Tech titans such as Google and Facebook do substantial business in global markets. Tech braces for backlash overseas

News that the government is tapping into U.S. Internet firms for foreign users’ data and communication has created public relations headaches for the companies at home — but the more serious repercussions may be felt overseas.

Tech titans such as Google and Facebook do substantial business in Europe and other markets around the world — and they’ve spent years as vocal champions of free speech and the free flow of communications worldwide. But the revelations about the National Security Agency’s PRISM program threaten to stir up suspicion that the companies are complicit with Washington spying.


Already, there are signs that some foreign officials are paying close attention. In advance of President Barack Obama’s trip to Europe next week, German Chancellor Angela Merkel reportedly said she plans to bring up the issue. One member of the European Parliament called the information-gathering program “American-style Stasi methods.” Europe’s justice commissioner is meeting with U.S. Attorney General Eric Holder in Dublin on Friday and asked a series of questions about PRISM in advance.

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And the European Commission is currently reviewing data protection laws. PRISM could strengthen the hand of those who want stronger rules.

The rumblings could be a problem for the tech companies with much of their revenue coming from outside North America. Last quarter, Google reported that 55 percent, or $7.1 billion, of its revenue came from overseas. Likewise, Facebook reported that about half of all its revenue, or $2.5 billion, came from outside the United States. Microsoft reported much of the same breakdown.

“All those bytes may cost American industry billions,” said Peter Singer, director of the Center for 21st Century Security and Intelligence at the Brookings Institution. “It confirms what many already suspected. Regardless of how the perception is pushed back over the next few days, the stink will linger much longer.”

For the most part, the convenience and low cost of services offered by the likes of Google, Yahoo and Microsoft have helped many foreign consumers and governments overcome any initial concerns about relying on U.S. Internet firms for email, document storage, browsers and other services.

The importance of those overseas markets has most likely informed the tech companies’ strong response against reports by The Guardian, The Washington Post and other media that they let the U.S. government siphon off vast amounts of user data.

“Google’s numbers would clearly show that our compliance with these requests falls far short of the claims being made,” David Drummond, the firm’s chief legal officer, said in a letter sent Tuesday to Holder and FBI Director Robert Mueller. “Google has nothing to hide.”

India, a key market for U.S. firms, was ranked fifth, according to The Guardian, in terms of countries where the U.S. gathers the largest amount of intelligence.

Some business leaders dismissed the notion that foreign governments and firms will balk at doing business with U.S. firms, saying they already know Washington can obtain data about overseas targets who potentially pose a terrorist threat. But Europe could be tricky because the nations there are having an ongoing debate about data and privacy.

Michael Vatis, a partner at Steptoe & Johnson and the founding director of the National Infrastructure Protection Center at the FBI, said the disclosures shouldn’t hurt U.S. intelligence activities too much in the long-term.

“It may cause some people to switch email providers and look for more secure forms of communication, but I don’t think there will be enormous long-term damage to our capabilities,” he said.

The bigger issue may be how the disclosures affect the debates over storing data on U.S.-owned cloud service providers. U.S. companies are hoping to expand their cloud businesses overseas — with the global cloud-computing market expected to reach $100 billion in 2016, according to the International Data Corporation, a market research firm. The United States is the largest public cloud market, followed by Western Europe and Asia/Pacific, excluding Japan. The fastest growth in public IT services will be emerging markets.

“European cloud providers have tried to use this issue to gain advantage,” Vatis said, referring to the PRISM program. He called those arguments “by and large disingenuous,” saying the U.S. government “is hardly alone in being able to access data stored in a cloud. A lot of other countries have similar authority.”

“For most people, the very real benefits of using U.S. Internet services will outweigh the very abstract threat of being spied on by the U.S. government,” said Karsten Weide of IDC. “In Europe, however, it may increase even more the EU’s and European governments’ scrutiny of U.S. companies’ privacy practices.”

Those concerns stirred up by the PRISM reports could translate into a loss of business not just for companies named in the report but for entire the business sector pitching the migration of more data to cloud-based computing, said Rob Atkinson, the founder and president of the Information Technology and Innovation Foundation, a Washington, D.C.-based technology policy think tank.

“If you are a foreign country you might not want data on U.S. servers even if they are in your own country,” he said. “This potentially could have a negative impact on certain businesses. … It does make it harder to promote a global cloud vision without borders.”

Chris Soghoian, principal technologist and a senior policy analyst at the ACLU, said he expects a “backlash” against U.S. firms in Europe. “Every fear that Europeans have had and have been criticized for, now they have proof they were right all along,” he said. “It’s one thing to be spied on by ones’ own government but not by another government.”

In addition, the disclosures could affect international trade deals such as the Trans-Pacific Partnership and the U.S.-European Union free trade talks.

“This will harm U.S. foreign policy interests and economic interactions globally,” said a tech industry official. “I don’t think those things were properly weighed and we’ll see a cost as a result.”

In particular, the PRISM disclosure, could make the push for Internet freedom more difficult. “The Internet world envisions a global non-fragmentized Internet and we have been fighting for that in review around the world,” the source said. “This undermines the credibility of the U.S. government as a leading advocate for that kind of world. And that hurts a lot.”

Jessica Meyers and Austin Wright contributed to this report.