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April 30, 2013

What and How to tell your customers about a Data Breach

Data-Breach-Photo If your midmarket enterprise is like most, sooner or later you will be the victim of a data breach. Data breaches are never fun, but how and what you tell your customers can be the difference between minimizing the impact to your company’s bottom line and a full-fledged disaster.

Informing your customers about everything you know and taking reasonable precautions will always work better than sugar coating and trying to minimize the potential damage. Trying to minimize the situation to your customers so as to not panic them could wind up costing you customers in the long run.

As a case in point I want to contrast two recent data breach cases. One is the case of local deals vendor LivingSocial and the other is the video rental service Vudu.

I recently received the following email from Living Social:


LivingSocial recently experienced a cyber-attack on our computer systems that resulted in unauthorized access to some customer data from our servers. We are actively working with law enforcement to investigate this issue.

The information accessed includes names, email addresses, date of birth for some users, and encrypted passwords -- technically 'hashed' and 'salted' passwords. We never store passwords in plain text.

Two things you should know:

1.     The database that stores customer credit card information was not affected or accessed.

2.     If you connect to LivingSocial using Facebook Connect, your Facebook credentials were not compromised.

You do not need to take any action at this time, but we wanted to be sure you were fully informed of what happened.

The security of your information is our priority. We always strive to ensure the security of our customer information, and we are redoubling efforts to prevent any issues in the future.

Please note that LivingSocial will never ask you directly for personal or account information in an email. We will always direct you to the LivingSocial website - and require you to login - before making any changes to your account. Please disregard any emails claiming to be from LivingSocial that request such information or direct you to a website that asks for such information.

If you have additional questions about this process, the "Create New Password" button on LivingSocial.com will direct you to a page that has instructions on creating a new password and answers to frequently asked questions.

We are sorry this incident occurred, and we look forward to continuing to introduce you to new and exciting things to do in your community.

Tim O'Shaughnessy, CEO

Now, I understand that LivingSocial wants to minimize the potential damage here. To me though they have made two crucial errors. One is that they are giving their customers the impression that because their passwords were encrypted (actually salted and hashed), there is a low likelihood that they would be useable. This is not necessarily true. In fact there have been several cases and much written about the relative ease that hackers have in cracking these passwords.

Based upon their opinion that there is a low likelihood of these passwords being compromised, they tell their customers that they do not have to do anything at this time, but if they want to change their passwords they can. Knowing that these passwords could be compromised why not make everyone change their passwords? It would seem a rather trivial thing to do and ensure the integrity of your customer’s accounts to force a password change. In a similar situation you should strongly lobby for mandatory password resets.

Secondly again LivingSocial is telling their customers that they don’t have to do anything. But clearly customer names, email addresses and dates of birth were stolen. It doesn’t take much for a criminal to take that, match it up with public record information and quickly gather enough information to start using a false identity for nefarious purposes.

While some states mandate complimentary credit watch services for customers in these kinds of cases, at least suggesting to be on the lookout for fraudulent credit transactions and suggesting a credit watch service seems called for here.

Again in the interest of keeping customers calm and downplaying this breach, customers could be potentially at greater risk. The breach happened already, breaches happen. Good security practice and customer service should require you to place the bar high in terms of protecting and warning your customers.

As I mentioned earlier, Vudu also recently had a breach. Here is the email I received regarding that one:

Dear alan,
We want to let you know that there was a break-in at the VUDU offices on March 24, 2013, and a number of items were stolen, including hard drives.
Our investigation thus far indicates that these hard drives contained customer information, including names, email addresses, postal addresses, phone numbers, account activity, dates of birth and the last four digits of some credit card numbers. It's important to note that the drives did NOT contain full credit card numbers, as we do not store that information. Additionally, please note if you have never set a password on the VUDU site and have only logged in through another site, your password was not on the hard drives.
While the stolen hard drives included VUDU account passwords, those passwords were encrypted. We believe it would be difficult to break the password encryption, but we can't rule out that possibility given the circumstances of this theft. So we think it's best to be proactive and ask that you be proactive as well.
If you had a password set on the VUDU site, we have taken the precaution of expiring and resetting that password. To create a new password, go to
www.vudu.com. Click the "Sign In" button at the top of the page. Enter your current username and current password when prompted, then follow the instructions to reset your password securely. Also, if you use your expired VUDU password on any other sites, we strongly recommend that you change it on those sites as well.
As always, remember that VUDU will never ask you for personal or account information in an e-mail. Please use caution if you receive any emails or phone calls from anyone asking for personal information or directing you to a web site where you are asked to provide personal information.
As an added precaution, we are arranging to have AllClear ID protect your identity for one year at no cost to you. We have
FAQs on our web site (vudu.com/passwordreset) to answer questions on the incident and to more fully describe how to use the AllClear ID service. We have reported this incident to law enforcement and are cooperating fully with their investigation. We want you to know that we take this matter very seriously, and we apologize for any inconvenience this may have caused you.
Thank you,
Prasanna Ganesan
Chief Technology Officer, VUDU

Can you see the difference? VUDU also states that the passwords were encrypted and unlikely to be cracked, but nevertheless they have expired everyone’s password forcing you to pick a new one. They are also making arrangements for ID protection for one year.

This makes me feel that VUDU is serious about protecting me and is not sugar coating or minimizing the consequences of the data breach. To me this is text book on how to communicate a breach to your customers.

In both cases I don’t blame VUDU or LivingSocial for being victims of data theft. It can and does literally happen to everyone. Also both companies are successful businesses. But as a midsize enterprise how you communicate a breach to your customers can communicate an awful lot.

If your company is the victim of a breach, follow best practices to inform and most importantly protect your customers.


This post was written as part of the IBM for Midsize Business program, which provides midsize businesses with the tools, expertise and solutions they need to become engines of a smarter planet. I’ve been compensated to contribute to this program, but the opinions expressed in this post are my own and don't necessarily represent IBM's positions, strategies or opinions.

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