Cloud

Forrester: PRISM’s cost to the world cloud industry could be as high as $180B

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Earlier this month, the Information Technology & Innovation Foundation (ITIF) projected that U.S. cloud companies could lose up to $35 billion by 2016 because of invasive NSA spying programs like PRISM. Natually, that estimate caused a lot of hubbub.

But the ITIF’s projections only cover the U.S. What about the impact on the worldwide cloud services industry? Forrester analyst James Staten writes in a blog post today that he thinks the true impact of PRISM and other surveillance programs could be as high as $180 billion. That would be a 25 percent hit on all U.S.-based IT service provider revenues through 2016.


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Staten writes that the ITIF figure, which assumes U.S.-based cloud computing providers would lose 20 percent of revenue from jittery foreign markets, needs to be widened to account for two more factors that would impact the worldwide cloud services industry:

1. U.S. customers would also bypass U.S. cloud providers for their international and overseas business, costing these cloud providers up to 20 percent of this business as well.

2. Non-U.S. cloud providers will lose as much as 20 percent of their available overseas and domestic opportunities due to other governments taking similar, PRISM-like actions.

On the first point, Staten thinks some U.S. companies might be willing to shop around and look at foreign cloud firms when it comes to their international and overseas business.

“While this loss of revenue would be significantly smaller than direct foreign investment, the total could still add another $10 billion to the overall losses for this market,” he writes. “Not to mention the added expense to U.S. companies who would have to work with multiple service providers around the world with different procedures, regulations, and security standards. What fun.”

Point two is where things widen in scope and end up costing businesses around the world a lot more. Because there are programs similar to PRISM in other countries, companies around the world will be more skeptical than ever about the privacy of their information.

Staten writes:

While the U.S. may be a place for caution, there are many other countries who should be looked at far more fearfully. Short term, a greater understanding of this surveillance picture could have a chilling effect on all hosting and outsourcing services (not just cloud computing) in many countries. If it is to be believed, as ITIF estimates, that half the cloud market will be fulfilled by non-U.S. providers, then assuming this factor has just as much impact as the PRISM leak will have on US providers, then non-US cloud providers would take a hit of another $35 billion by 2016. Add in the rest of the hosting and outsourcing market, which, according to Forrester estimates is three times the size of the cloud market in this timeframe, and you now have a net $100 billion loss for non-U.S. based service providers.

Add up both points and you end up with a net loss of up to $180 billion by 2016.

Now, it’s important to be a little skeptical of both ITIF and Forrester’s estimates. As we’ve written before, U.S. cloud businesses may not take as bad of a hit as the ITIF estimates because of concerns worldwide about government tracking. (With the U.S.-focused estimates off in the equation, Forrester’s estimates go down too.)

“I think many foreign Internet users trust the U.S. government more than their own,” Brian Jacobs, partner at Emergence Capital Partners, told VentureBeat recently via email. “While we are not universally liked around the world, most people understand that we have a high degree of transparency and due process compared to other governments, and we try not to arrest innocent people due to their beliefs, sexual preference, religion, etc. It would not surprise me if many foreign Internet users suspect their governments are snooping on their Internet traffic, whether they use U.S. services or local ones.”

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