NSA Revelations Threaten Cloud Companies

11/06/2013 06:00 pm ET | Updated Nov 07, 2013
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WASHINGTON -- As revelations about the National Security Agency's secret surveillance continue to trickle out, cloud companies are feeling the fallout.

The "cloud" is a network of servers that provides a variety of functions such as running an application or storing data. Google's Drive allows users to work on documents, presentations and other larger files from anywhere. Flickr and Instagram similarly allow for convenient and easily accessible photo uploading and sharing.

The venture capital firm Bessemer Venture Partners estimated that public cloud companies are now worth more than $100 billion, and growing. But that growth is threatened by revelations like one in a recent Washington Post article, that the NSA has been tapping into the cloud company databases of Google and Yahoo. When users' data is stored far away from them in the cloud, privacy is paramount -- and stories about threats to that privacy could hurt cloud companies' bottom line.

"The potential for cloud's growth is huge," said Carl Miller, research director of the Centre for the Analysis of Social Media at the think tank Demos. "But concerns over security, privacy and legal jurisdiction are the ... big issues it needs to tackle."

This threat is so severe that Google's Executive Chairman Eric Schmidt castigated the NSA and said he has registered complaints with President Barack Obama and members of Congress.

"It's really outrageous that the National Security Agency was looking between the Google data centers, if that's true," Schmidt told The Wall Street Journal in an interview.

Smaller companies are feeling the fallout, too. For Backblaze, an online backup service that stores more than one-fourth of the total amount of data Facebook stores, has done 4 billion restores and has its own encrypted cloud, the NSA developments had a disheartening effect.

"Even though none of our customers could have had their data accessed by the government, and even though the NSA has never contacted us to get access to any of this and even though we've published a blog post talking about this, we still had customers cancel simply because of fear and uncertainty and doubt about the cloud," said Backblaze CEO Gleb Budman. "So these revelations are just bad for the cloud."

Backblaze takes pains to encrypt data on each user's computer, in transit and after transfer, Budman said. And yet the encryption and privacy values cloud users hold dear are prompting second-guessing and skepticism amid revelations. One Canadian partner recently decided not to adopt Backblaze's services because he was worried about potential NSA interception.

Users overseas, Budman said, could begin to turn more and more to local providers for the same reason the Canadian partner declined Backblaze's services. They won't abandon large global companies like Google, Yahoo or Facebook because those companies are "ingrained in people's behavior," he predicted, but if smaller cloud companies lose clients, it will put pressure on U.S. companies.

"It's unlikely that we'll see a complete mass departure from cloud services because they're just so convenient," he said. "People are not going to stop doing online banking, and start always walking checks over to their bank and mailing checks to their utilities. So I don't think we'll see a massive movement from cloud services, but I do think it'll slow the growth of adoption."

But, he said while outfits like Google and Yahoo might not be affected as much, some may consider changing companies.

"A percentage of people, particularly individuals and businesses who are extra concerned about the privacy of their data will consider switching. If they have a non-U.S. company that can provide them similar services, some will take the leap," said Budman.

Backblaze isn't the only company that sees danger in the NSA's attempts to crack the cloud. ThoughtWorks, a technology consulting company that has many customers in the cloud computing industry, has been outraged and more active in its push for government reform.

The company has come out in support of the reform-minded USA Freedom Act, dissolution of the Patriot Act and legislation from Rep. Rush Holt (D-N.J.) that would prevent the government from circumventing encryption. When other big tech companies like Google and Apple united against surveillance and wrote a letter to Congress, ThoughtWorks submitted its own.

Matt Simons, director of economic and social justice at ThoughtWorks, was glad that the bigger companies were changing their messaging from one of strict transparency to one that called for reform. ThoughtWorks has gone a step further, helping fund the Stop Watching Us rally in Washington.

"We have 3,000 software developers all around the world. And one of the reasons we chose to engage publicly is they essentially demanded we do," Simons said. "We sort of felt like this was the right time to do it, and we didn't have much of a choice."

The struggle is important because the cloud, a growing industry, helps lead the American economy, Simons said. Lack of action by the government could ultimately diminish the cloud marketplace.

"It's really important that we keep talking about this and that we not let this die, he said. "It's been trickling out for six months now, and it needs to keep coming. I think the push for reform is now, and we should have all options on the table because we don't even know the whole story yet."

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