When news broke that the U.S. government had granted itself the right to spy on Americans’ emails and phone calls, it triggered a predictable public firestorm.
But did you know that the revelations could also cost the United States up to $35 billion?
Dig a little deeper and you’ll see that the Foreign Intelligence Surveillance Act (FISA) allowed Washington to go further than just violating people’s privacy. It also has serious ramifications for Corporate America.
Here’s what I’m talking about…
Trouble in the Cloud
It’s been two months since Edward Snowden ratted out the U.S. government. But some say that the mass surveillance program dates back to 2008.
And it turns out that the government wasn’t just rummaging around in Americans’ personal business. It was also snooping in other countries’ private data. That jeopardizes the integrity of U.S.-based companies that specialize in storing data in “the cloud.”
And with foreigners now more wary of U.S. intelligence-gathering practices, it could cost these cloud storage providers billions in lost customer revenue from abroad.
The dollar figure attached to the consequences is still very new — and raw.
But a report from the Information Technology & Innovation Foundation (ITIF) estimated that if U.S. cloud providers were to lose 10-20% of foreign business, it would cost them anywhere from $21.5-35 billion over the next three years.
So what are the odds of this actually happening?
As it happens, pretty good…
Foreigners Are Shunning America
The ITIF conducted a survey shortly after Snowden made his knowledge public, which revealed that “10% of foreign companies using cloud-computing services said they’d already canceled a project with a U.S. cloud provider, and 56% said they’d be less likely to use U.S.-based providers.”
That spells “Trouble”… with a capital “T.” Why?
Because during its earnings call last month, IBM revealed that its cloud revenue soared by 70% over the first half of the year. And it’s just as well that the area performed so well, since the company’s total revenue fell by 3.3%.
And you’ve got to wonder where it puts IBM’s pending multimillion-dollar agreement with Capital online Data Service Co. Ltd. — one of China’s leading Internet data center companies — to build and manage its public cloud service.
Oracle is in the same boat as IBM. While its cloud revenue jumped by 50% for the quarter ending May 31, overall revenue dropped 1%.
With these revenue-challenged companies depending on their cloud businesses, the results of the ITIF survey don’t bode well.
But they’re certainly not the only ones facing the fallout…
America’s Loss Is the World’s Gain
According to The Guardian, some of America’s largest Internet companies are involved in the U.S. government’s mass data collection program: Microsoft, Yahoo, Google, Facebook, Apple, YouTube (owned by Google) and AOL. They all stand to lose credibility, customers and revenue.
But their losses present a big opportunity for European and Asian companies to pick up the slack from the growing global cloud market.
A market that’s forecast to be worth $148.8 billion in 2014… $160 billion in 2015… and $207 billion in 2016.
In fact, Artmotion, Switzerland’s largest offshore hosting company, has already scooped up a big portion of the leftovers. Since the Snowden leaks, its revenue has bounced 45% higher. The description on its website: “State-of-the-art data centre situated within the safe confines of Switzerland, the country for confidentiality and rock-steady reliability.”
And who doesn’t want some confidentiality right now?!
Nobody knows exactly what the fallout will be for U.S. cloud companies just yet. As ITIF analyst Daniel Castro states, “Due to the clandestine nature [of the cloud industry] — Amazon, for example, submerges AWS revenue in a nebulous ‘other’ category, and Microsoft has buried Azure so deep in its balance sheet it’s impossible to get a rough estimate on its cloud revenue — making these predictions is difficult.”
But suffice it to say these companies are facing government-induced head winds, with a suspicious public reluctant to trust American companies with their personal data.
On a positive note, if untrusting users of public clouds seek the safer haven of private or foreign clouds, it could open up new possibilities for investors. I’ll keep you updated on any compelling opportunities that I dig up.
Ahead of the tape,
Louis Basenesefor Tomorrow in Review
Louis tells you about what you can expect from the new JOBS Act, and how it will affect the crowd-funding of tech startups.
A former Wall Street consultant and analyst, Louis helped direct over $1 billion in institutional capital before founding WSD Insider and Wall Street Daily where he serves as Chief Investment Strategist. In addition to being an expert on small-cap stocks, Louis is also well versed in special situations including mergers and acquisitions and spinoffs. His commentary has been featured in several media outlets, including MarketWatch. And he’s also a top-rated speaker at financial conferences throughout the country. A New Jersey native, Louis earned his MBA with honors from the Crummer Graduate School of Business at Rollins College. He draws upon both his academic and professional experiences to edit his short-term trading service: MicroCap Tech Trader.
Actually, an awful lot of damage was done back when the MPAA/RIAA puppet aka the “justice” department went after MegaUpload. The fact that the Feds arbitrarily shut down *everything*, including users’ access to their own property and data pretty much put the kibosh on trusting anything to the cloud. One guy who put his business data and property in (all legitimate, all his) is STILL fighting to get it back.
After the Snowden Revelations, the only real advice you can give in regard to “cloud computing” is: Trust NOTHING to “the cloud,” and that means anybody’s cloud.
State governments can be remarkably efficient when it comes to finding creative ways to pick up extra cash. One certainty is that there are a number of taxes in America that tend to be on the weirder side. From bagels... to candy... to crack. What better way to celebrate tax season than by looking at some of America's slightly bizarre taxes?
A lot has been made of high-frequency trading lately - particularly how it's a shining example of Wall Street greed. But is it really all that bad? And if so, how can you insulate yourself from it? Chris Mayer reports from the Value Investing Congress, in Las Vegas, offering one sure-fire way to avoid the negative effects of these HFTs...
Politicians proclaim the benefits of small business while on the campaign trail. But when they meet in the seedy halls of Congress, they have no problem doing whatever they can to stifle, regulate, and subdue their progress. Today, Wendy McElroy explains why it's so important for the government to release its choke hold on home industries...
The economy added 192,000 jobs in March on top of the 197,000 jobs gained in February. So far, so good. Even better is the fact that non-farm private staffing hit 116.087 million - a surge past the previous peak seen in January 2008. The slow, steady economic recovery is finally coming together, Right? Greg Guenthner explains...
Just because you're retired doesn't mean you have to stop working. Especially now that you have all the time in the world to do what you really want. If you're retired and want to stay active while you relax, then find out the steps you need to take in order to start your next small business...
It's tax season. And while the IRS may be be the most apparent threat to your income, it is by no means the only threat. Today, Sandy Botkin reveals the seven most dangerous tax scams that you need to be aware of before filing your taxes, and what to do to avoid the worst of them. Read on...