Silicon Valley Getting Attitude Adjustment over Privacy Concerns

The Silicon Valley tech giants that have been engaging in widespread internet surveillance of their customers’ shopping preferences, general attitudes, and deepest life-style secrets have failed to appreciate the mounting global concern over their record on online privacy and security. Yet after losing tens of billions of dollars in sales and facing government scrutiny, Silicon Valley giants like Apple and Google are only beginning to understand they need a big attitude adjustment to prevent deeper reputational damage to their business model.

Angel investor and Facebook director Peter Thiel recently told the Financial Times (FT): “Silicon Valley is quite oblivious to the degree to which this crescendo of concern is building up in Europe. It’s an extremely important thing and Silicon Valley is underestimating it badly.”

Google, for example, appears to already be on the chopping block from European Commission competition regulators after Germany’s Günther Oettinger suspended all negotiations for an antitrust settlement regarding Europe’s “right to be forgotten” after the company lost a five-year lawsuit. It is expected that the Commission will now punish Google and mandate the right of individuals in the 28 nation European Union to blanket remove certain links from Google searches. 

With Europe deciding to play hardball, the blowback over privacy and security is rippling back to Silicon Valley, where young companies often launch new technologies without addressing foreign governments’ concerns. 

While companies such as Facebook and Google claim to have seen little or no damage to their businesses despite mounting criticisms of the internet giants collecting massive amounts of consumer data, companies that sell cloud storage are getting hammered. 

“A lot of people have been caught off-guard,” said Chief Executive Aaron Levie of the ultra-hot cloud based start-up, Box. “I don’t think it was what many people thought about as they built these companies and technologies.” 

Box has been one of the fastest growing revenue stories in Silicon Valley because of its cloud-based software product. Its Silicon Valley revenue growth of 110 percent in its ninth year of existence is only topped by LinkedIn, which grew revenue 115 percent. But security and privacy concerns regarding “cloud computing” have forced Box’s $500 million initial public offering to be delayed five times since April.

Box spent $172.2 million marketing to drive revenue going into its $500 million IPO. But market acceptance seems to have recently collapsed, as losses grew from $109.1 million in 2012 to $158.8 million in 2013. Box is now rumored to be in a cash crunch.   

The Information Technology and Innovation Foundation estimates that Internet and cloud companies will lose between $22 billion and $45 billion in revenue over the next three years as a result of the revelations by Edward Snowden of unlimited cooperation in providing the U.S. National Security Organization (NSA) unlimited access to customers data.

“Some in our industry have underestimated the degree to which people care about privacy,” Brad Smith, general counsel of Microsoft told the FT. “I’m not sure across Silicon Valley people have completely woken up to this.”

The attitude of Silicon Valley tech companies used to be that every interaction on the Internet involved some form of explicit or implicit customer “legal consent.” But with blow-back from security and privacy concerns causing customer utilization to fall and government regulation to spike, Silicon Valley is being forced to get a new attitude.