10 Ways Online Terrorism is Affecting the Markets

The US economy is on an increasing shift into the digital world. As such, the threat of online terrorism increases right along with the shift. This includes attacks that paralyze entire web sites, viruses, theft of intellectual property, and other malicious actions designed to cause harm online.

These online nuisances add up to real-life monetary effects for companies and sometimes large industry groups. Damage in 2005 was estimated to be in the neighborhood of $130 million. Clearly, this movement is something that financial markets will respond to, in both positive and negative ways. Read on to consider who may be affected and how you can be prepared.

  1. Support of companies fighting cyber-terrorism:

    As fear of online terrorism attacks grows, investors are more likely to support companies that are responsible for cyber security. These include McAfee, Symantec, Computer Associates, Internet Security Systems, and Trend Micro. After 9/11, cyber security companies such as these reported strong results in a quarter where nearly all other sectors were suffering. In addition to being backed by investors, cyber security firms are enjoying increased revenues as companies and individuals purchase products designed to protect their systems.

  2. Losses for online service providers:

    Square-Enix, an online game provider, has been subject to online terrorism in the form of a denial of service attack. This attack flooded their servers and made it nearly impossible for paying subscribers to access their service. As a result, Square-Enix almost certainly sustained major financial losses in the form of support calls, lost subscribers, and accommodations for the heavy server load. For financial markets, this attack represents a major problem that nearly any online service-based company could face. If this type of online terrorism becomes more prevalent, the markets could see a retreat from companies that are vulnerable to online losses.

  3. Financial cyber attacks:

    Last December, al Qaeda called for denial of service attacks on online stock trading and other financial web sites. The threat itself garnered little to no reaction from the markets, but clearly, if an online financial attack were carried out, it would have major repercussions for both individual traders and financial organizations. Financial service providers from consumer banks to trade brokers could lose precious data as well as experience outages and a loss of trust from customers. All of this adds up to major losses that will almost certainly be passed on to both customers and shareholders.

  4. E-commerce on hold:

    In February 2000, e-commerce leaders like eBay, Amazon, and Buy.com suffered attacks that took their operations offline for varying amounts of time. Although security and customer accounts were not compromised, the attacks still hold a large significance. Just one day of reduced or disabled e-commerce could result in the loss of billions of dollars in transactions. This means investors may be wary of putting their money in ventures that rely on the Internet as their only method of doing business.

  5. Mixed media:

    Online terrorism threatens the livelihood and trust that online publishers enjoy. Through the use of steganography, terrorists can hide messages in virtually any image. This is practiced primarily to avoid the attention of government officials and others who might interfere with their activities. Losses stemming from steganography are not immediately apparent, but can range from server overload to becoming a target for more harmful attacks. Further, online media outlets that are discovered to be victims of steganography will likely lose readers as a result of faltering trust. Organizations like the New York Times are vulnerable to losses from steganography, especially as they’ve recently shifted to an ad-supported site that relies on traffic from the online masses instead of only subscribers. If they were to lose reader trust, this format change could cause their online revenue to take a turn for the worse.

  6. Extra vigilance for ISPs:

    Terrorists have to get online somehow, and how they do it is a concern for communications companies. Broadwing Communications, an Austin-based internet service provider, knows this fact all too well. Part of their network was hijacked by Hezbollah to spread terror propaganda. Because of this threat, Broadwing and other companies that provide internet service must step up security, creating higher operating costs that make it difficult to keep consumer prices competitive while maintaining healthy profit margins.

  7. Hold, please:

    VoIP software and hardware providers have to worry about online terrorism, too. One of Cisco’s CallManager demo boxes was hit with the Nimda virus because it wasn’t patched for the latest protection. Most if not all VoIP products are susceptible to viruses and denial of service attacks due to their server-based nature and IP stacks. If VoIP providers and users do not remain vigilant about protection, more attacks could occur that would turn consumers off to this growing market.

  8. Software piracy:

    Virtually anyone can find "cracked" software online, and this practice is taking a bite out of the software industry. According to a Business Software Alliance report, software companies experienced a loss of $33 billion due to piracy in 2004. As a result, the markets have seen anti-piracy solution providers experience growth due to the increased need for technologies like digital rights management and secure software licensing. In fact, according to a report by Alladin Knowledge Systems, the DRM market is growing at a rate of 10% per year, which is 4% higher than the overall growth of the software industry.

  9. Intellectual property and trade secrets:

    Online terrorists may attempt to gain access to intellectual property and trade secrets. In the wrong hands, this information could create major problems for designers, manufacturers, and other IP-laden industries. CIO has profiled an anonymous "major government contractor" who experienced a breach of security that left intellectual property, including design and product specifications, open to intruders from China. Attacks like this mean that industries that rely on intellectual property may be more volatile in the future due to the increased likelihood that their property will be stolen by hackers.

  10. New markets:

    Online terrorism has created a need, perceived or otherwise, for cyber terrorism insurance. This coverage is picked up because typically, insurance does not cover for attacks that result in no physical harm. AIG’s Network Security and Liability insurance provides coverage for libel, data breaches, extortion, theft of data, and more. This and other online terrorism insurance policies cover losses due to business interruptions, repair, reconstruction, and other related costs.

Although the threat of online terrorism is not a major factor for most financial markets, it still has an effect on our country’s economy and the way investors view our stability. Expect to see these and other effects grow as e-commerce takes takes a larger market share and the Internet continues to become an even bigger world network.