NSA Surveillance Could Cost U.S. Cloud Providers Billions

| Thu Aug. 15, 2013 10:12 AM EDT

A couple of weeks ago I wrote that NSA surveillance probably wouldn't have a big effect on American communications and social media companies. Habits were too entrenched and global networks were too important. A tech-savvy friend emailed to agree with a caveat:

Except one. The public cloud is a big growth area in American business. It accounts for a lot of Amazon's meager profits, and Rackspace and Dimension Data and so many other Public Cloud infrastructure companies are growing fast because companies want to have access to on-demand compute infrastructure without capital investment.

Now it's a slightly more complex choice — private cloud still requires an investment in hardware and data center resources that the public cloud doesn't, but with the existence of platforms like VMWare and Openstack it's not as onerous as it once was....But while those investments will be a boon to some vendors, the overall increase in infrastructure costs is an unnecessary drag that represents a certain level of at least opportunity costs.

His suggestion is that a lot of companies will ditch public cloud providers like Amazon and start building their own private clouds, free of bulk NSA surveillance. That's one option. Another is to switch to non-U.S. providers. Derek Mead points us to a new study today that estimates U.S. cloud providers could see a 10-20 percent drop in business:

What is the basis for these assumptions? The data are still thin—clearly this is a developing story and perceptions will likely evolve—but in June and July of 2013, the Cloud Security Alliance surveyed its members, who are industry practitioners, companies, and other cloud computing stakeholders, about their reactions to the NSA leaks. 16 For non-U.S. residents, 10 percent of respondents indicated that they had cancelled a project with a U.S.-based cloud computing provider; 56 percent said that they would be less likely to use a U.S.- based cloud computing service. For U.S. residents, slightly more than a third (36 percent) indicated that the NSA leaks made it more difficult for them to do business outside of the United States.

This amounts to $20-30 billion. Not a gigantic amount, but still a headwind that U.S. companies could do without.