​Snowden, PRISM fallout will cost U.S. tech vendors $47 billion, less than expected

Spying by the National Security Agency will cost cloud and outsourcing providers about $47 billion in revenue over the next three years, but that sum is better-than-expected, according to a Forrester Research analysis.

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In 2013 and 2014, the NSA's PRISM program, a massive Internet spying operation, was outed by Edward Snowden. As reports continually surfaced about the NSA's programs, large tech vendors began to see a hit. Officially, the NSA wasn't blamed, but multiple U.S. tech giants noted business tanked in China and other key markets.

It's official: NSA spying is hurting the US tech economy

What Forrester found is that the PRISM program has hurt U.S. cloud providers, but traditional outsources are taking the biggest hit. For instance, cloud providers will lose about $500 million in revenue between 2014 and 2016. Most international companies have stuck with U.S. providers, but are taking control of security and encryption, said Forrester analyst Ed Ferrara in a report.

Forrester's report noted:

• 26 percent of business and technology decision makers outside the U.S. have reduced or halted spending with U.S. based service providers.
• PRISM took less than 8 percent of potential revenue in 2014 from cloud and outsourcing providers.
• 90 percent either used vendor encryption services or their own and stuck with current providers.
• The cloud revenue hit will be $528 million between 2014 and 2016.

The biggest difference between initial worst-case projections in 2013 of revenue loss of $180 billion and the current $47 billion projection is that customers took encryption into their own hands, said Forrester.

To be sure, trust has been lost in U.S. tech vendors, but Forrester added that there's a global issue here.

While this financial analysis focuses on a specific U.S. government program, Forrester clients should not view this issue as unique to their US-based outsourcing partners. Survey respondents who expressed concerns about US spying showed similar concerns about spying by other countries as well -- including their own. International spying allegations have implicated Australia, Sweden, and the United Kingdom as assisting in US spying. If PRISM taught us anything about government spying, it was that at least in the U.S. there was supposed to be court oversight of the NSA's actions. Oversight, even by a kangaroo court, is lacking in many countries around the globe that have fully unfettered spying rights.