Warning: EU’s PRISM exploitation will cost US $35bn

imagesLast month we wrote about the prospect of forthcoming ‘cloud war’ between Europe and the US as a result of the National Security Agency’s (NSA) Obama-endorsed PRISM data collection programme.

At the time – and in a previous item – we noted that such actions were playing into the hands of those in the European Union who are pressing for what we – and others – regard as a fundamentally flawed and ill-advised attempt to force through a pan-European cloud computing strategy from Brussels.

Neelie Kroes, Commissioner in charge of the Digital Agenda, said last month:

“If European cloud customers cannot trust the United States government, then maybe they won’t trust US cloud providers either. If I were an American cloud provider, I would be quite frustrated with my government right now.”

The problem is that while the sabre-rattlers within the European Commission are working up a good rhythm, across the Pond there are those who see the outrage about PRISM overseas, and the prospect of tougher data protection rules as a result, as just another ‘attack’ on US commercial interests by uppity foreigners.

But there are more signs that some elements of US business are waking up to the knock-on impact of PRISM – even if their suggested course of action as a result isn’t necessarily on track.

A survey conducted in June and July by the Cloud Security Alliance found that 10% of foreign cloud industry participants had cancelled a project with a US cloud computing provider, and 56% said they would be less likely to use a US company.

The latest warning comes from the Information Technology and Innovation Foundation (ITIF) in a report entitled  How Much Will PRISM Cost the U.S. Cloud Computing Industry?  which predicts that the program could cost US cloud firms up to $35 billion over the next three years.

The report argues:

Global spending on cloud computing is expected to grow by as much as 100 percent between 2012 and 2016, whereas the global IT market will only grow by 3 percent.

If U.S. companies lose market share in the short term, this will have long-term implications on their competitive advantage in this new industry.

Beastly foreigners

Belgium EU Germany WestLB Aid

Neelie Kroes

ITIF bases its conclusions on the assumption that the US is the clear leader in cloud computing and that other countries are playing catch-up. PRISM gives those countries an opening to gain a foothold in the market, warns ITIF.

The report warns:

Europeans in particular are trying to edge out their American competitors, and they are enlisting their governments to help.

The Europeans are quite frank about their intentions. The EC notes ‘this strategy is about building a new industry, and better competing against the United States in particular.

As you can see, the ITIF report does stray pretty rapidly and consistently  into the ‘beastly foreigners out to get us’ territory:

Rival countries have noted this opportunity and will try to exploit it.

One tactic they used before the PRISM disclosures was to stoke fear and uncertainty about the USA PATRIOT Act to argue that European businesses should store data locally to protect domestic data from the US government.

After PRISM, the case for national clouds or other protectionist measures is even easier to make.

This last point may well be true – indeed it’s what we warned last month – but it does come dangerously close to just stoking up the ‘them vs US’ paranoia given the provenance of this report which is pitched at a domestic US audience.

According to Daniel Castro, a senior analyst at ITIF:

“Many foreign customers are now deciding whether the risks of storing data with a US company are worth the benefits, and foreign cloud service providers will ruthlessly exploit this perceived weakness to gain market share.

“In addition, some countries may use PRISM as an excuse to enact a series of protectionist policies to restrict access to their markets and promote their domestic cloud providers.”

Not a solution 

Ultimately – and somewhat depressingly –  ITIF assumes that PRISM isn’t going to go away – which unfortunately does seem a fair enough assumption for now given that the Obama administration is right behind it.

Accepting that PRISM is now the norm, ITIF decides the main concern is how much is this going to cost US business.

Castro concludes:

“In addition to the privacy and civil liberties debates going on, we need to have a serious conversation about the potential economic costs of electronic government surveillance.

“The economic consequences of national security decisions should be part of the debate, and this cannot happen until more details about PRISM have been revealed.”

With that in mind, ITIF makes two primary recommendations for the US cloud computing industry and government:

  • De-classify information about the Prism program so that companies are clear about what information the government is trying to access.
  • The creation of international transparency guidelines so that it is clear what exactly US-based and non-US-based companies are releasing to domestic and foreign governments.

It’s not immediately apparent how this is supposed to counter the political opportunism of the likes of Kroes whose case is built on anger about ANY data collection taking place.

The very existence of PRISM at all is all that’s needed to allow committed protectionists to make their argument ring loud and clear, particularly in Germany where US snooping has become an issue in next month’s elections.

Verdict

Another timely warning about the cost of PRISM to the US cloud industry and a reminder of how it’s playing into the hands of those who may not have the best interests of the global market at heart.

But fatally undermined by excessive attribution of implied dubious intentions by all Europeans, as opposed to a politically motivated minority, and by its acceptance that PRISM is here to stay and all  we need to stop worrying about it is a bit more information.

Nonsense. Naive nonsense.

