Snowden and the NSA could cost US $180bn by 2016

[t_co]

http://www.nytimes.com/2014/03/22/b...en-hurting-bottom-line-of-tech-companies.html

SAN FRANCISCO — Microsoft has lost customers, including the government of Brazil.

IBM is spending more than a billion dollars to build data centers overseas to reassure foreign customers that their information is safe from prying eyes in the United States government.

And tech companies abroad, from Europe to South America, say they are gaining customers that are shunning United States providers, suspicious because of the revelations by Edward J. Snowden that tied these providers to the National Security Agency's vast surveillance program.

Even as Washington grapples with the diplomatic and political fallout of Mr. Snowden's leaks, the more urgent issue, companies and analysts say, is economic. Tech executives, including Eric E. Schmidt of Google and Mark Zuckerberg of Facebook, are expected to raise the issue when they return to the White House on Friday for a meeting with President Obama.

It is impossible to see now the full economic ramifications of the spying revelations — in part because most companies are locked in multiyear contracts — but the pieces are beginning to add up as businesses question the trustworthiness of American technology products.

Meanwhile, the confirmation hearing last week for the new N.S.A. chief, the video appearance of Mr. Snowden at a technology conference in Texas and the drip of new details about government spying have kept attention focused on an issue that many tech executives have hoped would go away.

Despite the tech companies' assertions that they provide information on their customers only when required under law — and not knowingly through a back door — the perception that they enabled the spying program has lingered.

"It's clear to every single tech company that this is affecting their bottom line," said Daniel Castro, a senior analyst at the Information Technology and Innovation Foundation, who predicted that the United States cloud computing industry could lose $35 billion by 2016.

Forrester Research, a technology research firm, said the losses could be as high as $180 billion, or 25 percent of industry revenue, based on the size of the cloud computing, web hosting and outsourcing markets and the worst-case scenario for damages.



The business effect of the Snowden revelations is felt most in the daily conversations between tech companies with products to pitch and their wary customers. The topic of surveillance, which rarely came up before, is now "the new normal" in these conversations, as one tech company executive described it.

"We're hearing from customers, especially global enterprise customers, that they care more than ever about where their content is stored and how it is used and secured," said John E. Frank, deputy general counsel at Microsoft, which has been publicizing that it allows customers to store their data in Microsoft data centers in certain countries.

At the same time, Mr. Castro said, companies believe the federal government is only making a bad situation worse.

"Most of the companies in this space are very frustrated because there hasn't been any kind of response that's made it so they can go back to their customers and say, 'See, this is what's different now, you can trust us again,' " he said.

In some cases, that has meant forgoing potential revenue.

Though it is hard to quantify missed opportunities, American businesses are being left off some requests for proposals from foreign customers that previously would have included them, said James Staten, a cloud computing analyst at Forrester who has read clients' requests for proposals. There are German companies, Mr. Staten said, "explicitly not inviting certain American companies to join."

He added, "It's like, 'Well, the very best vendor to do this is IBM and you didn't invite them.' "

The result has been a boon for foreign companies.

Runbox, a Norwegian email service that markets itself as an alternative to American services like Gmail and says it does not comply with foreign court orders seeking personal information, reported a 34 percent annual increase in customers after the N.S.A. revelations.

Brazil and the European Union, which had used American undersea cables for intercontinental communication, last month decided to build their own cables between Brazil and Portugal, and gave the contract to Brazilian and Spanish companies. Brazil also announced plans to abandon Microsoft Outlook for its own email system that uses Brazilian data centers.

Mark J. Barrenechea, chief executive of OpenText, Canada's largest software company, said an anti-American attitude took root after the passage of the Patriot Act, the counterterrorism law passed after 9/11 that expanded the government's surveillance powers.

But "the volume of the discussion has risen significantly post-Snowden," he said. For instance, after the Snowden revelations, one of OpenText's clients, a global steel manufacturer based in Britain, demanded that its data not cross United States borders.

"Issues like privacy are more important than finding the cheapest price," said Matthias Kunisch, a German software executive who spurned United States cloud computing providers for Deutsche Telekom. "Because of Snowden, our customers have the perception that American companies have connections to the N.S.A."

Security analysts say that ultimately the fallout from Mr. Snowden's revelations could mimic what happened to Huawei, the Chinese software company, which was forced to abandon major acquisitions and contracts when American lawmakers claimed that the company's products contained a backdoor for the People's Liberation Army of China — even though this claim was never definitively verified.

Silicon Valley companies have complained to government officials that their actions were hurting their business. But companies clam up when it comes to specifics about economic harm, whether to avoid frightening shareholders or because it is too early to produce concrete evidence.

