Bloomberg News

Tech Companies Reel as NSA's Spying Tarnishes Reputations

July 29, 2014

Tech Companies Reel as NSA's Spying Tarnishes Reputations

U.S. technology companies may lose as much as $35 billion in the next three years from foreign customers choosing not to buy their products over concern they cooperate with spy programs. Photographer: Allison Shelley/Getty Images

U.S. technology companies are in danger of losing more business to foreign competitors if the National Security Agency’s power to spy on customers isn’t curbed, researchers with the New America Foundation said in a report today.

The report, by the foundation’s Open Technology Institute, called for prohibiting the NSA from collecting data in bulk, while letting companies report more details about what information they give the government. Senate legislation introduced today would fulfill some recommendations by the institute, a Washington-based advocacy group that has been critical of NSA programs.

Citing concerns from top executives of Microsoft Corp. (MSFT:US), Cisco Systems Inc. (CSCO:US) and other companies, the report made a case that NSA spying could damage the $150 billion industry for cloud computing services. Those services are expanding rapidly as businesses move software and data to remote servers.

“The immediate pain point is lost sales and business challenges,” said Chris Hopfensperger, policy director for BSA/The Software Alliance, a Washington-based trade association that represents companies including Apple Inc. and Oracle Corp.

Microsoft is hearing from customers “that they care more than ever about where their content is stored and how it is used and secured,” said John Frank, deputy general counsel for the Redmond, Washington-based software maker.

The company hasn’t seen a significant business impact yet, Jack Evans, a Microsoft spokesman, said in an e-mail.

Thousand Cuts

Microsoft joined with Yahoo! Inc., Google Inc. and other companies in a coalition calling for broad restrictions on NSA spying.

The Senate bill “will help restore trust in the Internet by ending the government’s bulk Internet metadata collection and increasing transparency around U.S. surveillance practices,” the coalition said in a statement today.

ServInt Corp., a Reston, Virginia-based company that provides website hosting services, has seen a 30 percent decline in foreign customers since the NSA leaks began in June 2013, said Christian Dawson, its chief operating officer.

“It ends up being death by a thousand paper cuts,” Dawson said in a phone interview.

Confidence in technology companies began to be tested a year ago when former NSA contractor Edward Snowden leaked documents that revealed a program called Prism, under which the U.S. compels companies through court orders to turn over data about their users. The documents also uncovered NSA hacking of fiber optic cables abroad to steal data, and the physical interception of routers, servers and other network equipment to install surveillance tools before they were shipped to users.

$35 Billion

International cloud providers are using the NSA revelations as a marketing tool, said Dawson, who also serves as chairman of the Internet Infrastructure Coalition, which represents Dell Inc., Rackspace Hosting Inc. (RAX:US) and other companies.

ServInt clients told Dawson they no longer have the tolerance to allow their data to be hosted by a company based in the U.S.

Additional actions are needed to reduce the negative impact on American companies facing declining sales and lost business opportunities, such as legislation limiting spying on foreigners and developing policies about when it’s justified for the government to secretly install malware on computers, the Open Technology Institute said.

U.S. technology companies may lose as much as $35 billion in the next three years from foreign customers choosing not to buy their products over concern they cooperate with spy programs, according to an earlier study by the Washington-based Information Technology and Innovation Foundation.

China Sales

Cisco became one of the first companies to go public with concerns about NSA spying. The revelations affected sales in China and caused customers in other countries to hesitate when making decisions about buying products, John Chambers, chairman and chief executive officer for the San Jose, California-based company, said during an earnings conference call in November.

In a May 15 letter to President Barack Obama, Chambers said confidence in a free and open Internet “is eroded” by revelations of government surveillance and called for “a new set of rules of the road.”

A Cisco spokesman, John Earnhardt, declined to comment on whether the company has continued to see slow sales, saying its fiscal year fourth-quarter earnings will be reported Aug. 13.

The government of Germany also has announced that it plans to cancel a contract with Verizon Communications Inc. in response to the spying disclosures.

It’s not possible to put an exact dollar figure on the cost of lost business for U.S. companies as a result of the NSA revelations, Dawson and Hopfensperger said.

“If a customer goes directly to a non-U.S provider for something, you never know that you didn’t get the call,” Hopfensperger said.

To contact the reporter on this story: Chris Strohm in Washington at cstrohm1@bloomberg.net

To contact the editors responsible for this story: Romaine Bostick at rbostick@bloomberg.net Elizabeth Wasserman


Tim Cook's Reboot
LIMITED-TIME OFFER SUBSCRIBE NOW

Companies Mentioned

  • MSFT
    (Microsoft Corp)
    • $47.52 USD
    • 0.84
    • 1.77%
  • CSCO
    (Cisco Systems Inc)
    • $25.2 USD
    • -0.02
    • -0.08%
Market data is delayed at least 15 minutes.
 
blog comments powered by Disqus