Hack attacks spell $100 mil headache

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It was more than a cyber-hiccup.

Last week's attacks on popular Internet sites such as Yahoo!, E*Trade, eBay and Buy.com resulted in frustrating denials of service for millions of consumers. The real costs to sites and advertisers, however, are less clear.

Outages resulted in losses of more than $100 million in advertising and e-commerce revenues for the affected sites, consultancy Yankee Group estimated.

Add in an extra $100 million to $200 million that sites will spend on new security and a $1 billion loss in the sites' stock market values, and total losses could exceed $1.2 billion, according to Yankee Group.

Jordan Rohan, a media analyst with Wit Soundview, estimated Yahoo! lost up to $1 million in ad revenue based on about a quarter of a day's (or 150 million) page views lost.

"No viewers, no ad dollars if you can't broadcast," said Alex Stein, exec VP of Gomez Pro's research division.

Sites such as E*Trade, which handles about 100,000 trades each day, may have lost up to 25% of its trades due to a 2-hour outage over its 8-hour trading day. At $19 an average trade, in the worst-case scenario the company would have a half-million dollar loss.

But tallying up how much was lost is not simple. Stock losses could be made up in a day, depending on the vagaries of the market.

In advertising, not every page view lost was lost revenue. Yahoo!, for instance, carries many house ads.

ONE SITE'S LOSS . . .

But one site's loss also translated into another's gain. Mr. Rohan said visitors to sites such as technology news portal ZDNet, which experienced a 2.5-hour outage, could easily cruise over to rivals such as CNET.

It was unclear late last week whether the millions of hits made by the cyber vandals resulted in millions of ads being served-and charged to advertisers as actual impressions. That would have given sites unwarranted ad revenue, and sites presumably would need to offer makegoods to advertisers. Mr. Rohan said he believed no such impressions were served because the flood of traffic quickly felled the sites.

Outages ranged from 45 minutes up to 5 hours. Yahoo!, which, according to Media Metrix, generated 36.4 million unique visitors in December, suffered nearly a 3-hour outage last Monday as the first site to be struck. In a prepared statement, executives said, "we don't anticipate any impact to our revenue."

Dan Rosensweig, president-CEO of ZDNet, maintained his advertising revenues were not affected because he was able to move sponsors' ads into later slots that otherwise would have gone unsold. "We have the ability to easily make up the difference, and we delivered on all our contracts," he said. "Had this been for days on end, it could have been a big problem for us." ZDNet logs 12 million page views each day.

Patrick Keane, senior analyst with Jupiter Communications, views last week's hits as isolated incidents, but maintained advertisers can use them when negotiating contract contingencies.

"If people aren't turning pages, you can't get revenue," he said. "This is just another arrow in the quiver of media buyers-they can dictate the realities and rates."

Advertisers last week appeared to be watching rather than acting. "Our clients have not expressed concern," said Scott Witt, media buying supervisor for Organic, New York, whose clients include Blockbuster, Compaq Computer Corp. and DaimlerChrysler. But, he added, "I can certainly anticipate there being some trepidation in the industry as a whole." Mr. Witt noted that Organic mostly buys interactive ads on a guaranteed impression basis and monitors buys on a weekly basis. Unlike when buying traditional broadcast time, clients purchasing ads online are guaranteed a certain number of impressions over a certain period of time. Even with service outages, "they would still get what they pay for," he said.

VALENTINES NOT ENDANGERED

Last week's outages could have been the St. Valentine's Day Massacre for gift sellers-and possibly consumer e-commerce more broadly-had the attacks escalated. But there was no clear evidence outages damaged the way consumers view Web commerce. The attack felled sites, but no consumer data were lost. A spot check of Valentine-oriented sites found most weathered the techno-tempest.

"The window of opportunity is so short on some of the holidays," said Bob Merlo, VP-marketing for Service Metrics, a Web site performance company. "The problem is, of course, that any downtime is obviously going to hit them [holiday-oriented retailers] hard, and there's a potentially damaging effect on consumer confidence."

Luxury gift site Send.com, for example, ran a "one-week blitz" of banners for Valentine's Day on Yahoo!, said Kathryn Carroll, director of marketing communications at Send.com. But Yahoo!'s crash had little impact on the effectiveness of the Send.com campaign, she added. The response from another online gift retailer, gift site RedEnvelope, was similar.

"We met our projections in terms of both sales and impressions," a spokeswoman said.

Contributing: Bradley Johnson

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