How Security Companies Sucker Us With Lemons

By Bruce Schneier
Wired News
April 19, 2007

Danish translation

More than a year ago, I wrote about the increasing risks of data loss because more and more data fits in smaller and smaller packages. Today I use a 4-GB USB memory stick for backup while I am traveling. I like the convenience, but if I lose the tiny thing I risk all my data.

Encryption is the obvious solution for this problem -- I use PGPdisk -- but Secustick sounds even better: It automatically erases itself after a set number of bad password attempts. The company makes a bunch of other impressive claims: The product was commissioned, and eventually approved, by the French intelligence service; it is used by many militaries and banks; its technology is revolutionary.

Unfortunately, the only impressive aspect of Secustick is its hubris, which was revealed when Tweakers.net completely broke its security. There's no data self-destruct feature. The password protection can easily be bypassed. The data isn't even encrypted. As a secure storage device, Secustick is pretty useless.

On the surface, this is just another snake-oil security story. But there's a deeper question: Why are there so many bad security products out there? It's not just that designing good security is hard -- although it is -- and it's not just that anyone can design a security product that he himself cannot break. Why do mediocre security products beat the good ones in the marketplace?

In 1970, American economist George Akerlof wrote a paper called "The Market for 'Lemons'" (abstract and article for pay here), which established asymmetrical information theory. He eventually won a Nobel Prize for his work, which looks at markets where the seller knows a lot more about the product than the buyer.

Akerlof illustrated his ideas with a used car market. A used car market includes both good cars and lousy ones (lemons). The seller knows which is which, but the buyer can't tell the difference -- at least until he's made his purchase. I'll spare you the math, but what ends up happening is that the buyer bases his purchase price on the value of a used car of average quality.

This means that the best cars don't get sold; their prices are too high. Which means that the owners of these best cars don't put their cars on the market. And then this starts spiraling. The removal of the good cars from the market reduces the average price buyers are willing to pay, and then the very good cars no longer sell, and disappear from the market. And then the good cars, and so on until only the lemons are left.

In a market where the seller has more information about the product than the buyer, bad products can drive the good ones out of the market.

The computer security market has a lot of the same characteristics of Akerlof's lemons market. Take the market for encrypted USB memory sticks. Several companies make encrypted USB drives -- Kingston Technology sent me one in the mail a few days ago -- but even I couldn't tell you if Kingston's offering is better than Secustick. Or if it's better than any other encrypted USB drives. They use the same encryption algorithms. They make the same security claims. And if I can't tell the difference, most consumers won't be able to either.

earlier essay: Vigilantism Is a Poor Response to Cyberattack
later essay: Is Big Brother a Big Deal?
categories: Economics of Security
back to Essays and Op Eds

Photo of Bruce Schneier by Per Ervland.

Schneier on Security is a personal website. Opinions expressed are not necessarily those of Co3 Systems, Inc..