Amazon.com, Inc. (AMZN), Red Hat Inc (RHT): A Cloud Investor Strategy for the NSA Scandal

Reports that the National Security Agency has been grabbing phone records and Internet caches for analysis aimed at catching terrorists has a lot of people spooked.

But can it impact your investments?

Public cloud, private paranoia

Corporations are individuals under the law, and like people they have secrets they don’t want known. So loading data onto public clouds would seem to make any paranoid CEO wake up sweating from a deep sleep. The largest public cloud provider, by a great distance, is Amazon.com, Inc. (NASDAQ:AMZN). Their cloud operates on a self-service basis, and the company does not break-out cloud revenues in its financial reports. Still, if there is a backlash, you will see it here first, in the June numbers due for release on July 25.

The most recent estimate for sales on Amazon.com, Inc. (NASDAQ:AMZN) Web Services is $3.8 billion for all of 2013. That figure could take a huge jump if IBM loses its protest of a $600 million, 10-year contract the CIA tried to sign with Amazon.com, Inc. (NASDAQ:AMZN) for it to build it a private cloud, essentially replicating one of its data centers.

This may be an instance where Amazon.com, Inc. (NASDAQ:AMZN) is wise to lose. Knowledge that Amazon.com, Inc. (NASDAQ:AMZN) is indeed working with the nation’s spy agencies is sure to set off alarm bells among major CEOs, in ways that knowledge of IBM working in the same way won’t, because Amazon.com, Inc. (NASDAQ:AMZN) has such a high profile in the public cloud.

Private cloud growth

Just as Amazon.com is hurt by the revelations, at least in terms of reputation, IBM may curiously benefit.

This goes beyond the possibility of its winning the CIA contract. IBM has embarked on a private cloud strategy, promising to build security and privacy into the clouds it builds for all manner of customers. Private cloud has not taken off as people assumed it would – the low prices of public cloud resources have trumped the privacy and security angles. But that could well be changing, as companies realize that anything in front of their firewalls is bound to be getting into someone’s hands they don’t want it getting into.

A firewall is more than a security scheme aimed at foiling hackers, after all. It’s also a front door. There is an assumption that law enforcement will, before it comes into a corporate front door through a firewall seeking data, knock first. And show a warrant.

While IBM has recently bought SoftLayer for $2 billion, a company that offers cloud infrastructure based on Citrix technology, it is far more committed to the OpenStack infrastructure first developed by NASA and now supported, in the public cloud sphere, by Rackspace and more generally by the Rackspace Foundation.