Constitution. Under this legislation, if the government asks for sensitive data, companies have to hand it over. The Edward Snowden NSA spying revelations of last year only confirmed what many have suspected.

Also long before the NSA spying scandal emerged, the European Union was working on legislation that would regulate the utilization of overseas cloud services. Microsoft and other American companies have had to work hard to comply with these regulations when doing business in Europe. Chinese companies don’t allow U.S. companies to operate in China at all.

What This Means for the US Cloud Industry

The Peer 1 survey has one important key point to consider. The overwhelming majority of respondents said that security was their number one concern when using a cloud service. If you take away security, companies will take their business elsewhere, which means we’re sure to see a continual drop in business for U.S. cloud storage providers, unless the Obama Administration does something quick to curtail the NSA’s power.

Bob Steele

Bob Steele is an entrepreneur, software developer, marketer, and author living in the Denver metropolitan area. He’s an avid outdoorsman who loves skiing, hiking, fishing, boating, and just plain having fun. His interests include games, space, technology, physics, cooking (well eating actually), economics, business, internationalism, and team sports. With over thirty years of professional consulting experience, Bob has been exposed to many diverse business models and has gained a sensible approach to life. Bob’s company, WaveCentric is focused on commerce, marketing, and entertainment related products.

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