NSA Spying Has Tech Companies Worried About Their Most Precious Thing

The Real Reason Companies Are Mad At The NSA

Big technology companies are seeing signs that the public's worries about government spying are a threat to their future profits, analysts say.

These concerns haven't started to hit their bottom lines quite yet. But critical international growth, particularly for businesses selling cloud-based products, has become more challenging after the disclosures this summer about the National Security Agency's methods, which reportedly include obtaining data from big tech companies.

Apple, Facebook, LinkedIn, Google, Microsoft, Twitter and Yahoo! joined together on Monday to ask the U.S. government to "take the lead" in changing how government surveillance is done around the world. AOL, which owns The Huffington Post, also signed the letter.

"We understand that governments have a duty to protect their citizens," the eight companies wrote. "But this summer’s revelations highlighted the urgent need to reform government surveillance practices worldwide."

Documents from Edward Snowden, a former NSA contractor, appeared to show that the agency has direct access to major tech companies' servers, although the companies said they had never knowingly provided the government with such a backdoor.

With the exception of Twitter, which only went public last month, all the companies that signed the letter have increased in stock market value since Snowden's leaked documents were first reported by The Washington Post and The Guardian in June.

But that doesn't mean the revelations of NSA snooping, which have continued to trickle out, aren't a potential threat to their future growth.

"They're very worried about their new businesses that are in the cloud," said Norman Young, an analyst at Morningstar who covers Microsoft, one of the companies that signed the letter. "It hasn't hit the bottom line yet, but you are starting to see some questions from customers about how secure their data is on the cloud."

Microsoft's Cloud Services, which include Windows Azure, grew 103 percent, or $261 million, last quarter.

Young said that since the surveillance disclosures, selling cloud-based products, which store data on a network of computers that can be accessed from virtually anywhere, has become more difficult, particularly outside the U.S.

"If you're a company overseas, you're wondering (1) is the NSA snooping? or (2) is there some back door built into the technology that may allow someone else to snoop? That's the biggest issues people have with cloud-based services," Young said.

The eight companies that signed the letter Monday are not the only ones that may feel the repercussions of Snowden's disclosures. Andrew Bartels, an analyst at the technology research firm Forrester, told the story of a major German insurance company that had planned to use Salesforce, a cloud computing firm, to manage its customer database. But the insurer put those plans on hold after the NSA revelations emerged over the summer.

"The issue is not that they'll lose 10 percent of their revenues," Bartels said of the tech companies. "They're concerned with future growth."

Bartels added, "If their customers don't feel that the data will be secure, then they won't be able to sustain the type of growth that they've had."

Salesforce said it does not comment "on rumors or speculation." The eight companies that signed the letter likewise would not comment on how the NSA disclosures may have affected their businesses.

Forrester released a study in August that said the cloud computing industry in the U.S. could lose as much as $180 billion in the next two years "thanks to the National Security Agency (NSA) PRISM project."

Bottom line concerns are not limited to companies that sell cloud-based products. Social networks like Facebook and Twitter will have a harder time attracting new members overseas if people are worried about who has access to their data, said Daniel Castro, a senior analyst with the Information Technology and Innovation Foundation, a nonpartisan think tank.

"People aren't going to stop using the search engine because of NSA surveillance. They're not going to stop using Facebook," Castro said. "But if there's an alternative out there for foreign customers, then they might consider that alternative."

VK, a Russian social network, is larger than Facebook in Russia.

"Part of [U.S. tech giants'] value proposition in large emerging markets is that we will take better care of your personal information than the local cloud vendors will," Forrester's Bartels said. "That argument now loses some force if local people say, 'OK, that's no longer the case.'"

"The NSA can be looking at all of my contacts on Facebook," said Bartels. "Why is that any better than the Russian security [agency] looking at all my contacts on Facebook? It's no different."

Popular in the Community