Economic Impact of NSA Revelations? Part I

The NSA eavesdropping revelations could have an impact on the Internet economy. Currently US corporations dominate many areas like operation systems, search engines, shopping, social communities, cloud servers and voice over IP. Will there be an impact on companies like Google, Facebook, Microsoft, Amazon and Apple? What about the Internet economy as a whole?

Part I

Microsoft basically has a world wide monopoly on desktop computer operating systems (OS). Most of the non-Windows OS used are Apple's (and some Linux). It seems to be the case that the NSA is informed by Microsoft about bugs before a security relevant bugs before those are patched. No government besides the US government should be using operation systems designed in the US on any of their computers and cell phones for that matter, any more. So, there should be some direct impact on Windows sales, but backdoors in the OS to help NSA spying have been known for a long time (don't believe me? Here's an article from 1999 - in English for once). That did not stop governments and companies from using Microsoft's products, in fact, Microsoft kept on growing after the year 2000.

I think this time could be different, though. the information does not "trickle-down" slowly through small media outlets. It is force fed through the main stream media, at least in Germany. Kudos to Glenn Greenwald, he found the perfect way, time and especially speed at which the revelations should be delivered. The governments are given time to make fools of themselves deny before new information comes to prove that they are not being truthful.

Of course, it is impossible for a large firm or a government to switch to a new OS within a few months, but I expect that in some countries there will be a gradual move towards locally developed Linux (or Unix) versions, which will in turn lead to more programs being compatible with Linux and therefore make it more appealing to private customers. Let's also not forget that it is typically cheaper for private consumers. Games, which drove many consumers to Windows, are today mostly played on consoles or even cell phones and Valve, the biggest online seller (and occasional producer) of PC games, has already announced a Linux based console, which will reduce the incentive to keep using a NSA more easily virus infected system.

So on the OS side of things one can expect that Microsoft will take a slow motion hit. What about Skype? You should not be using it. It's that simple. All https links one posts into the chat will be (or at least did get) visited a short time thereafter by a NSA Microsoft bot. Of course, Microsoft told Heise, who made it public, that this is about phishing, but that makes no sense whatsoever since the same does not happen to http links. Also, this is done a few hours after the link is sent, which makes it less likely that this is an attempt to help users and more likely done to mask the spying. So, Microsoft does (or did) actively spy on all their Skype users looking specifically for https links and is very much in bed with the NSA, so why don't we see the user numbers drop now? Well, I see three reasons 1) such information wasn't of much interest to the main stream media, therefore most people did not know about it, 2) it is unlikely that the people who stop using Skype delete their account, they just uninstall the software, and 3) customers did not care, since at the time Microsofts claim, that the bot is there to help, was somewhat believable.

All this might have changed now. The public especially in Germany is  more interested than before, therefore a story about obvious spying by any company will create more clicks. More clicks equals more money, so the mains stream media will become much more interested in investigating these matters. The customers will automatically connect the acts of US firms to the NSA which could lead to some users to stop using for example Facebook or Skype. This can become a death-spiral for  a service that is based on trying to get as many people involved through real name registration as possible, since the more of your friends are using Facebook/Skype the more likely it is you are spending a significant amount of time there. Once the numbers start falling even the friends will automatically spend less time online, which will reduce the add revenue. There are just less people to talk to, pictures to look at, and links to click. If you spent less time on a specific service other friends will in turn see less new information, when they log in, reducing their online time. The might even see some social pressure, since some people might start looking at Facebook users funny.

But, big but, people have spent time to create their online image on Facebook, some on google+, most of their friends are there, parties are organized and documented (not always good for one's career I guess) on the platform. Surfing does not have to be a lonely activity anymore because interesting links can be shared. We as a species are slow to change habits. Facebook, Google and Skype are comfortable. Heck, I am thinking about leaving blogger, but haven't done so. Size matters very much, the more friends are on some service the more likely it becomes that I use it, too. Also there has to be a service available which offers at least similar functions, without the risk of getting spied upon. That more often than not just isn't the case. So, I do not expect Facebook to take a significant hit. In fact, unless a comparable service emerges in a neutral country like Switzerland, I think not much will change for Facebook. Sentiment would have to change significantly before people start abandoning services they have come to like. The sheer numbers will keep attracting new costumers to Facebook, while some may be leaving it, but there are far more "nothing-to-hiders" out there than people who care about their privacy. Still,Tox has potential to damage Skype in the near future, since it offers very similar functionality.

But, I see much bigger problems for US start ups. They will have a hard time to convince their users that they will not become part of the spy-complex at some point in the future. What good would it do to switch to another US service if they have to at some point let the NSA in anyways, because of a secret court order? So, DuckDuckGo just isn't an option because it is based in the US. Yes, they seem to genuinely care about privacy, but at any point they could be forced to accept that the NSA records search data anyways.

Currently, I expect that especially Microsoft, who not only have a pretty bad image already, will see some damage to their business, through reduced orders of their OS, this wil also impact office sales, and dropping Skype user numbers. Other firms like Facebook or even Google will see some impact, but for it to become significant, we will first have to see competition, which is based in a neutral country, and consumer sentiment would have to change. Currently, customers are interested in news about the eavesdropping, but only a small minority is alarmed. This could change, depending on further revelations, but at the moment there is no reason to believe that the other US behemoths will be hit hard. Consumer sentiment might change once it has become clear that NSA is not really about preventing 50, 54, 12 (or less) terror attacks.