By Julian Hattem - 06/30/14 06:00 AM EDT
U.S. tech companies are taking a financial hit more than a year after Edward Snowden’s leaks about the National Security Agency’s surveillance programs.
The German government this week said it would drop a contract with Verizon to provide Internet service to many of the country’s government agencies over fears that the NSA was using it to vacuum up data about foreigners.
“We’re all hurting in the United States,” said Christian Dawson, chief operating officer at the Virginia-based Web hosting company ServInt.
“We definitely know that U.S. tech companies are experiencing real harm as result of the actions of the NSA and how those are being exploited internationally to take business away from U.S. businesses.”
Since Snowden revealed the NSA’s secrets, tech companies have pressured the administration to change course.
They lobbied on the legislative overhaul moving through Congress that would curtail some of the NSA’s powers. They’ve also been instrumental in convincing the Obama administration to take a series of actions to restrict the NSA.
But that isn't preventing Web and telecom firms large and small from feeling the squeeze.
Dawson, who is also the chairman of the Internet Infrastructure Coalition, said 60 percent of his business used to come from international clients. Now, it’s closer to 30 percent.
Smaller companies, he said, “are being hardest hit,” because they can’t afford to make up for the losses.
Fallout from the NSA revelations has hit most acutely overseas, where people in countries like Brazil and Germany have been especially outraged.
Documents leaked by Snowden last summer showed one NSA program tapped into central servers of nine major Web companies including Facebook, Google and Microsoft to obtain chats, photos, emails and other information on tens of thousands of foreign targets. Additionally, government agents specifically snooped on communications of top foreign leaders, such as German Chancellor Angela Merkel and Brazilian President Dilma Rousseff.
That’s led to outrage from citizens and governments alike, and problems for U.S. companies.
“There’s no question that countries will look at ways to prop up or create domestic industries, and they will use this to their advantage, whether there’s a real or perceived concern that they’re trying to address,” said Andy Halataei, the senior vice president of government relations at the Information Technology Industry Council, a trade group that represents AOL, Google, Yahoo and other companies.
Germany’s announcement that it was ending its deal with Verizon, for instance, was a big win for Deutsche Telekom, a Verizon competitor that will step in to take on the services.
The company has previously advertised itself as an alternative to American companies, which many see as tied to the NSA. After the Snowden revelations first emerged last year, the company took part in a broader campaign to convince Germans to move off American networks called “Email Made in Germany,” which promised “high security and data protection standards.”
Deutsche Telekom is far from alone.
F-Secure, for instance, a Finnish cloud storage company similar to Dropbox or Google, advertises the fact that “its roots are in Finland, where privacy is protected by law.”
All told, the NSA’s actions could cause American Web companies to lose as much as $35 billion by 2016, according to analysis from the Information Technology and Innovation Foundation. That would represent a loss of 20 percent of the foreign market.
Forrester Research, a research firm, predicted that the losses could be as high as $180 billion over the next two years.
The loss of trust comes despite a push from the White House, Capitol Hill and Silicon Valley to reassure the world about the programs.
The House this year passed legislation to end some of the controversial NSA activities and require new transparency, but many tech and privacy advocates said it had been gutted by the time it hit the floor.
In the Senate, discussions over the bill are still taking place, but reformers have hoped strong words from surveillance critics like Judiciary Committee Chairman Patrick Leahy (D-Vt.) will lead to a stronger bill than the House’s.
In the meantime, President Obama has announced a series of measures to stop snooping on friendly foreign leaders, grant some new privacy protections to foreigners and disclose more details about what agencies like the NSA are up to.
Companies, too, from Google to Comcast have announced plans to encrypt more data and share as much as they can about the information the government requests from them.
So far, however, those efforts have done little to stop the bleeding.
“It is not blowing over,” Microsoft General Counsel Brad Smith said at a conference in San Francisco last week.
“In June of 2014, it is clear it is getting worse, not better.”