Blog : Leaks Cloud Cloud

by Ed Zwirn on October 25th, 2013

The continuing Edward Snowden leaks about U.S. National Security Agency activities may wind up clouding the outlook for some tech stocks.

Until now, U.S. companies have held an overwhelming lead in the provision of Cloud services, currently holding about 85% of the global market share. Not only has the Cloud brought a lot of money into the U.S. tech sector, it has also given many smaller innovative penny stock companies a leg up by sparing them the expense and trouble of maintaining their own computer systems.

While industry experts agree that the U.S. share of the Cloud was bound to shrink in any case as competitors from Europe and Asia sprang up, this shrinkage can only accelerate given the current level of concern overseas about U.S. government access to data. "National Cloud" projects, which effectively shut out U.S. providers, have already surfaced in the Netherlands, the U.K. and Australia, many of them touting themselves as "Patriot Act-proof."

The global market for cloud computing is expected to grow from $148 billion in 2014 to $207 billion in 2016. Most of this growth is expected to come from outside the U.S., where the market is expected to grow over 50%.

But, according to the Washington, D.C.-based Information Technology & Innovation Foundation, cloud computing service providers stand to miss out on at least $21.5 billion of this foreign revenue through 2016 as a result of the Snowden disclosures. The worst-case scenario, according to ITIF, would entail $35 billion of lost revenues through 2016, assuming the U.S. market share declines by 20%.

 "If U.S. firms are to maintain their lead in the market, they must be able to compete in the global market," the ITIF report states. "It is clear that if the U.S. government continues to impede U.S. cloud computing providers, other nations are more than willing to step in."

Most of the U.S. media coverage of the Snowden leaks has centered on the threats posed by surveillance activities to civil liberties guaranteed by the 4th amendment. But, as the U.S. courts have made clear, legal precedent does not extend these protections against unreasonable search and seizure to foreigners

And foreigners are becoming increasingly aware of their exposure to U.S. surveillance activities, causing many non-U.S. companies to either cancel a project with a U.S. company or to think twice about using a U.S. cloud provider. This trend will only attenuate itself over the next few months, as the Guardian continues to publish and as long as world leaders fail to iron out global data issues.