What is Impact of Spy Scandal on U.S. Cloud Computing Business?

July 11, 2014
By: Gary Kim

Many observers claim that the future of cloud computing after the Edward Snowden revelations about National Security Agency (News - Alert) spying could represent a watershed moment for the broader cloud computing industry.

Among the effects are a predicted shift of market share from U.S. suppliers to suppliers from other regions, as enterprises start to buy cloud computing services from local and national or regional suppliers other than U.S. suppliers.

Cisco (News - Alert) reported a second quarter 2013 sales drop of 10 percent in China, a development Cisco attributed to the impact of revelations about U.S. National Security Agency spying. But the dip in China sales also could also be an act of retaliation by China against the U.S. government ban on purchases of services from firms using Huawei (News - Alert) gear.

IBM reported in October 2013 a 22 percent drop in its China revenue, leading to a decline of four percent in third-quarter 2013 profit for the world's biggest technology services company.

But the impact is hard to discern in forecasts released by the Telecommunications Industry Association for U.S. revenue growth. TIA’s (News - Alert) 2014 U.S. cloud computing revenue forecast calls for $67.8 billion in revenue, up from $56.2 billion in 2013 and $47 billion in 2012.

Those years cover the 2013 Edward Snowden revelations, as well as the year before and after. The TIA forecast calls for $107 billion in cloud computing revenues in 2017.

One might argue the impact of the spying scandal is hard to quantify, as it will be expressed primarily as a loss of new sales to competitors based elsewhere, and perhaps slower growth than might otherwise have been the case.

On the other hand, there are counterbalancing trends at work. U.S. enterprises and smaller businesses are shifting information technology spending from “premises” to “cloud” sources.

So, despite any potential sales headwinds created by the spying threats, business customer spending on cloud services seems destined to grow, irrespective of new security threats. After all, many customers could conclude, the upside is greater than the potential downside.

Spend is shifting from internal to external, in direction of cloud services, says Arthur Gruen, principal at Wilkofsky Gruen Associates.

It is hard to see new machine to machine apps being abandoned because security issues now loom larger. Instead, entities are likely to pursue M2M apps because there are clear business advantages, and simply spend more money on security. 




Edited by Adam Brandt