American technology companies are losing billions of dollars in business overseas due to Edward Snowden's revelations about the National Security Agency's (NSA) sweeping surveillance programs.
Two years ago, the industry-funded think tank Information Technology and Innovation Foundation (ITIF) estimated that the NSA surveillance would cost cloud computing companies such as Microsoft, Amazon and IBM somewhere around $21.5 billion to $35 billion in lost revenue due to the Snowden revelations.
However, privacy and security concerns continue to grow well into 2015, and ITIF says the figure could be far more than its early estimate of $35 billion.
"Since then, it has become clear that the U.S. tech industry as a whole, not just the cloud computing sector, has under-performed as a result of the Snowden revelations," say [pdf] Daniel Castro and Alan McQuinn, authors of a new ITIF report. "Therefore, the economic impact of U.S. surveillance practices will likely far exceed ITIF's initial $35 billion estimate."
ITIF cites a string of financial reports by technology companies and cloud providers showing disappointing earnings and lower-than-expected sales figures, with only Apple making considerable headway overseas with its growing iPhone market in China.
The foundation says the dismal figures are partly a result of customers who are increasingly turning to local providers over fears that the NSA will claw its way into their private information via U.S. firms.
Foreign governments, which were expending significant amounts of money to invest in IT, are turning away and encouraging their citizens to patronize local providers. Russia, for instance, has passed a new law requiring all tech firms operating within its borders to store information about their customers in servers located within the Russian territory, a requirement that forces companies to spend more as they decentralize operations and build new data centers.
France and Germany also have a similar law, forcing Amazon to build new facilities in Frankfurt and Microsoft in Vienna, while China, India and Australia have their own data localization laws. China, in particular, has extreme conditions for U.S. tech companies by requiring them to provide access to valuable intellectual property, such as source code.
To make matters worse, U.S. lawmakers are not helping as they fail to create new laws that scale back government surveillance, which "sacrifices robust competitiveness of the U.S. tech sector for vague and unconvincing promises of improved national security," says ITIF.
President Barack Obama recently signed into law a bill ending the NSA's bulk collection of telephone metadata, but ITIF says the agency has several other surveillance programs in place that need to be reformed. PRISM, for instance, allows the NSA to obtain private data about a customer in the U.S. or abroad without the need for a warrant, while Bullrun aims to undermine encryption standards.
"In the short term, U.S. companies lose out on contracts, and over the long term, other countries create protectionist policies that lock U.S. businesses out of foreign markets," says ITIF. "This not only hurts U.S. technology companies but costs American jobs and weakens the U.S. trade balance."
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