L.
Taylor - May 9, 2000
Event
Summary
Netpliance's stock took an 18% dip after a slot machine engineer in Las
Vegas hacked a procedure to turn the network device into a full-fledged
PC. Netpliance, Inc., (Nasdaq: NPLI) which only went public on March 17
at a price of $18.00 a share, was down to $14.00 a share by market close
on March 21. The Netpliance, which retails for $99.00, was designed to
simply do web-surfing using Netpliance's i-Opener Internet service. Netpliance's
revenue model is based on the assumption that every user will sign-up
for the i-Opener service which offers content, applications, and services.
Ken
Segler, the engineer who posted the exploit on Slashdot.org, said that
he was able to turn the i-Opener into a Linux PC for about $200 of extra
hardware.
Market
Impact
Upon report of the exploit, Netpliance's stock dropped $4.00 a share as
it became apparent that the incredibly low-priced device could be used
without using the i-Opener Internet service at all. Should shareholders
be concerned about this exploit? In the long-term, this won't affect Netpliance's
market cap, even if it did create a rough and tumble beginning for the
new service provider. All Netpliance has to do is strengthen their service
contract declaring that modification of the hardware device is a violation
of the terms and conditions of the service contract. Though preventing
the hack may be hard for Netpliance to enforce, all it will take is one
lawsuit to keep the hardware hackers at bay.
Austin
based Netpliance was fast to react, and by the end of the week, had already
stated that they had found a way to prevent the hardware hack, and further,
required all buyer's to sign-up for the i-Opener service. As long as
they are getting users to sign-up for the service, they will do well,
even if some people do figure out away around the hack fix.
Findings
and Recommendations
It has become quite clear that security compromises can affect a corporation's
market cap. Whether they OEM hardware, software, or services, Information
Technology companies need to exercise due diligence when it comes to security.
Essentially, the Netpliance is what Scott McNealy and Larry Ellison were
touting as the "NC" or Network Computer four years ago. Unfortunately,
four years ago their vision was ahead of their market, and their development
efforts. Today, the time is right, and real "NCs" are emerging in both
the consumer and enterprise market segments.
The
Netpliance leads the consumer market as a low-cost and technically viable
method for accessing the Internet. At $99.00, you can't beat the price.
It's perfect for kids, or people who are afraid of real computers. With
no locally stored operating system, there is not much to break. With its
ease-of-use and low-cost, even Granny will want one.