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Fighting cybercrime in an economic downturn

Editor's note: This is part of a series of stories about the recession's effect on the tech industry.

Last month, McAfee cybercrime strategist Pamela Warren sat down with a senior executive at a Sydney bank to discuss the risks to the corporate network from workers using social networking.

After going over the trade-offs associated with allowing insiders to use social networks at work, his team confirmed that they would use data leak prevention technology to monitor the network traffic--balancing the desire to benefit from such new technologies while ensuring company secrets remain protected.

Warren had a similar meeting with a U.S. government agency last week to discuss strategies for dealing with public employees using Web apps at work and mobile devices, which can introduce viruses and other security problems into a corporate network. And she's been preparing for the launch early next year of McAfee's Cybercrime Response Unit, a site where consumers can go when they think they've been victimized by online scams.

She's sharpening her focus on protecting Internet users because malware attacks are up now that economic times are tough. Online scammers have been going into overdrive with phishing and other online schemes aimed at people confused about the banking consolidation or who are desperate because of a layoff or foreclosure. In fact, there are direct correlations between targeted cyberattacks on consumers and the stock market decline over the past few months.

"It's a ripe economy to take advantage of people," she said.

Consumers are being scammed in a variety of ways. People are receiving phishing e-mails asking them to provide their bank account information so as to avoid having their bank account closed in a merger. They provide their bank information and their account balance is plundered.

People also are getting e-mails and seeing ads on the Web for work-from-home "jobs" where all they have to do to become an "international sales rep" is open a bank account to receive money in and then wire the money to some international third party. In reality, the transaction is nothing more than a money-laundering move, known as a "cyber mule operation," to transfer money to another country and hide the trail in an illegal deal. Typically, the transaction is a payment for some kind of illegal activity such as the exchange of lists of credit card information or personal data that can be used for identity fraud. (McAfee published a report about the rise in cybercrime earlier this week.)

Sharply lower consumer spending in the United States and other high-income countries is stalling global trade, causing a surprise downturn in exports from China that is dramatically slowing its economy and rippling through other countries that rely on international commerce.

An analyst expects the downturn to lead consumers to drop the music player, even as sales of iPhones soar.

Note to Apple Chief Steve Jobs: Don't worry. Piper Jaffray analyst Gene Munster still loves you. As for your little friend the iPod, well, let's just say Munster doesn't think it's so cute any more.

A longtime Apple (nasdaq: AAPL - news - people ) fan, Munster slashed his estimate for the company's 2009 sales by 5% Thursday, citing weak consumer spending and economic uncertainty. Mac and iPhone fans have nothing to panic about, however: Munster thinks Apple's computers will continue to gobble up market share, and sales of the iPhone will boom. 

Then again, Munster might be Apple's biggest cheerleader. Hey, the man has a price target on Apple's stock of $235. This on a company whose shares were selling for $91.41 at the end of Thursday trading.

So pay attention when Munster says the iPod faces a bleak future. Rising unemployment and credit problems will just make it tougher for shoppers to justify spending money on little luxuries next year. Munster predicts Apple will sell 20% fewer iPods next year, after clocking unit sales growth of 6% this year. "We are modeling for the sky to fall on iPod demand," Munster wrote.

Those same factors caused Munster to cut his target for Mac sales, too. While PC sales will cool, however, Munster still predicts Apple will gobble up market share next year. As a result, Munster figures Mac sales will jump 10% over this year's levels in 2009.

The iPhone, however, could be the new iPod: a hit product that powers Apple through a downturn in stronger shape than ever. Munster stuck to his prediction that Apple will sell 45 million iPhones next year, despite bearish guidance in recent weeks from Research In Motion (nasdaq: RIMM - news - people ) and Palm (nasdaq: PALM - news - people ). Munster sees smart phone sales booming next year, and Apple romping through the fast-growing category.

So does Musnster have it, right? Maybe--although the iPod Touch may have a future, in part because it can tap into iPhone applications, including Truphone, which turns the second-generation iPod Touch into an Internet phone.

Economists give birth to a 1-year- old downturn. So when do things get better?

Good news. The keeper of the business cycle books, the National Bureau of Economic Research, announced Monday what economists have been saying for a long time--this is a recession. And, NBER says, it's been a recession since December of 2007.

The announcement comes as no surprise to anyone with a TV, newspaper or more than 10 friends. Why is it good news? We've already gotten through one year, and now the question is not "are we in a recession?" but the slightly more optimistic "are we in a recovery?"

Recession announcements are like babies in that there's growing evidence of what's coming months before they officially arrive. The U.S. gross domestic product first declined in the fourth quarter of 2008. Payroll employment has declined every month in 2008. Housing prices have been falling for two or three years in many regions of the country. The fifth largest investment bank, Bear Stearns, collapsed in March. The fourth largest, Lehman Brothers (nyse: LEHMQ - news - people ), filed for bankruptcy in September. A few weeks later, the stock market crashed. Consumer confidence plummeted.

The policy of the Business Cycle Dating Committee (seven of the nation's leading macro-economists who make the determination for the NBER) is to wait until it can assign a month in which the recession began--"the committee waits long enough so that the existence of a recession is not at all in doubt," according to the NBER.

However, a popular yardstick for recession--two successive quarters of GDP decline, has not yet been reached. The economy dipped (-.2% GDP) in the fourth quarter of 2007. But in the first quarter of 2008 it grew .9%, and in the second quarter, it grew 2.8%.

That robust second-quarter growth was boosted by the $152 billion economic stimulus act--at the time, a sum that seemed like overkill--and gave back an extra $600 to most taxpayers.

