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August 6, 2013

PRISM Program Could Cost U.S. Cloud Computing Companies Tens of Billions: Report

PRISM, the National Security Agency’s (NSA’s) wide-reaching surveillance program, is not just costly for American taxpayers — it could also cost cloud computing companies billions of dollars.

An Information Technology and Innovation Foundation (ITIF) report indicates U.S. cloud computing companies could very well forfeit between $25 billion and $35 billion in profits over the next three years due to trust issues.

Foreign companies, the report says, are likely to have concerns data stored with American cloud providers could be vulnerable to NSA surveillance, putting the industry lead U.S. cloud providers enjoy in jeopardy.

“The impact of PRISM on U.S companies may be particularly acute because cloud computing is a rapidly growing industry,” the study reads. “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 cloud computing is expected to grow by as much as 100 percent between 2012 and 2016, whereas the global IT market will only grow by three percent. Globally, it is estimated cloud computing will be a $207 billion industry by 2016. 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.”

A survey earlier this year from the Cloud World Global Insights indicates 71 percent of its respondents consider the U.S. to be the No. 1 cloud computing provider. Ninety percent of those surveyed, meanwhile, consider cloud computing as a main component to their country’s economic competitiveness.

Recent revelations about the PRISM program —which forces via court order or National Security Letter, Internet companies such as Google and Facebook to hand over subscriber data — could well be the opening other countries need to make gains in the market at the expense of American companies, the ITIF says.

Before the extent of NSA surveillance was revealed, rival companies used passages of the U.S. Patriot Act to exploit fears of data being shared with the government. Now that the PRISM program has come to light, these countries have new ammunition to use against the U.S.

“German Interior Minister Hans-Peter Friedrich declared publicly, ‘whoever fears their communication is being intercepted in any way should use services that don’t go through American servers’,” reads the report. “Similarly, Jörg-Uwe Hahn, a German Justice Minister, called for a boycott of U.S. companies. After PRISM, the case for national clouds or other protectionist measures is even easier to make.”

The European Union has also been making noise about creating its own standard for cloud computing to circumvent U.S. servers whose data could be compromised by the U.S. federal law enforcement agencies.

The American government needs to take action to protect its lead in the industry, the report recommends.

The ITIF suggests the U.S. government “set the record straight” about what data it does and does not have access to and how its surveillance compares to that of other countries.

“To do this effectively, it needs to continue to declassify information about the PRISM program and allow companies to reveal more details about what information has been requested of them by the government,” the report suggests. “The economic consequences of national security decisions should be part of the debate, and this cannot happen until more details about PRISM have been revealed.”

The ITIF is also urging the U.S. government put in place international transparency requirements that reveal what information U.S.-based and non-U.S.-based companies are disclosing to both domestic and foreign governments.

“For example, U.S. trade negotiators should work to include transparency requirements in trade agreements, including the Transatlantic Trade and Investment Partnership (TTIP) currently being negotiated with the EU,” the report says.