Insourcing and the Privacy Scarecrow

By Robert Gelber

August 21, 2012

Ripples from the great recession are still being felt throughout the US and European economies. Whether it comes in the form of lurching job growth or tough austerity measures, governments are certainly feeling the pinch of weak finances. However, there is a tech trend that may boost US job numbers and bring more investment to cloud providers.

Earlier this month, Gartner published a report detailing IT outsourcing services spending. While application outsourcing (AO) is expected to grow from $39.9 billion last year to $40.7 billion in 2012, researcher Bryan Britz said this area has hit a critical mass:

Change is afoot in the AO market. The burdens of managing the legacy portfolio, along with the limitations of IT budgets, have shifted the enterprise buyers to be cautious and favor a more evolutionary approach to other application services, such as software as a service (SaaS).

Migrating from legacy AO applications to cloud services could spell good news for US-based providers. Computerworld published an article last week explaining that foreign companies are beginning to outsource IT operations to the United States. For example, Mexican hotel company Grupo Posadas, which has more than 100 facilities, uses five datacenters to support their operations. Last year the chain outsourced a number of IT services to Savvis, a Missouri based hosting company. Most of the operations are now running at a datacenter in Texas.

This new paradigm has prompted international service providers to stir up privacy concerns. One point of contention is the US Patriot Act, which some providers use as fodder to market on a security platform. Last year, T-Systems, Deutsche Telekom’s cloud computing division, lobbied German regulators for a set of certificates that would protect their servers from the US government access. Bloomberg quoted Reinhard Clemens, CEO of the cloud division:

The Americans say that no matter what happens I’ll release the data to the government if I’m forced to do so, from anywhere in the world…Certain German companies don’t want others to access their systems. That’s why we’re well-positioned if we can say we’re a European provider in a European legal sphere and no American can get to them.

Unfortunately, Clemens only focused on security in relation to the Patriot Act. While there are clauses enabling US officials to access internationally hosted data, the law is not unique in its methods. Similar to the US Patriot Act, German law also requires cloud providers to hand over data in the case of an investigation. Also, German officials can retrieve data from servers located outside its borders with permission from the hosting country.

Ultimately, cloud privacy concerns are not exclusive to the United States. In some cases, foreign governments have broader powers than those outlined in the Patriot Act.

US service providers may build confidence through educating potential clients, but the damage caused by international providers makes this case an uphill battle.

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