Revelations of NSA spying hurt tech firms

SAN FRANCISCO -- Microsoft has lost customers, including the government of Brazil.

IBM is spending more than a billion dollars to build data centers overseas to reassure foreign customers that their information is safe from prying eyes in the U.S. government.

And tech firms abroad, from Europe to South America, say they are gaining customers who are shunning U.S. providers, suspicious because of revelations by former National Security Agency contractor Edward J. Snowden that tied these providers to the vast NSA surveillance program.

Even as Washington grapples with the diplomatic and political fallout of Mr. Snowden's leaks, the more urgent issue, companies and analysts say, is economic. Tech executives, including Mark Zuckerberg of Facebook, raised the issue Friday when they went to a White House meeting with President Barack Obama.

It is impossible to see now the full economic ramifications of the spying revelations -- in part because most companies are locked in multiyear contracts -- but the pieces are beginning to add up as businesses question the trustworthiness of U.S. technology products.

Meanwhile, the confirmation hearing last week for the new NSA chief, the video appearance of Mr. Snowden at a technology conference in Texas and the drip of new details about government spying have kept attention focused on an issue that many tech executives have hoped would go away. Despite the tech firms' assertions that they provide information on their customers only when required under law the perception that they enabled the spying program has lingered.

"It's clear to every single tech company that this is affecting their bottom line," said Daniel Castro, a senior analyst at the Information Technology and Innovation Foundation, who predicted that the U.S. cloud computing industry could lose $35 billion by 2016.

Forrester Research, a technology research firm, said the losses could be as high as $180 billion, or 25 percent of industry revenue, based on the size of the cloud computing, Web hosting and outsourcing markets and the worst-case scenario for damages.

The business effect of the Snowden revelations is felt most in the daily conversations between tech companies with products to pitch and their wary customers. The topic of surveillance, which rarely came up before, is now "the new normal" in these conversations, as one tech company executive described it.

"We're hearing from customers, especially global enterprise customers, that they care more than ever about where their content is stored and how it is used and secured," said John E. Frank, deputy general counsel at Microsoft, which has been publicizing that it allows customers to store data in Microsoft data centers in certain countries.

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Revelations of NSA spying hurt tech firms