Snowden revelations may cost U.S. cloud providers billions, says study

Debate begins over whether the EU can really damage U.S. cloud leadership

Edward Snowden's leaked revelations about the U.S. government's data spying program may result in U.S. cloud providers losing 10% to 20% of the foreign market to overseas competitors, according to a new study.

The Information Technology & Innovation Foundation, in its report, said European companies, in particular, may successfully exploit the spying disclosures to challenge U.S. cloud computing leadership in foreign markets.

It is a provocative point, and there is no clear data to suggest a backlash following disclosure of the U.S. spying program, called PRISM.

Daniel Castro, the author of the ITIF report, acknowledged in the report that the analysis is based, so far, on thin data, but argues that the risks are high.

"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," wrote Castro. "Rival countries have noted this opportunity and will try to exploit it," he said.

To counter foreign reaction, the government may have to help U.S. cloud providers by challenging the claims made by foreign officials, said Jason Weinstein, a partner at law firm Steptoe & Johnson LLP and a former federal prosecutor and deputy assistant attorney general who oversaw the computer crime section.

"There are a lot of reasons to be concerned about just how significant those consequences will be," Weinstein said. "This effort by European governments and European cloud providers to cloud the truth about data protection in the U.S. was going on well before anyone knew who Edward Snowden was. It just picked up new momentum once the PRISM disclosures came out."

"Now, it seems like every week you see more hypocrisy and more hyperbole coming out of the EU about data protection in the U.S.," Weinstein said. That data protection, particularly as it relates to government access, is worse in Europe, he said.

In the U.K. and France, a wiretap to get content can be issued by a government official without court authority, a practice that can't be done in the U.S.

In Germany, wiretaps also can be obtained without court approval. But with court approval, authorities can place a computer virus in a provider's network and intercept communications and metadata "without the providers or the customers even knowing about it," Weinstein said.

"The U.S. providers have done nothing other than comply with their legal obligations, and the consequences of these leaks is they are facing potentially significant economic consequences," he said.

The ITIF report says that U.S. cloud providers might lose $35 billion by 2016. That's the high end of the loss estimate, and it assumes that U.S. providers eventually lose 20% of the foreign market to competitors. The ITIF estimates the global cloud market next year at about $148 billion, with the non-U.S. market at about $76 billion.

One survey that points to economic damage, also cited by the ITIF, was last month's Cloud Security Alliance report, which found that 10% of 207 officials at non-U.S. companies canceled contracts with U.S. service providers since the revelations of the spy program.

"I don't think PRISM does U.S. providers any favors, that's for sure," said Gartner lead cloud analyst Ed Anderson. He added that Gartner has not seen the Patriot Act, which has been cited for years by the Europeans as a privacy threat, as having any impact on U.S. cloud providers.

Similarly, Anderson said his firm has not seen any revenue impact on cloud providers since the PRISM disclosures.

"I think the reality is [the controversy over PRISM] is likely to die down over time, and we expect adoption to probably continue on the path that it has been on anyway," he said.

One reason why U.S. providers may not suffer is because "the alternatives aren't great, if you are European company looking for a cloud service," Anderson said.

Similar to Weinstein's point about European data surveillance, Anderson said European nations also can spy on private data.

"If you think that PRISM is the only program in the world where a government is inspecting private data, than you are pretty naïve," said Anderson. Nonetheless, Anderson doesn't discount the risks if "there continue to be missteps on the part of the U.S. government" on data privacy issues, and said it could have a long-term impact on the perception it creates globally about what it means to work with a U.S. provider.

This article, Snowden's revelations may cost U.S. cloud providers billions, says study, was originally published at

Patrick Thibodeau covers cloud computing and enterprise applications, outsourcing, government IT policies, data centers and IT workforce issues for Computerworld. Follow Patrick on Twitter at @DCgov or subscribe to Patrick's RSS feed . His e-mail address is

See more by Patrick Thibodeau on

Copyright © 2013 IDG Communications, Inc.

7 inconvenient truths about the hybrid work trend
Shop Tech Products at Amazon