NSA Spying Scandal Could Cost U.S. Cloud Computing Firms $35 Billion

Symbol image, cloud computing. User sends data to an external server an gets access to his data from everywhere in the world.

Would you store your data with a company if you had reason to believe that by doing so, you were essentially giving a government a free pass to access that valuable information at any time? A lot of people and businesses would say no.

So the recent revelations of widespread electronic snooping by the National Security Agency should have the burgeoning cloud computing industry worried. How worried? A report released Monday by the Information Technology and Innovation Foundation, a Washington, D.C.-based think tank, suggests that cloud companies could lose as much as $35 billion in revenue over the next three years as a result of the PRISM spying scandal.

Much of the cloud industry currently resides in the U.S., with major players including Google (GOOG), Amazon (AMZN) and Microsoft (MSFT). But the report notes that other countries are racing to seize a share of what's projected to be a $207 billion industry by 2016. And a scandal that calls into question the privacy of data stored with American companies could provide these foreign competitors with an opening.

To that point, the report quotes Neelie Kroes, the European Commissioner of Digital Affairs, who last month observed that "If European cloud customers cannot trust the United States government, then maybe they won't trust U.S.cloud providers either."

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The report also takes note of European business leaders and politicians who have raised the specter of government snooping of American cloud services, both before and after revelations of the NSA's PRISM program became public.

The report estimates that the ongoing controversy could cost American companies anywhere from 10 percent to 20 percent of the foreign market, which adds up to somewhere between $21.5 billion and $35 billion in lost market share over the next three years. And those numbers aren't pulled out of thin air -- the organization notes that when the Cloud Security Alliance polled its members in June and July, 10 percent of foreign members said they had canceled a project with a U.S. based cloud service. And 36 percent of U.S. residents polled said that they were having more trouble doing business outside the country following the PRISM revelations.

So the scandal didn't just shake Americans' faith in the government -- it also has the potential to cost the economy tens of billions of dollars. No wonder the administration is so angry about the leak.

Matt Brownell is the consumer and retail reporter for DailyFinance. You can reach him at Matt.Brownell@teamaol.com, and follow him on Twitter at @Brownellorama.