At stake is the trust of massive online audiences that attract digital advertising. As companies collect personal data and learn more about each user's interests and habits, advertising becomes easier to sell. The marketing campaigns are particularly important to Google, Yahoo and Facebook, all of which make most of their money from ads. And although Microsoft and Apple make billions from the sale of software and devices, the two companies are also hitching their fortunes to Internet services.
"We are now entering a new phase of the Internet that I call 'data wars,'" says Ethan Oberman, CEO of Internet privacy specialist SpiderOak. "It's all about who can amass the most personal data because that data has become so valuable that whoever accumulates the most is going to win. If these companies are going to engage in these data wars, the security and privacy of this data becomes of critical significance."
The battle pits U.S. national security agencies against an industry that has been a bright spot in the country's dreary economy. More than $1.3 trillion in shareholder wealth is tied up in Apple, Google, Microsoft, Facebook and Yahoo alone, and the companies collectively employ more than 243,000 people while running services that create thousands of other jobs.
In a study for his think tank, Castro predicted that the U.S. government's online surveillance will divert $21.5 billion to $35 billion in revenue from U.S. technology companies that host services over the Internet and sell remote data storage — a concept broadly known as "cloud computing." The estimate, which covers the next three years, is based on the assumption that many companies outside the U.S. will buy services in other countries rather than risk copies of their data being turned over to the U.S. government. The prediction doesn't include possible losses in online ad revenue.