How the Prism Leak Will Hurt U.S. Tech Companies

Publisher's Outlook

How the Prism Leak Will Hurt U.S. Tech Companies

By Rich Tehrani, CEO, Group Editor-in-Chief, TMC  |  September 04, 2013

Now that the world is aware of NSA’s Prism program, which seems to provide unfettered access to the servers of America’s Web firms, we can expect a brave new world of communications and technology competition.

Although it isn’t accurate to say there is free trade in the world – due to tariffs and fees imposed across the borders of various countries – for the most part, companies easily can sell their wares across the world without having to worry about excess nationalism.

Yes, there are exceptions but, over time, consumers worldwide are comfortable buying products from companies located virtually anywhere. Perhaps this is best exemplified by the popularity of American cars in China and the popularity of German, Japanese and, recently, Korean cars in the U.S.

This situation may change in the future as heads of state across the world are beginning to advise their citizens to stay clear of American tech companies if they don’t want to be snooped on.

This, of course, reminds many in the U.S. of how difficult it has been for Huawei (News - Alert) to do business with carriers in the U.S. because the government isn’t particularly keen on having potential backdoors in their communications networks, which China could potentially use to eavesdrop.

In fact, German Interior Minister Hans-Peter Friedrich recently issued a blunt warning to avoid American websites while speaking with reporters in Berlin. “Whoever fears their communication is being intercepted in any way should use services that don’t go through American servers,” he said.

“The Googles and the Facebooks, I don’t know how they cope with this issue,” said Gary Hufbauer, senior fellow for trade and economics at the Peterson Institute for Inter- national Economics. “There will always be that suspicion.”

This is not only a challenge for these consumer-facing companies, but also those courting businesses, such as Amazon, Rackspace (News - Alert), Salesforce, and their counterparts. The international threats to U.S. tech firms could grow quite rapidly if countries become more nationalistic in their purchasing decisions as a result of the Prism leak.

There is good and bad news for customers if this initial sentiment becomes a trend. On the plus side, companies with monopolistic strangleholds on the market, like Amazon, will see stronger competitors emerge. This is the case because as Amazon’s cloud solutions have grown in size, it has been able to lower prices based on economies of scale. If it loses share to others, it won’t be able to leverage predatory pricing models.

The downside is, these companies may lose share not because of better competitors, but because of something beyond their control. This hurts employees, investors and the U.S. economy.

It is too early to see if any serious market share will be lost and, in some cases, like Facebook (News - Alert), there is a critical mass that is so absolutely huge it will be difficult to compete effectively with the social networking leader. Still, there will be damage; if there isn’t, it will be miraculous. This unforeseen leak will have repercussions in the tech market for years to come.

Edited by Alisen Downey
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