Tuesday, August 6, 2013

Economic Impact of NSA revelations Part 2

 In part 1 I wrote, that I expect Microsoft to suffer a slow hit, on both their operating system and  voice over IP business, because of the revelations, but suggested that Google and Facebook are not in danger of suffering immediately, unless there is a significant change in user sentiment, which I do not see, yet. There is one industry though that is bound to experience less revenue pretty much immediately: US cloud computing

US firms are the dominant force in providing cloud services world wide. The corporation between the companies and the NSA threatens their business model, which is based on three pillars:

  • Price
  • Availability and speed
  • Trust and security
They pretty much have through their corporation with the US government demolished what is likely the most important of the pillars, and damaged it for all similar services, no matter where they are located, because of the danger that the data are intercepted, if no adequate encryption (backdoors might be in any US based solutions) is used. Also in addition to the NSA effort, the British GCHQ stated that it wants both to dominate the Internet, and to help UK economic interest, which puts any data at risk that moves through the country, so basically everything that is sent outside of Europe (and much of the data sent within the continent), will likely be intercepted.

German managers, IT and security professionals see the US (26 %) now closely behind China (28 %) [makes me wonder if the study only allowed to choose one country] as "a high risk place for industrial espionage", according to FT. The German Chambers of Commerce and Industry expert Treier expects that the focus will move "more to European [cloud] service providers" and that companies will be in general more careful when choosing cloud or other IT services. ITIF (pdf) expects a 10 to 20 per cent drop (up to $35 billion in revenue until 2016) in foreign markets for US firms. In fact 10 per cent of non US Cloud Service alliance members have according to a study already cancelled projects with US service providers. 56 % said they would be less likely to choose an US services. The VDMA (one of the largest industry associations in Europe) is worried that the espionage is "also purposefully" targeting the South and West of Germany to conduct industrial espionage. So, it seems quite clear that the industry will significantly reduce their exposure to US cloud and therefore intelligence services.

Private Internet users in Germany are also starting to become suspicious. 19 per cent want to forgo cloud services, according to BITKOM (Federal Association for Information Technology, Telecommunications and New Media). But the organisation says that, "it does not seem likely that the behavior of people online will change". I agree with that assumption for the most part at least at the moment. The study also shows a significant decrease in trust towards states and companies, when it comes to data security. So I reckon that, if one picks a new service it will less likely be one located in the US or Britain. A much better choice is clearly Switzerland, due to its neutrality, which makes the country less likely to sell out legitimate users. There is one exception though: online office solutions like google docs might put sensitive material at risk, so there might be a drop in user numbers in that field. Something one does not have to fear when it comes to things like music online, for it is unlikely that the NSA cares if one likes Hans Zimmer or Two Steps from Hell better. So private customers will likely be more careful what data they store online and possibly look towards services in safer countries. 

German firms trust the US about as much as China, when it comes to industrial espionage and will therefore move away from US cloud services towards either internal solutions (presumably not the best option) or European (not Airstrip One) providers. It seems unlikely that private customers will also reduce the use of US cloud service to the same extend, since the data they store is typically not sensitive. Switzerland could profit strongly from their neutrality, which could in fact turn the small country into the next Silicon Valley, because any service they provide is from now on inherently better than anything any NATO country based firm has to offer (French and German governments are very much participating in the effort to dominate the Internet).

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