Angry Over U.S. Surveillance, Tech Giants Bolster Defenses

It is all reaction to reports of how far the government has gone in spying on Internet users, sneaking around tech companies to tap into their systems without their knowledge or cooperation.

What began as a public relations predicament for America’s technology companies has evolved into a moral and business crisis that threatens the foundation of their businesses, which rests on consumers and companies trusting them with their digital lives.

So they are pushing back in various ways — from cosmetic tactics like publishing the numbers of government requests they receive to political ones including tense conversations with officials behind closed doors. And companies are building technical fortresses intended to make the private information in which they trade inaccessible to the government and other suspected spies.

Yet even as they take measures against government collection of personal information, their business models rely on collecting that same data, largely to sell personalized ads. So no matter the steps they take, as long as they remain ad companies, they will be gathering a trove of information that will prove tempting to law enforcement and spies.

When reports of surveillance by the National Security Agency surfaced in June, the companies were frustrated at the exposure of their cooperation with the government in complying with lawful requests for the data of foreign users, and they scrambled to explain to customers that they had no choice but to obey the requests.

But as details of the scope of spying emerge, frustration has turned to outrage, and cooperation has turned to war.

The industry has learned that it knew of only a fraction of the spying, and it is grappling with the risks of being viewed as an enabler of surveillance of foreigners and American citizens.

Lawmakers in Brazil, for instance, are considering legislation requiring online services to store the data of local users in the country. European lawmakers last week proposed a measure to require American Internet companies to receive permission from European officials before complying with lawful government requests for data.

“The companies, some more than others, are taking steps to make sure that surveillance without their consent is difficult,” said Christopher Soghoian, a senior analyst at the American Civil Liberties Union. “But what they can’t do is design services that truly keep the government out because of their ad-supported business model, and they’re not willing to give up that business model.”

Even before June, Google executives worried about infiltration of their networks. The Washington Post reported on Wednesday that the N.S.A. was tapping into the links between data centers, the beating heart of tech companies housing user information, confirming that their suspicions were not just paranoia.

In response, David Drummond, Google’s chief legal officer, issued a statement that went further than any tech company had publicly gone in condemning government spying. “We have long been concerned about the possibility of this kind of snooping,” he said. “We are outraged at the lengths to which the government seems to have gone.”

A tech industry executive who spoke only on the condition of anonymity because of the sensitivities around the surveillance, said, “Just based on the revelations yesterday, it’s outright theft,” adding, “These are discussions the tech companies are not even aware of, and we find out from a newspaper.”

Though tech companies encrypt much of the data that travels between their servers and users’ computers, they do not generally encrypt their internal data because they believe it is safe and because encryption is expensive and time-consuming and slows down a network.

But Google decided those risks were worth it. And this summer, as it grew more suspicious, it sped up a project to encrypt internal systems. Google is also building many of its own fiber-optic lines through which the data flows; if it controls them, they are harder for outsiders to tap.

Tech companies’ security teams often feel as if they are playing a game of Whac-a-Mole with intruders like the government, trying to stay one step ahead.

Google, for instance, changes its security keys, which unlock encrypted digital data so it is readable, every few weeks. Google, Facebook and Yahoo have said they are increasing the length of these keys to make them more difficult to crack.

This article has been revised to reflect the following correction:

Correction: November 1, 2013

An earlier version of a picture caption with this article misstated, because of erroneous information from The Associated Press, the location of the Google data center shown. It is in Council Bluffs, Iowa — not Helsinki, Finland.

DealBook: PC Sales Data May Bolster Case for Taking Dell Private

Joe Raedle/Getty ImagesDell’s founder, Michael S. Dell, and the investment firm Silver Lake are offering to take the company private in a $24.4 billion deal.

It is becoming harder to believe that a turnaround of Dell will be anything but messy – and shareholders may not want to stick around for that part.

A new report released on Wednesday by the International Data Corporation appears to bolster the company’s argument for going private, noting a steep drop in global personal computer sales in the first quarter this year.

The carnage was clear nearly across the board, with sales in the United States dropping 12.7 percent from the quarter a year earlier. Quarterly shipments reached their lowest level since 2006. Virtually all major computer makers have scrambled to cope with falling unit prices and the rise of tablets and smartphones as attractive alternatives to traditional desktops and laptops.

The bloodshed certainly affected Dell, where global shipments contracted more than 10 percent worldwide and 14 percent in the United States. With its shipment of nine million units, the company claimed 11.8 percent of the overall market, again falling behind Hewlett-Packard and Lenovo.

I.D.C. attributed Dell’s problems to continued competition from an array of rivals and customer uncertainty over the company’s future path.

The report mirrors a trend Dell itself documented in its proxy statement last month. The thick document noted repeated instances of the company failing to meet its own projected financial targets for seven quarters.

Dell’s internal revenue estimates for the 2014 fiscal year fell to as low as $56 billion from $66 billion.

PC sales, according to the proxy, still account for more than half of Dell’s revenue despite a number of takeovers intended to bolster the size of its corporate services arm.

In presentations to the board explaining his rationale for what became a $24.4 billion take-private offer, the company founder, Michael S. Dell, said the necessary fixes would hammer the stock even more.

“Mr. Dell stated his belief that such initiatives, if undertaken as a public company, would be poorly received by the stock market because they would reduce near-term profitability, raise operating expenses and capital expenditures and involve significant risk,” Dell disclosed in its proxy.

Still, shareholders like Southeastern Asset Management have argued that Mr. Dell’s bid is a lowball offer, citing a belief that the worst of the turnaround is over. Southeastern in particular has supported tentative rival bids from the Blackstone Group and Carl C. Icahn that would allow investors to hold onto a piece of the company through what is known as a public stub.

Proponents of that deal structure may be heartened that I.D.C. notes that Dell slowed its overall decline in shipments from previous quarters and achieved some sales growth in Asia, excluding Japan.

I.D.C. itself appears more pessimistic about the overall prospects for the business of selling computers, however.

“Although the reduction in shipments was not a surprise, the magnitude of the contraction is both surprising and worrisome,” David Daoud, I.D.C.’s research director for personal computing, said in a statement. “Vendors will have to revisit their organizational structures and go to market strategies, as well as their supply chain, distribution and product portfolios in the face of shrinking demand and looming consolidation.”