Edward Snowden’s unprecedented exposure of U.S. technology companies’ close collaboration with national intelligence agencies, widely expected to damage the industry’s financial performance abroad, may actually end up helping.
Despite emphatic predictions of waning business prospects, some of the big Internet companies that the former National Security Agency contractor showed to be closely involved in gathering data on people overseas – such as Google Inc. and Facebook Inc. – say privately that they have felt little if any impact on their businesses.
Insiders at companies that offer remote computing services known as cloud computing, including Amazon and Microsoft Corp, also say they are seeing no fallout.
Meanwhile, smaller U.S. companies offering encryption and related security services are seeing a jump in business overseas, along with an uptick in sales domestically as individuals and companies work harder to protect secrets.
“Our value proposition had been that it’s a wild world out there, while doing business internationally you need to protect yourself,” said Jon Callas, co-founder of phone and text encryption provider Silent Circle, where revenue quadrupled from May to June on a small base.
“Now the message people are getting from the newspapers every day is that it’s a wild world even domestically.”
Shortly after Snowden’s leaked documents detailed collaboration giving the NSA access to the accounts of tens of thousands of net companies’ users, the big Internet companies and their allies issued dire warnings, predicting that American businesses would lose tens of billions of dollars in revenue abroad as distrustful customers seek out local alternatives.
In a federal court filing last week, Google said that still-unfolding news coverage was causing “substantial harm to Google’s reputation and business”. The company said that could be mitigated if it were allowed to comment with precision about its intelligence dealings.
Likewise, last month, six technology trade groups wrote to the White House to urge reforms in the spy programs, citing what it called a “study” predicting a $35 billion cumulative shortfall by 2016 in the vital economic sector.
That number, it turns out, was extrapolated from a security trade group’s survey of 207 non-U.S. members – and the group, the Cloud Security Alliance, had explicitly cautioned that its members weren’t representative of the entire industry.
“I know you want sectors and numbers, but I don’t have it,” said Ed Black, president of the Computer & Communications Industry Association, one of the trade groups behind the letter. “Anybody who tells you they do is making it up.”
Forrester Research analyst James Staten wrote of the $35 billion figure: “We think this estimate is too low and could be as high as $180 billion, or a 25 percent hit to overall IT [information technology] service provider revenues.”
Staten’s comments generated dozens of media stories, some of which neglected to mention that Staten said the worst would come to pass only if businesses decided that spying was a bigger issue than the savings they gained from a shift to cloud computing.
In an interview with Reuters, Staten said he didn’t believe that would be the case. “I don’t think there’s going to be a significant pullback,” he said, though the rate of growth could slow for a couple of years.
Google employees told Reuters that the company has seen no significant impact on its business, and a person briefed on Microsoft’s business in Europe likewise said that company has had no issues. At Amazon, which was not named in Snowden’s documents but is seen as a likely victim because it is a top provider of cloud computing services, a spokeswoman said global demand “has never been greater.”
In the more than three months since Snowden’s revelations began, no publicly traded U.S. company has cited him in a securities filing, where they are required to report events that are material to their business.
One reason that the prophecies of business doom are getting such a wide airing is that both the U.S. industry and its overseas detractors have been saying the same thing – that customers will stop buying from U.S. cloud companies.
Politicians in Europe and Brazil have cited the Snowden documents in pushing for new privacy laws and standards for cloud contracts and in urging local companies to steer clear of U.S. vendors.