Feds Shut Down Megaupload: Warning Sign for the Cloud Storage Model?

Before you go, we thought you'd like these...
Before you go close icon

Up next in the category of "questionable government intervention" is the government's takedown of the online storage and file-sharing site Megaupload.

The site was shut down, and domain names were seized on January 19th by the U.S. Justice Department on the grounds of copyright infringement. To fully understand the shock it created in the online world, note that it had 180 million registered users and an average of 50 million daily visits. It accounted for 4% of all global Internet traffic (via PC World).

Government access to cloud computing files
Many note that the timing coincided too conveniently with SOPA online protests. And although SOPA has not passed, the death of Megaupload, which is seen as a kind of victim to the government's fight against piracy, brings some interesting, if not disturbing, aspects of cloud computing to life.

Consider the words of Barret Brown, spokesperson for hactivist group Anonymous: "Even without SOPA having been passed yet, the federal government always had tremendous power to do some of the things that they want to do."

Indeed, the government has the power to seize personal files hosted from remote servers operated by a third party, explains PC world. These files "can easily be caught up in a government raid targeted at digital pirates."

Privacy concerns
So if data stored in cloud storage facilities are only "safe" until the government decides to exercise its authority, it's not very protected at all. And who wants that?

The concerns on that front aren't limited to the regular Americans guilty of downloading and storing pirated material. "Worries have been steadily growing among European IT leaders that the USA Patriot Act would give the U.S. government unfettered access to their data if stored on the cloud servers of American providers -- so much so that Obama administration officials this week held a press conference to quell international concern over the protection of data stored on U.S. soil."

Even a "Microsoft UK managing director admitted that he could not guarantee that data stored on the company's servers, even those outside the U.S., would not be seized by the U.S. government."

Business section: Investing ideas
Alex Lakatos, cross-border litigation expert, tells CIO the best way to escape "the grasp of the Patriot Act" is to get out of U.S. jurisdiction by making sure neither you or your cloud services are based in the U.S. Much easier said than done.

"For the cloud service providers, their life may be easier if they give the government whatever it's asking for," Lakatos says.

If that's the case, what do you expect for the future prospects of cloud-based companies? To help you follow the trend, here are a list of companies involved. (Click here to access free, interactive tools to analyze these ideas.)

1. Salesforce.com (NYS: CRM) : Provides customer and collaboration relationship management (CRM) services to various businesses and industries worldwide. Market cap of $15.53B. Relatively low correlation to the market (beta = -0.13), which may be appealing to risk averse investors. The stock has had a couple of great days, gaining 8.05% over the last week.

2. EMC: Develops, delivers, and supports the information and virtual infrastructure technologies and solutions. Market cap of $47.43B. Relatively low correlation to the market (beta = -0.02), which may be appealing to risk averse investors. The stock has lost 1.98% over the last year.

3. International Business Machines: Provides information technology (IT) products and services worldwide. Market cap of $222.19B. Relatively low correlation to the market (beta = 0.23), which may be appealing to risk averse investors. The stock has gained 6.7% over the last year.

4. Intel (NAS: INTC) : Engages in the design, manufacture, and sale of integrated circuits for computing and communications industries worldwide. Market cap of $134.33B. Relatively low correlation to the market (beta = 0.3), which may be appealing to risk averse investors. Offers a good dividend, and appears to have good liquidity to back it up -- dividend yield at 3.18%, current ratio at 2.15, and quick ratio at 1.81. The stock has had a good month, gaining 14.2%.

5. Microsoft (NAS: MSFT) : Develops, licenses, and supports a range of software products and services for various computing devices worldwide. Market cap of $249.29B. Relatively low correlation to the market (beta = 0.08), which may be appealing to risk averse investors. The stock has had a couple of great days, gaining 6.11% over the last week.

6. Oracle (NAS: ORCL) : Develops, manufactures, markets, distributes, and services database and middleware software, applications software, and hardware systems worldwide. Market cap of $144.29B. Relatively low correlation to the market (beta = -0.1), which may be appealing to risk averse investors. The stock has had a couple of great days, gaining 5.67% over the last week.

7. Rightnow Technologies: Provides cloud-based customer experience software products and services. Market cap of $1.41B. Relatively low correlation to the market (beta = 0.64), which may be appealing to risk averse investors. The stock has gained 19.88% over the last year.

8. Seagate Technology (NYS: STX) : Designs, manufactures, markets, and sells hard disk drives for the enterprise, client compute, and client non-compute market applications in the United States and internationally. Market cap of $8.41B. Relatively low correlation to the market (beta = 0.56), which may be appealing to risk averse investors. Offers a good dividend, and appears to have good liquidity to back it up -- dividend yield at 3.6%, current ratio at 1.97, and quick ratio at 1.7. Exhibiting strong upside momentum -- currently trading 221.% above its SMA20, 10.98% above its SMA50, and 16.21% above its SMA200. The stock has had a good month, gaining 32.85%.

9. VMware: Provides virtualization and virtualization-based cloud infrastructure solutions primarily in the United States. Market cap of $37.20B. Relatively low correlation to the market (beta = -0.01), which may be appealing to risk averse investors. The stock has lost 6.06% over the last year.

10. Western Digital: Engages in the design, development, manufacture, and sale of hard drives worldwide. Market cap of $8.10B. Relatively low correlation to the market (beta = 0.09), which may be appealing to risk averse investors. The stock has had a good month, gaining 13.09%.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.


List compiled by Eben Esterhuizen, CFA. Kapitall's Eben Esterhuizen and Rebecca Lipman do not own any of the shares mentioned above.

At the time this article was published The Motley Fool owns shares of Microsoft, Western Digital, Oracle, Intel, International Business Machines, and EMC. Motley Fool newsletter services have recommended buying shares of Intel, Microsoft, VMware, and Salesforce.com. Motley Fool newsletter services have recommended creating a bull call spread position in Microsoft. Motley Fool newsletter services have recommended shorting Salesforce.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story

Want more news like this?

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

From Our Partners