How Much Does Consumer Outrage Cost Companies?

A look at 4 tech boo-boos and their respective costs

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PlayStation Network Hack

Sony (NYSE:SNE) was bombarded by bad press and negative consumer feedback on Twitter and Facebook through April and May after the PlayStation Network, the online gaming network and storefront on the PlayStation 3 game console, was attacked by hackers. The outrage was justified. The personal information of 77 million PSN subscribers was compromised, including credit card details.

How bad was Sony hit? The company reported a $191 million loss for the April to June quarter. Consumer confidence in the PlayStation 3 clearly dropped as well — Sony managed to sell just 1.8 million systems in the quarter during the hack, compared 2.4 million during that period in 2010. The company also spent $170 million in offering affected consumers fraud protection and free content.

iPhone 4 Antenna

It’s hard to imagine that Apple‘s (NASDAQ:AAPL) iPhone 4 got off to a rough start, considering the company sold more than 20 million smartphones in the second quarter of 2011 alone. The most recent model of the device was the focus of a PR blowup after it released, though. In July 2010, “antennagate” was one of the top trending terms on Twitter, referring to the faulty antenna in early iPhone 4s that caused calls to be dropped if users held the phone too tightly.

Apple at first denied there was any problem with the device before backtracking and offering early purchasers a free protective case for their phones. Apple reportedly spent $175 million on the free case program. Considering the company has $76 billion in cash right now, negative Twitter trends didn’t hurt it that badly.

Xbox 360 “Red Ring of Death”

Before Twitter and Facebook rose to their current prominence, Web rage forced Microsoft (NASDAQ:MSFT) to spend a record sum of money on placating angry customers. In 2007, Microsoft was forced to admit that an abnormally large number of Xbox 360s were failing due to faulty components. Enough consumers were reporting the “red ring of death” in online communities that the problem began to get coverage in mainstream press.

Microsoft eventually announced a $1.15 billion warranty plan to help customers affected. Two years later, warranty company SquareTrade found in a survey that nearly 24% of Xbox consoles still fail within two years of purchase.

As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello and become a fan of InvestorPlace on Facebook.


Article printed from InvestorPlace Media, http://investorplace.com/2011/08/consumer-outrage-internet-company-costs/.

©2014 InvestorPlace Media, LLC

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