Online downtime costs companies $400 billion per year

18 June 2024 Consultancy.uk 4 min. read
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The combined economic effects of technology outages aren’t limited to a single department or cost category; with direct hits to revenue, lost productivity and regulatory fines hitting companies at every level. A new report suggests downtime costs the world’s largest 2,000 companies as much as $400 billion annually.

Also be described as ‘failure’ or ‘standstill time’, ‘downtime’ refers to the period during which a system or computer system is unavailable or inoperable and thus cannot be used. With modern business increasingly hinging on digital systems to deliver their work, downtime is more of a crisis for companies than ever before.

According to a global report from Oxford Economics and Splunk titled ‘The Hidden Costs of Downtime’, every year downtime costs the world’s largest companies a colossal $400 billion. The most substantial portion of that comes from lost revenue – with the Global 2,000 (annual ranking of the top 2,000 public companies in the world, published by Forbes magazine) forfeiting an average $49 million on that front. But other costs quickly add up too – including a $22 million average bill from regulatory fines, $16 million in SLA penalties, and $15 million in settling legal costs.

Online downtime costs companies $400 billion per year

No industry was left unharmed by this blight. However, the businesses most impacted by downtime were possibly not the ones people would assume when thinking of the impact of computer difficulties. While the sector is more visually dependent on computer systems, communications and media operators were found to be least impacted by outages – with an average cost of $143 million per year to those firms. The largest losses for these operators came in the forms of lost revenue and contractual or legal disputes which emerged from the downtime.

Similarly, information and technology firms – which depend almost entirely on the health of their systems – saw below-average costs of $180 million per year from downtime. In this case, legal disputes were the leading cause of losses. Meanwhile, despite the possible reputational harm you might think a technology firm’s own systems shutting down might cause, comparatively little impact came from the need to perform damage control in the sector.

In comparison, several less overtly tech-centric industries saw outages cause much greater damage. Operators in the public sector, for example, took a greater hit of $193 million – the majority of which included $73 million in damage control to improve investor relations and retain public trust in their services. But by far the worst hit by downtime were firms in retail. There, a sector increasingly dependent on online orders for income saw an average $76 million loss in revenue and a $91 million bill relating to legal disputes push the loss most operators in the sector encounter to $287 million.

Online downtime costs companies $400 billion per year

Putting the $400 billion into perspective, that figure equates to 9% of profits across the Global 2,000. But not all geographies are impacted in the same way. With the US remaining the world’s largest economy, it might be less of a surprise that firms there were found to be more at risk from downtime costs. With more to lose, the average US Global 2,000 firm saw downtime retract $256 million from its bottom line.

More surprisingly, however, South American firms missed out on more than their European counterparts – at $208 million compared to $198 million respectively. However, European firms could be doing even better, if they could tackle their extensive waits to bounce back from outages. According to the researchers, Europe and APAC have the longest recovery times from downtime events, while companies in Africa and the Middle East are recovering the fastest.

Gary Steele, CEO of Splunk, said, “Disruption in business is unavoidable. When digital systems fail unexpectedly, companies not only lose substantial revenue and risk facing regulatory fines, they also lose customer trust and reputation. How an organisation reacts, adapts and evolves to disruption is what sets it apart as a leader. A foundational building block for a resilient enterprise is a unified approach to security and observability to quickly detect and fix problems across their entire digital footprint.”