Stuart Lauchlan

Stuart Lauchlan

Stuart Lauchlan has been tracking and commenting on the enterprise IT market for 23 years during which time he's managed to amuse, inform and irritate buy and sell side participants in equal and appropriate measure. Lauchlan also helps companies understand the needs of technology readers.
Stuart Lauchlan

@whostu

Tech journalism - the accident from which I've never recovered
  • hoellwarth says:

    Hallo Stuart
    and Dennis
    I have read your ETHICS a long time ago and I liked it
    a lot.
    And I explicitly agree to your first sentence Stuart:
    Especially when it comes to IT and to Cloud we do differ a lot. And when I mean
    we, I mean the central European perspective (and also South American) and the Anglo
    American perspective. It is about two major things: 1) There is a fundamental
    difference in our believes in the question of how much influence should a government
    have. What kind of regulative actions do we want, expect or hate from them. And
    2.) How far should we accept the flow of the “self-regulative” forces
    of a capitalistic market?
    My personal opinion is, that we are watching the 4th
    industrial Revolution and the one and only relevant question for Europe (most
    politicians did not understand anything of that yet) is, whether Europe will
    survive this or not. We will not be able to survive because of your cheap
    labour force, great intellectual advantages or natural resources (tourism might
    be left as a relevant source of income). And with up to 40% unemployment of young
    people in some European countries there is absolutely no time at all to loose
    and absolutely no room for any mistake.
    I don’t think that Kroes and Redding do only have
    personal interest. Whenever I read some of their statements or hear them speaking
    I got the impression that these two very powerful and intelligent women did
    understand how relevant it is for our continent not to lose this game and let
    US (and maybe later also Asia) take over this source of income and wealth.
    And very honestly: I respect all government activities
    to protect their countries and citizens by using organisations like NSA BUT don’t
    trust the American government at all. And I dont have any trust in their
    capabilities especially when using privat organisations like Booz for their
    jobs. I saw a nice image recently: http://9gag.com/gag/anYKoeV
    Tobias
    P.S.: Sorry, I know my English is awful, it has stopped
    me from replying to your “I hate Nellie & Vivian” postings so far,
    but this time I had to reply :)

    • dahowlett says:

      hoellwarth Tobias – your command of English doesn’t worry. I totally get where you’re coming from. 
      FWIW…and you already know this, some of the stuff we believe is best in class DOES come from this side of the Atlantic: Skype and SAP being two examples that trip off the top…all is far from lost IMO. 
      FWIW2 – When I think of the US as ‘land of the free’ I also think ‘…yes, provided you stick to the 2,000 rules we’ve put in place to ensure your safety.’ ;) Check the crossings at any roadside. 
      There is one area that remains unexplored. We know there are trillions of €/$/£ etc tied up in supply chains. Having coordinated and internationally agreed ways of going forward would have significant benefit in those scenarios. Agree?

  • Diginomica Stuart says:

    ho Tobias – I guess – as ever when it comes to politics – we’ll end up having to agree to differ. 
    But to put my ‘plonk’  in context, my objections to what Kroes and Redding are saying is that they seem to me to have a barely hidden agenda of supporting their own policy proposals. The same is true of Angela Merkel and a number  of other German politicians at present with elections looming. It’s exploiting one issue (PRISM) and using it to push another issue forward. Perfectly normal political activity, but one that should be called out. 
    The prospect of a pan-European cloud strategy out of Brussels that may put even greater data protection barriers in place and which favours the ‘oligopoly’ of large suppliers, is not something I welcome. I’m in good company on that front – the UK government has made its own objections and fears known. I don’t want to see all the good work done by national cloud strategies – so patronisingly dismissed by Kroes as only good enough up to a point – overturned by a red tape monster from Brussels. 
    Your comment about us being ‘paid for mainly by American companies’ – well, it’s true that some of our premium partners are American, but that has no bearing whatsoever on our editorial content or positioning – zero.  There is absolutely no paid-for influence over content on diginomica – and never will be.

  • hoellwarth says:

    Thank God there is at least some EU politicians representing European interests. U.S. would remain within the usual framework of the law, the cloud industry in the U.S. would have no additional costs. It is clear that your media is paid for mainly by American companies, but do not forget you are sitting in Europe and therefore a balanced view should occupy in political commentary. The plonk on Kroes and Redding is somewhat strange Stuart and makes a grim impression. I dont like it too much. Tobias

    • dahowlett says:

      hoellwarth One of the great things about the way we’ve assembled this team is that we all come with different perspectives. I may be based in EU for example but my day is driven by what happens in the Bay Area and Boston where I spend almost half my life it seems. 
      It doesn’t go un-noticed that at least some of the large vendors are establishing data centers outside their shores. In essence, they’re anticipating the inevitable in that non-US governments will seek to protect their sovereign status from ANY foreign power. 
      To your point about our media – I can say categorically that all our partners know that we retain our right to offer independent comment. That is what our collective reputations are based upon and the basis for diginomica’s success. If we lose that then we have nothing.

  • benkepes says:

    Nope – because it won’t be long before people realize that EVERYTHING can be sifted by a great number of Governments around the world and that any resistance by way of provider location or encryption, is largely futile…
    More here – http://diversity.net.nz/blockprism-yeah-good-luck-with-that/2013/08/06/