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Cloud customers defect from US providers

October 9, 2013 • Opinion

In June, thanks to one of its now former and very famous employees blowing the whistle, the news broke that America’s National Security Agency (NSA) was using a programme, code-named PRISM, to spy on e-mails, internet phone calls, file transfers, photos, videos and other data from large internet companies, including Google, Facebook, YouTube, Microsoft, Skype and Apple, as well as collecting the telephone records of millions of ordinary Americans who are not even suspected of crimes.

Anton Vukic, Sales Director at Phoenix Distribution (image: file)

Anton Vukic, Sales Director at Phoenix Distribution (Image source: File)

Apart from the debates about digital privacy that Edward Snowden’s leak has unleashed, and the subsequent lack of faith consumers now have in those US internet companies that have since admitted handing over customer data to the NSA, the NSA spying scandal could have another major consequence. The US stands to lose a huge chunk of its revenue in the cloud-based computing space, as foreign companies recoil from the electronic surveillance and eavesdropping and seek out more secure servers and providers closer to home in an attempt to shield themselves from America’s prying, spying eyes.

Such defection could take a major bite out of the US cloud computing market. In fact, according to projections made by the Information Technology & Innovation Foundation (ITIF), an independent Washington-based policy think-tank, fears related to privacy following the PRISM revelations could lead to as much as $35 billion in revenues being lost to US cloud providers over the next three years.

While there is never a good time to lose customers, it is especially bad now since the IT cloud services industry globally is actually set to soar. According to recently reported forecasts from the International Data Corporation (IDC), it is expected to be more than $107 billion in 2017, and over the 2013 to 2017 forecast period, IDC predicts that it will have a compound annual growth rate (CAGR) of 23.5% – which is five times that of the IT industry as a whole. If US companies lose market share at this crucial juncture, even in the short term, it will have long-term repercussions for them, not least of which will be the loss of their competitive edge.

To show that PRISM is already having an effect, ITIF referred to the results of a recently published Cloud Security Alliance Survey, in which 10% of non-US respondents indicated that they had already cancelled a project with a US-based cloud computing provider, and 56% said they would be less likely to make use of a US-based cloud computing service. It is even apparently turning Switzerland from renowned money haven to cloud haven, according to one of that country’s biggest offshore hosting companies, Artmotion, which has already reported a 45% growth in revenue.

In a report entitled “How much will PRISM cost the US Cloud Computing Industry?”, ITIF analyst Daniel Castro estimates that US companies could lose out between 10 and 20% of the foreign cloud market to European or Asian competitors by 2016.

This might mean opportunity for South African cloud providers too. According to Parallels SMB Cloud Insights, which is primary and proprietary research by a hosting and cloud services enablement provider called Parallels, the SME cloud market in Africa is estimated at $1.6 billion with an expected CAGR of 46% in the next three years. South Africa’s improving broadband speeds – which has seen a 3.5% improvement over the fourth quarter of 2012 and 16% over the first quarter of last year, according to Akamai’s latest “State of the Internet Report” – will further spur cloud adoption locally.

Anton Vukic, Sales Director at Phoenix Distribution

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