My brother, Nelson Nones, has lived and worked outside the United States for years. From his vantage point “outside looking in,” I find that his perspectives on U.S. socio-political developments are often somewhat different from the conventional thinking here at home.
This was clearly evident when the news broke In early June about the National Security Agency (NSA) surveillance of e-mail and other digital content. Within just a couple days, Nelson had penned a thought piece on the implications of these revelations on the cloud computing industry.
In his view, the NSA revelations are likely to have numerous serious implications. As he states in his analysis:
“… these threats will be perceived to be so serious that many businesses could decide to abandon the use of cloud computing services going forward — or refuse to consider cloud computing at all — because they bear full responsibility for compliance yet now realize that they have little or no ability to control the attendant non-compliance risks when utilizing major cloud services providers.
In view of recent revelations, the tantalizing cost savings and efficiencies from cloud computing may be overwhelmed by the financial, business continuity and reputational risks.”
I wondered how long it would take for these views to gain traction here in the United States.
It didn’t take long at all. In fact, the Information Technology & Innovation Foundation, a Washington, DC-based think tank focusing on technology policies, released a report a few days ago in which it projects the U.S. cloud computing industry to forfeit between $22 billion and $35 billion in lost business as a result of the revelations about the NSA’s electronic surveillance programs.
That represents between 10% and 20% of a cloud computing market that is expected to be a $207 billion industry by 2016 – revenues which are likely to be sucked up by European and Asian companies instead.
The ITIF report warns that the NSA’s surveillance programs “will likely have an immediate and lasting impact on the competitiveness of the U.S. cloud computing industry if foreign customers decide the risks of storing data with a U.S. company outweighs the benefit.”
The implications are huge because up until now, the United States has been the acknowledged leader in cloud computing usage and innovation, even as other countries have tried to play catch-up.
The ITIF report has garnered the attention of the business press — big time. The Guardian has published a story as has the Financial Times. The story has leached into general news and opinion sites as well, such as The Daily Kos — and others are sure to follow suit.
All of this is a pretty major deal because the cloud computing industry represents one of the fastest growing sectors of the digital communications market. Global spending on cloud computing is anticipated to grow by 100% between 2012 and 2016.
That compares to growth of only about 3% for the global IT market as a whole.
And in case people are thinking that the ITIF report might be unduly alarmist … it appears that the giant sucking sound of cloud computing business going elsewhere has already begun to happen.
Some U.S. tech companies are reporting that they’ve already lost customers, as concerns mount over the NSA’s PRISM program that lets the federal government tap into user information and e-mails held by Internet companies.
The Cloud Security Alliance, a coalition of industry practitioners, corporations, associations and other key stakeholders whose mission is to promote the use of best practices in providing security assurance within cloud computing field, conducted a survey in June and July of companies located outside the U.S. That survey found that ~56% of the responding companies are now less likely to use a U.S.-based cloud computing service, thanks to the NSA’s spying program.
One out of ten respondents reported that they have already canceled contracts with U.S. companies. And that’s only within the past few weeks.
Meanwhile, non-U.S. players in the cloud computing market must surely be laughing all the way to the bank. For example, Artmotion, the largest hosting company in Switzerland, reported a ~45% increase in revenue within just the first month after Edward Snowden’s release of details about the PRISM program.
To be sure, Europeans are wasting no time weighing in on the messy situation the American cloud computing industry suddenly faces. Neelie Kroes, European Commissioner for Digital Affairs, had this to say:
“If European cloud customers cannot trust the United States government, then maybe they won’t trust U.S. cloud providers either. If I am right, there are multibillion-euro consequences for American companies. If I were an American cloud provider, I would be quite frustrated with my government right now.”
Germany’s Interior Minister Hans-Peter Friedrich was even more blunt:
“Whoever fears their communication is being monitored in any way should use services that don’t go through American servers.”
What are the companies that fear their communications are being monitored, as Mr. Friedrich posits? Pretty much all of the bigger ones, I’d think.
OK, U.S. government and administration officials: Have fun unscrambling this egg!