Did The U.S. Government Just Freeze Innovation At These Technology Companies

|
 |  Includes: FB, GOOG, MSFT
by: Onuora Amobi

Unless you currently live under a very big rock, you know about the wave of scandals that are currently rocking the Obama administration.

More specifically, the allegations from the Washington Post that the National Security Agency has tapped into the servers of 9 major technology companies and sucked up surveillance data at will.

Those 9 companies are Microsoft (NASDAQ:MSFT), Yahoo (NASDAQ:YHOO), Google (NASDAQ:GOOG), Facebook (NASDAQ:FB), PalTalk, AOL (NYSE:AOL), Skype, YouTube and Apple (NASDAQ:AAPL).

While there are clearly larger and more salient conversations to be had regarding the role of the US Government and global privacy, those are conversations for another publication.

For investors, what I think we have to realize is this may be a bigger problem for the companies identified and for technology stocks in general going forward.

Investors look to these companies for new, expansive and exciting ideas that will inspire the public to open their wallets and buy. These companies in turn are creating applications and technologies that they hope consumers will create an intimate connection to (remember the iPhone?).

In light of the recent revelations, the relationship between consumers and companies may be irreparably altered.

Let's talk about Microsoft.

How can anyone reasonably expect consumers to rush out and buy a Microsoft Xbox One with an all seeing eye (Kinect) placed directly into your living room?

Let's talk Google.

Goodbye Google Glass. Why would I want to send my experiences directly to the US government?

Facebook

People may start to think about what they post on their Facebook profiles and if they have to think too deeply about that .... what's the point.

If you knew that no matter what security blocks you had on your profile, Uncle Sam was watching, would it change what you wrote, to whom and how frequently? I say it would.

One of the challenges investors now have in this new climate is navigating the new terrain of privacy, anti-terrorism and innovation.

Investors now have to find a different way to evaluate companies like Facebook that require ABSOLUTE trust from the consumer. Those types of companies are absolutely more vulnerable today based on how vulnerable their systems allegedly are.

The story for these companies has only just begun but my concerns are about the wider implications for the technology sector.

My company teaches universities and the general public how to create websites and web applications. One of the things we teach our clients is that consumers need to trust your website or web application.

The very next wave of technology from firms like the 9 implicated in this mess depends on open and blind trust from the public.

Truly valuable web applications or hardware applications from Microsoft and Facebook need the public to have faith that their data will truly be private.

If privacy is gone, it has bigger implications for technology going forward.

I personally got off Facebook a couple of years ago because of the potential to have my personal data mined. My friends called me paranoid then. I will be calling them to have the last laugh this weekend.

For the investor

Until and unless there is some public and credible privacy resolution to this mess, I believe that this will halt the potential for explosive growth for any of those 9 companies.

Some say that the public always assumed there was no privacy anyway but I believe that there's a difference between assuming you have no privacy and knowing you don't.

Investors now have to evaluate new products like the Microsoft Xbox One and Kinect Home camera and Microsoft's fingerprint reader technology in Windows 8.1 somewhat skeptically.

The new question has to be will the public trust this company with critical human data (like fingerprint data)?.

Just one more thing an already exhausted bunch of investors has to worry about. I would hold on all these stocks until it becomes clear exactly how this thing is going to shake out.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am the CEO of Learn About The Web Inc. - learnabouttheweb.com. While I have no business relationship with Microsoft of any sort, I am the owner and editor of several Windows websites (Windows8update.com, Windowsblue.com, Windows81.com etc).