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NSA's Internet spying will cost US tech vendors $47 billion

Forrester Research says the revenue hit to US cloud and outsourcing providers is less than initially expected because international customers boosted security instead of leaving.

The headquarters of the National Security Agency as nighttime arrives. NSA

The National Security Agency's spying scandal will lead to a $47 billion hit in revenue over the next three years for US-based cloud and outsourcing providers, but that sum is lower than the previous expectation of $180 billion, according to a Forrester Research analysis.

In 2013, the NSA's Prism program, a massive Internet spying operation, was outed by one-time NSA contractor Edward Snowden. As reports continually surfaced about the agency's programs, large tech vendors began to see revenue hit. Officially, the NSA wasn't blamed for the financial losses, but multiple US tech giants noted that business tanked in China and other key markets.

What Forrester found is that the Prism program has hurt US cloud providers, but traditional outsourcers 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 US 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 US have reduced or halted spending with US-based service providers.
  • Prism took under 8 percent of potential revenue in 2014 from cloud and outsourcing providers.
  • 90 percent of clients either used vendor encryption services or their own and stuck with current providers.

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 instead of just leaving, said Forrester.

To be sure, trust has been lost in US 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.

This story originally posted as "Snowden, PRISM fallout will cost U.S. tech vendors $47 billion, less than expected" on ZDNet.