In the wake of the revelations of mass surveillance programs initiated by the U.S. government and uncovered by Edward Snowden in 2013, the economy has largely taken a wait-and-see approach to how the controversy over data protection would impact the market. The rise in Data-as-a-Service and industry experts’ anticipation in the rise of Big Data within corporate America appears to have put any fear to rest that mass data collection for the purpose of business analytics may not gain traction thanks to individuals’ data protection fears.
But last month, one of the nation’s largest cloud computing services companies, Rackspace, quietly hinted that data protection and regulation may negatively impacted its earnings.
“For data sovereignty reasons, one of our largest and longest-tenured customers was forced to move the production element of a large environment from our data center in the U.K. to a location in Africa, where Rackspace does not have a data center,” said Rackspace CEO Taylor Rhodes during the earnings call held May 11.
According to reports from Diginomica, released last week (June 16), the comment may have been made without much response, but it potentially hints at a larger impact of data privacy on the SaaS industry than initially thought.
While B2B SaaS players have denied any claims that the NSA spying program revelations would impact profits, industry think-tank Information Technology and Innovation Foundation increased its estimation of the financial impact on businesses that lose out to overseas competitors, which do not have to conform to U.S. data collection efforts. Two years ago, the ITIF estimated up to $35 billion in expenses from cloud computing companies thanks to NSA surveillance; the agency did not specify the revised estimation.
But in an ITIF report, authors Daniel Castro and Alan McQuinn did state that “it has become clear that the U.S. tech industry as a whole, not just the cloud computing sector, has underperformed as a result of the Snowden revelations. Therefore, the economic impact of U.S. surveillance practices will likely far exceed ITIF’s initial $35 billion estimate.”
While ITIF researchers did not say exactly how U.S. businesses have “underperformed,” the report suggests that foreign companies have taken advantage of controversial surveillance programs in the U.S. and taken to convincing U.S. business clients that they can do a more adequate job of protecting their data.
The sentiment of the ITIF’s report is a stark contrast to that of a separate study, also released just days ago.
The Electronic Frontier Foundation —which released a report titled “Who Has Your Back?” on the matter — found that, in actuality, U.S. technology firms are becoming more sophisticated at shielding business and customer data from government spying programs.
The Electronic Frontier Foundation only looked at two-dozen Internet service providers and technology companies in the nation, but researchers found that 21 of the 24 businesses surveyed have opposed government requests that they build so-called “backdoors” into their software services that would allow the government to access the data on their platforms.
Among some of the best-performing companies surveyed by the group were B2B software providers, including Dropbox and Adobe. Researchers graded the businesses based on an array of factors about how they treat customer data, including whether the company tells its customers about government demands and whether it discloses its policies on data retention.
Collectively, the EFF concluded that U.S. businesses are doing pretty well when it comes to protecting customer data. “We are pleased to see major tech companies competing on privacy and user rights,” the researchers wrote. “While we’re only able to judge a small selection of the tech industry, we believe this is emblematic of a broader shift.”
But the EFF survey focuses on major B2C technology conglomerates, and does not assess the financial impact of the businesses’ adopted data protection practices. According to ITIF, the companies that have suffered most from government data surveillance programs are the less obvious B2B SaaS firms, including Oracle, IBM and EMC, because the government has failed to address their lost business and government contracts to foreign competitors.
ITIF reported that IBM, Microsoft and Hewlett-Packard have all faced declining sales in China, for example, as a result of the Snowden revelations. Cisco CEO John Chambers noted in an earlier earnings call that the NSA is to blame, at least partially, for declining sales in China.
The two reports reveal just how cloudy the conclusions drawn have become. In the wake of the Edward Snowden revelations, researchers find that companies have lost significant business – likely billions of dollars worth – thanks to data privacy fears. But they also find that technology and software firms have responded adequately to the government surveillance controversy by protecting user data. Whether corporations’ ability to push back against government data surveillance and collection will sufficiently protect them from losing their business to overseas competitors is a conclusion that has yet to be made.
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