Companies Bleed Cash When Computers Quit Matt Krantz and Edward Iwata June 11, 2001

Technical glitches are starting to cost companies and investors real money. The New York Stock

Exchange's crash Friday highlights the mounting danger to companies counting on computers to run

vital operations. No matter how many precautions are taken, the systems are still failing and costing millions when they

do. "There will be, unfortunately, moments such as these," says Dick Grasso, CEO of the NYSE.

Costs are huge. Some businesses lose $10,000 to several million dollars a minute when networks go

down, says Jonathan Eunice at Illuminata, a technology consulting firm. They also lose, on average,

$100,000 an hour in lost productivity, says Harry Tse, analyst at Yankee Group. That's an average the

NYSE certainly exceeded, Tse says. Unlike other crises that can be managed with backup plans, computer systems remain an open

invitation for trouble.

Imperfect Systems

"Big, complex systems are never perfect," Eunice says. In fact, systems have become so complex

they're impossible to fully test, says Alan MacCormack, professor at the Harvard Business School.

Costs of failure are huge.

The NYSE's reputation may have been damaged. "All of a sudden, the Big Board isn't working. It's like

buying a Jaguar that doesn't start. It doesn't make you feel too good," says Woody Dorsey, president of

Market Semiotics.

The NYSE wouldn't estimate how much the outage cost. But the glitch knocked out trading for 85

minutes. Some stocks couldn't trade for roughly 5 hours. Eighty-five minutes to undo a faulty system

upgrade -- made the night before -- is too slow, says Donna Scott, research director at Gartner.

Several of Microsoft's Web sites were down for 2 days in January because of network upgrades.

Dropping the Ball

Nike stunned investors Feb. 26 when it said faulty computer software caused it to miss $100 million in

revenue during its fiscal quarter ended in February. The software was supposed to streamline electronic

orders.

"Somebody dropped the ball," says Robert Toomey, analyst at Dain Rauscher.

Causes of glitches range widely. Often they come from computer technicians meshing dozens of

software programs that clash and crash, as occurred at the NYSE. Hardware usually isn't the problem;

powerful business computers go down only a few seconds to a few minutes a year, analysts say.

But software crashes typically bring down networks for several hours or days every year, Eunice says.

And errors with software cause 40% of system crashes, says William Malik, research director at

Gartner.

Software firms' practice of launching products only to fix problems later is under fire. More firms are

looking to hold vendors accountable, says Les Berkowitz of the Berkowitz Firm, which helps defend

software firms against liability suits.

"A down system can be very expensive, very fast," he says.

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-- Doris (nocents@bellsouth.net), June 13, 2001