Figures for the fourth quarter of 2008 are likely to be poor. The outlook for the holiday shopping season is bleak. The Conference Board says U.S. households are expected to spend an average of $418 during the holiday season, off 12% from the $471 last year. A separate measure from Gallup says that Americans will spend $616, off 29% from the $866 last year. Whether the drop in spending is 12% or 29%, in a heavily consumption-dependent economy, the fall is likely to push the fourth quarter into negative territory.

Ford Motor Co. says it is considering selling Volvo Car Corp. as the struggling U.S. automaker seeks to raise cash and weather the industry crisis.

Ford said Monday it expects its strategic review of the Swedish luxury automaker will take several months.

The Swedish government has said it has been in talks with Volvo and with General Motors Corp. (nyse: GM - news - people )'s Saab unit following reports that the U.S. parent companies were seeking aid for their Swedish carmakers.

Ford, GM and Chrysler LLC will go before Congress on Tuesday to present a proposal for $25 billion in loans to keep them afloat as sales sag.

Ford shares are up 18 cents at $2.87 in morning trading.

As gloom descends on Silicon Valley, most startups and giants are growing cautious and cutting back. But not Facebook. The social-networking Web site sees a bleak economy as all the more reason to press ahead with aggressive plans for growth. "This is not the time for tech companies to be cutting back; this is the time to be hitting the accelerator," says Peter Thiel, a Facebook board member and investor.

Facebook executives think they can use the economic downturn to gain ground on the competition. So they're going to great lengths to keep user growth on track in these rough times. The company is gearing up for more acquisitions, hiring rapidly, and rolling out new advertising programs. Rather than trim the site's development costs, Facebook has engineers cooking up versions in languages such as Xhosa, Tagalog, and French Canadian to go after niche audiences around the world. "We're in this game not just for five or 10 years," says Sheryl Sandberg, Facebook's chief operating officer. "We're in it for 20 to 30 years."

To fuel growth, the company asked the Securities & Exchange Commission earlier this year for an unusual exemption. Typically, private companies that exceed 500 shareholders must start disclosing their financial results publicly. (This is the law that helped push Google to go public in 2004.) Facebook is approaching that threshold, so the company asked the SEC for a waiver that will allow it to keep hiring and handing out restricted stock without public disclosure. The SEC granted the request on Oct. 14. That will help the company reach 800 employees by the end of the year, up from 400 at the close of 2007.

The company is even reducing its revenue goals to pull in more users. In January, founder and CEO Mark Zuckerberg said Facebook was shooting for revenues of $300 million to $350 million this year. But this spring, Zuckerberg and his board lowered the revenue target to $250 million to $300 million, say sources familiar with company finances. Thiel says engineers were shifted away from ad programs to concentrate on fresh features, languages, and other projects that will boost user growth. Even as the economy has weakened in recent months, Facebook has decided to stick with its spend-now, profit-later approach. "We still think it's a land grab where we have to try to get to scale first," says Thiel.

It's a gutsy strategy, increasingly rare in Silicon Valley. Last month, prominent venture firm Sequoia Capital gave a presentation to its startups titled "R.I.P. Good Times," which argued that companies must cut costs fast to survive. One Power Point slide included a skull-and-crossbones and the words "death spiral" to show the likely fate of startups that fail to come to grips with the new reality. The Sequoia view has become accepted wisdom among Valley venture capitalists, leading to layoffs at scores of companies.

Facebook isn't yet profitable. But Thiel says the company can afford to be aggressive. It has raised about $500 million and is "slightly cash-flow negative," Thiel says. At its current burn rate, he says, the company has enough cash for three or four years. "If we stopped growing, we could make money, but it makes no sense for us to stop growing," he says.

Facebook's strategy stands in contrast to that of rival MySpace (NWS). Part of Rupert Murdoch's publicly traded News Corp. (NWS), MySpace has dialed back on growth to focus on profits. Over the past year the site has expanded modestly, to 118 million users, while Facebook has more than doubled in size, to 161 million users, according to research firm comScore (SCOR).

Well-priced homes, enviable job growth and proximity to vibrant cities make these top 10 spots good choices in recessionary times.

In Pictures: Affordable Places To Weather The Downturn

Last week, unemployment hit a 20-year high, rising to 6.5% over the month before.

Folks in Denver-area Adams County may fare better than others nationwide. Year-over-year job growth is 3.4%, thanks to a diversified local economy that includes aerospace, aviation and bioscience jobs. Homeowners pay a scant $1,536 in property taxes and enjoy some of the most affordable properties in the country.

Residents in Madison County, Ala., Pulaski County, Ark., Hamilton County, Ohio, and Greenville County, S.C. have a similar story. They're within commuting distance to Huntsville, Little Rock, Cincinnati and Greenville, respectively, boast enviable job growth figures and round out our list of the top five spots to live affordably during an economic downturn.

Behind The Numbers
In compiling our list, we looked at three factors: affordability, property taxes and job growth. Moody's Economy.com provided us with an affordability index for each county. A score of 100 indicates that a family earning the median income in the surrounding metropolitan area can afford to buy a median-priced home. The higher the score, the higher the affordability.

In Pictures: Affordable Places To Weather the Downturn

The U.S. Census Bureau provided information on 2007 property taxes, and year-over-year job growth data came from the Bureau of Labor Statistics.

We cut out counties that don't include distinct townships that are within an hour's drive from an urban area.

Lone Star Spots
Several counties in Texas appear on our list. This is because homes statewide are relatively affordable thanks to low fees for building permits and liberal zoning policies. Property taxes, however, zing homeowners; Texas has neither state nor city income taxes, so local governments rely on property taxes as their main source of funding.