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How will US data companies suffer in the wake of the Snowden leaks?


By Ben Levine for Kapitall.

Just over a year ago, the Edward Snowden leaked classified NSA documents detailing the agency’s PRISM program, which tapped directly into data of several American companies.

In its data collecting, PRISM targeted Verizon ( VZ), Microsoft ( MSFT), Yahoo! ( YHOO), Google ( GOOGL), PalTalk, YouTube (owned by Google), AOL ( AOL), Skype (owned by EBAY), and Apple ( AAPL).

In the time since, American tech companies have had growing fears that their lack of data security would besmirch their image abroad. And, not surprisingly, it turns out they were right to feel this way. 

According to a recent report from the New America Foundation, there is indeed a growing perception abroad that US-based cloud storage is unsafe—such a prevalent perception, in fact, that the report predicts that PRISM will “cost the cloud computing industry from $22 to $180 billion over the next three years.” It details how, according to a survey in January, 25% of surveyed British and Canadian businesses were pulling their data out of the United States. Susceptible American storage services include Amazon Web Services ( AMZN), Dropbox and Microsoft’s Azure. Even more alarming, many such companies were eager to move their data elsewhere, even if it meant poorer performance.

The United States hosts the Goliaths of global cloud computing, and overseas companies that have been chomping at the bit to gain a chunk of cloud computing market share see this distrust as a marketing opportunity. Some of these foreign storage providers, like F-Secure—whose services are now being offered by companies like AT&T ( T) and British Telecommunications ( BT)—are touting the privacy of their storage. Companies like F-Secure have their data centers in the EU, where privacy laws aren’t as lax as in the US. 

To try to level the playing field, the European Commission is developing a public cloud infrastructure for public and private use for the region. What’s more, big Chinese companies like Chinanet ( CNET), Shanda ( GAME), Kingsoft (OTCMKTS: KSFTF), Alibaba (will have its US IPO in 2014) and Huawei are investing in locally based cloud technology as well.

According to the New America report, several US-based tech companies, including Qualcomm ( QCOM), IBM ( IBM), Hewlett-Packard ( HPQ) and Microsoft have reported a decline in sales in China in the time since the leaks. The German government is reportedly severing its contracts with Verizon because of their cooperation with the NSA, and in December Brazil gave a $4.5 billion contract to Saab (OTCMKTS:SAABF) over Boeing ( BA), with the NSA taking the blame. The issue reaches down to smaller businesses as well, like Servint, a webhosting company that “reported in June 2014 that international clients have declined by as much as half … since the leaks began.” 

In the US, the future data security looks somewhat promising in light of new senate legislation that would better regulate bulk data collection by the NSA, although many feel the reform bill is only a first step toward security. While proponents of the bill hope that it will help restore trust in the Internet in the US, it would likely take some time to restore international confidence in US-based services.

Will greater proportions of the data market pull out of the US and take their business overseas? How well will US companies withstand losses? Take a look at the tools below to begin your analysis, and let us know what you think in the comments.

Click on the interactive chart to view data over time. 


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