US Cloud Providers May Lose $35 Billion Due to PRISM

The American cloud business industry looms as news about the PRISM surveillance system becomes a threat to everyone. Expert analysts project that cloud companies may lose $21.5 billion to $35 billion worth of revenue as a result of the National Security Agency (NSA) disclosure about the electronic surveillance data mining program.

Revelations about the US widespread spying could bring yet another blow to the US economy as the fallout is expected to cost 20% of the cloud market in the next three years. In fact, UK and European businesses have already expressed their doubts about trusting its important and confidential data to American cloud providers. This was after reports came out about the US government’s access on user data via the participating Internet companies.

Simon Wardley, a British executive said, “Do I like Prism? Yes, and God bless America and the NSA for handing this golden opportunity to us. Do I think we should be prepared to go the whole hog, ban US services and create a €100bn investment fund for small tech startups in Europe to boost the market? Oh yes, without hesitation.”

Daniel Castro, author of the Information Technology & Innovation Foundation (ITIF) survey said that US cloud companies have a gloomy future ahead because of the revelation of the PRISM snooping activities. He said cloud companies can lose anywhere between 10 to 20 percent of the global market share to their non-US cloud competitors. Here is a summary of the ITIF key take-away report:

  • The global market for cloud spending will increase by 100% from 2012 until 2016, but the IT market share will only increase by 3% within the same period.
  • Outside North American countries recorded $5.6B or 41.5% of the $13.5B in IT and cloud investments in 2011.
  • Non-US markets will continue to grow and it is projected that the public cloud platform will be a $207B industry by 2016.
  • ITIF gave two possible forecasts for the US cloud market: first is a 10% reduction of market share from its Asian and European rivals, but no loss on domestic customer base; second scenario is a swift 20% reduction in the global market share, but a constant cloud market growth in its local and domestic cloud users.

The projections are already being felt by US cloud companies as the survey discovered that 10% of non-American cloud customers have already cancelled its current cloud service agreement. 56% of the participants also said that it is unlikely for them to seek cloud services from a US-based cloud computing company.

“People in the UK have been reticent for a while about putting data into the US because of the Patriot Act, which means the government there can pretty much get access to everything. Prism has put into peoples’ minds that there might be co-operation in the UK with that. People talk to us and want their own private cloud service; because they know we don’t have that sort of relationship with the government. They want all the services to be based in the UK, rather than using Google or Amazon Web Services,” said Chairman Scott Fletcher of the UK-based ANS Group.

Forrester Research Analyst, Frank Gillett, however, has a different projection. He says that he expects the controversy to have an impact on US cloud companies, but reality shows that only a small percentage has actually cancelled its cloud services.

“I’d be surprised at anything of that magnitude. Those who were already concerned about the U.S. Patriot Act and other types of legal authorities have already avoided the United States, anyway. For them, it wasn’t a big surprise,” Gillett said.

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