How The Prism Leak Will Hurt US Tech Companies

Now that the world is aware of NSA’s Prism program where there seems to be unfettered access to the servers of American 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 OK with 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 US.

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 US of how difficult it has been for Huawei to do business with carriers in the US because the government isn’t too keen on having potential backdoors in their communications networks which China could potentially use to eavesdrop.

In fact, German Interior Minister Hans-Peter Friedrich on Wednesday 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 International Economics. “There will always be that suspicion.”

This is not only a challenge for these consumer-facing companies but those courting businesses – Amazon, Rackspace, Salesforce, etc. The international threats to US tech firms companies could grow quite rapidly if countries become more nationalistic in their purchasing decision 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 and others 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 they lose share to others, they won’t be able to use pricing which others in the market may consider predatory.

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

It is too early to see if any serious marketshare will be lost and in some cases like Facebook there is a critical mass which 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 and this unforeseen leak will have repercussions in the tech market for years to come.


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