"The companies need to keep the priority on the government to do something about it, but they don't have the evidence to go to the government and say billions of dollars are not coming to this country," Mr. Staten said.

Some American companies say the business hit has been minor at most.

John T. Chambers, the chief executive of Cisco Systems, said in an interview that the N.S.A. disclosures had not affected Cisco's sales "in a major way." Although deals in Europe and Asia have been slower to close, he said, they are still being completed — an experience echoed by several other computing companies.

Still, the business blowback can be felt in other ways than lost customers.

Security analysts say tech companies have collectively spent millions and possibly billions of dollars adding state-of-the-art encryption features to consumer services, like Google search and Microsoft Outlook, and to the cables that link data centers at Google, Yahoo and other companies.
IBM said in January that it would spend $1.2 billion to build 15 new data centers, including in London, Hong Kong and Sydney, to lure foreign customers that are sensitive about the location of their data. Salesforce.com announced similar plans this month.

Meanwhile, lawmakers, including in Germany, are considering legislation that would make it costly or even technically impossible for American tech companies to operate inside their borders.

Some government officials say laws like this could have a motive other than protecting privacy. Shutting out American companies "means more business for local companies," Richard A. Clarke, a former White House counterterrorism adviser, said last month.

Given how aggressively the US has shut Huawei out of the North American market for ostensible national security concerns, this global shunning of the US tech industry is poetic justice.

It's also interesting that the only reason Schmidt, Page, Brin, Zuckerberg, Bezos et al only care about the NSA spying scandal because they're bleeding cash from it - really put all of their 'pious, mealy-mouthed homilies' (to borrow one of @Ray 's favorite phrases) to user privacy in the proper context.

 

[ubuntu]

http://rt.com/news/us-europe-nsa-snowden-549/

US officials on Friday slammed plans to construct an EU-centric communication system, designed to prevent emails and phone calls from being swept up by the NSA, warning that such a move is a violation of trade laws.

Calling Europe's proposal to build its own integrated communication system "draconian," the office of the US Trade Representative (USTR) said American tech companies, which are worth an estimated $8 trillion per year, would take a financial hit if Brussels gives the initiative the green light.

"Recent proposals from countries within the European Union to create a Europe-only electronic network (dubbed a 'Schengen cloud' by advocates) or to create national-only electronic networks could potentially lead to effective exclusion or discrimination against foreign service suppliers that are directly offering network services, or dependent on them," the USTR said in its annual report.

In the aftermath of Edward Snowden's whistleblowing activities at the National Security Agency, which proved that much of the world's telecommunication meta-data is being stored away in the United States, European countries – notably Germany and France - are desperate to get a handle on their own networks without relying on a meddlesome middleman.

Germany's outrage over the revelations hit full stride last month when Der Spiegel, the popular daily newspaper, asked if it is "time for the country to open a formal espionage investigation" following yet more disclosures that Britain's GCHQ infiltrated German internet companies and the NSA collected information about (German Chancellor Angela) "Merkel in a special database."

Now, US trade officials are up in arms over proposals by Germany's Deutsche Telekom (in which the German government owns less than 30 percent), to avoid passing communications to the United States, saying the move would give European companies an unfair advantage over their US colleagues.

"Any mandatory intra-EU routing may raise questions with respect to compliance with the EU's trade obligations with respect to internet-enabled services," the USTR said. "Accordingly, USTR will be carefully monitoring the development of any such proposals."

If the European-centric plan gets the go ahead, it would require the dismantlement of the Safe Harbor agreement that allows US companies access to European data. It should be noted that despite the work of the NSA, Europe has some of the strictest privacy laws in the world.

US telecommunication and internet firms are now lobbying Washington to calm fears over privacy concerns in an effort to halt Europe's move toward protectionism.

Similar criticisms were directed by the USTR at another American ally, Canada. The representative complained about privacy rules enforced in Canadian provinces of British Columbia and Nova Scotia, which do not normally allow public bodies to store and access private data of Canadians outside the country.

The USTR also criticized the Canadian federal government's move to build a unified email system, which required data to be stored in Canada and thus prevented US companies from bidding. Bell Canada eventually won the $400-million contract.

"In today's information-based economy, particularly where a broad range of services are moving to "cloud" based delivery where US firms are market leaders, this law hinders US exports of a wide array of products and services," the report said.

Much like the EU, Canada has concerns over its dependence on US for routing telecommunications, with some 90 percent of all Canadian internet traffic going through the US. The Canadian Internet Registration Authority proposed in October 2013 building up domestic infrastructure, which would change this and protect the data from potential NSA snooping.