The End of the Innocence: When Does the Cost of Hacking, Spamming and Abuse Become Real Money?

The Sony hacks and the Wikileaks retribution attacks have thrown into high relief the cost of hacking, spamming and denial of service. But these are only the ones about which the public has been told. Google, Microsoft, Twitter and all of the big name tech companies are spending increasing amounts protecting and actively defending their domains and networks.

The timing is eerily opportune as social media companies prepare for mega-IPOs following the LinkedIn extravaganza. This may well be a god-send for investors because it raises serious questions about the real cost of doing business on the web. The situation is reminiscent of the early e-commerce days when web retailers were blissfully ignorant of the significant costs entailed in customer returns and 'shrinkage,' the retail term of art for theft and other unexplained inventory disappearences.

As more commerce moves online, managers and investors are going to have to start factoring the cost of e-felony into their return calculations. All major governments are preparing for cyberwar against each other and some of what is happening now could well be 'practice.' Beyond that, senior military and finance officials are debating how one defines and defends the wealth of nations when so much of it is electronic, intangible and beyond the reach of physical protection. Companies are facing up to the rising cost of e-protection and e-theft as a secular price of doing business. Statistics will emerge about 'acceptable' loss rates and obtaining insurance will become more of a concern. The party ain't over, but the figurative big guy at the door is becoming a full-time employee. JL

Colleen Taylor comments in GigaOm:

"Google announced Thursday it will shut down its Translate API entirely later this year, “due to the substantial economic burden caused by extensive abuse.”

While the issue of whether the company is justified in shutting down the API (and cutting off a resource upon which developers have based important features and even entire companies) is already a major source of debate, the news raises an interesting general question. When it comes to dealing with the ever-present threat of hackers and spam abuse, when should a web company cut its losses?

Any tech company offering web services in a sizable capacity has to deal with the threat of hackers, spammers and abuse. Just like national defense budgets, it seems that the bigger the tech superpower, the bigger the cost of keeping the hackers at bay. Indeed, Google is certainly not alone in facing expensive security needs of late. Earlier this week, consumer electronics stalwart Sony reported it has already spent more than $170 million dealing with last month’s PlayStation Network hack, adding it will likely spend additional money responding to class action lawsuits stemming from the attack


The tech industry’s rising stars have found that as they’ve grown, their security needs have expanded in kind. Twitter has said it’s “constantly battling against spam” on its system. “Like it or not, as the system becomes more popular, more and more spammers will try to do their thing,” the company wrote in a blog post last year. And as many as 20 percent of Facebook’s employees are reportedly tasked with focusing on security-related issues.

Hacking and other online abuses will almost certainly become a bigger problem in the coming years as more and more of the world comes online. Weighing the cost of fending off the proverbial barbarians at the gates will continue to be a constant dance for tech companies large and small. And whenever the risk/reward balance of running a certain unit tips into unprofitable territory, it’s within the company’s right to cut it off — regardless of who else it effects. If nothing else, it’s a reminder of the dangers of building a business on another company’s API, especially in today’s increasingly volatile world of online security.