Prism scandal to rock US cloud industry with $35bn losses

The Prism scandal could cost the US cloud computing industry up to $35 billion (£22.5 billion) over the next three years, a new report has claimed.

The revelations about the extent to which the NSA accesses private electronic information held by US Internet giants is likely to have an immediate and lasting impact on the competitiveness of US companies, according to the Information Technology & Innovation Foundation (ITIF).

The greatest risk to the industry comes from the possibility of foreign customers deciding that the risks of storing data with a US company outweigh the benefits, says the study.

A number of countries, particularly those in Europe, have long been trying to break US domination of the cloud industry. In France, the government has recently invested €135 million (£116 million) into a cloud computing joint venture.

Importantly, the main conditions of obtaining a blanket warrant for data collection from secret US FISA courts, are that an NSA operative must be 51 per cent sure the target is not a US citizen or in the country at the time.

The fact that cloud computing is still such a rapidly growing industry means that the impact on US companies could be particularly acute, as commercial services are still relatively young.

Global spending on cloud computing is expected to grow by as much as 100 per cent between 2012 and 2016. By contrast, the global IT market is set to grow by just three per cent.

"The United States has been the leader in providing cloud computing services not just domestically, but also abroad where it dominates every segment of the market," says report author Daniel Castro.

"If U.S. firms are to maintain their lead in the market, they must be able to compete in the global market. It is clear that if the US government continues to impede US cloud computing providers, other nations are more than willing to step in to grow their own industries at the expense of US businesses."

Commenting on the issue recently, Neelie Kroes, European Commissioner for Digital Affairs said, "If European cloud customers cannot trust the United States government, then maybe they won't trust US cloud providers either.

"If I am right, there are multibillion-euro consequences for American companies. If I were an American cloud provider, I would be quite frustrated with my government right now."

At the very least, the ITIF predicts a $21.5 billion (£13.9 billion) loss to the US industry over the next three years. This estimate assumes the US will eventually lose about 10 per cent of the foreign market to European or Asian competitors, but retain its currently projected market share for the domestic market.

At the top end, a $35 billion (£22.5 billion) loss assumes the US will eventually surrender 20 per cent of the foreign market to competitors, whilst retaining its current domestic share.