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Q&A with Umang Gupta, Chairman and CEO of Keynote

You have a few options when it comes to measuring your streams. You can do it yourself with tools like WebTrends and Lariat, get customized reports from your streaming provider, or subscribe to third party services like Arbitron. But for knowing what's happening from an end-user point of view, Keynote may be your best bet.

In June, San Mateo-based Keynote Systems (http://www.keynote.com) announced it was started a streaming measurement service. It essentially tunes into audio/video streams and reports back information like average frame rate, the number of lost packets, average bandwidth and more. Although the service hasn't full launched yet (that's set for September), they've released data from big webcasts like this year's Victoria's Secret and the Big Brother shows. In fact, Keynote recently ranked the Big Brother webcast an 8.66 on a scale from 0 to 10 (according to their data, performance didn't vary much from day to day, and there was no geographic variability).

Keynote's CEO Umang Gupta says the company's mission is to improve the quality of e-business. Keynote is already well known for its e-commerce and web site measuring service. "We are able to measure the speed, the reliability of downloads, the time it takes to do a transaction (like a stock trade or buy a book), from 50 different cities across the globe," says Gupta. Now with their streaming measurement, this is just another step to delivering a full suite of services.

Keynote isn't alone in the streaming measurement space. Data center company, Exodus (http://www.exodus.com), also said it will start measuring streams before the end of the year. Gupta, however, didn't seem concerned about this new competitor.

Streamingmedia.com spoke with Gupta last week to talk about the new service and the company's recent financial results. Gupta talks frankly about Keynote's stock price and clears the air about their earnings result, which caught many investors off guard.

Q: First, tell me more about your streaming measurement service and what you see as the advantage to knowing the information you measure.

A: The most recent service we announced is called Streaming Perspectives. We’ve already been selling Keynote Perspective (which measures URLs) and Keynote Transaction Perspectives (which measure transactions), and now streaming. [The streaming service] will give you the start up time and quality associated with a URL. Essentially, if you connect to Yahoo, you need to know how good the quality for a particular conference call was, versus some other place like Lycos. Or, if you want to know if a CD played at top quality or at poor quality, you’d be able to get objective measurements of that.

Q: Why decide to get into this? Was this just a natural evolution or do you see streaming as an integral part of your business going forward? In other words, how much are you banking on the streaming side?

A: It’s a natural evolution of our mission but we are also expecting to see a lot of revenues come from [the streaming measurement]. In the long run, maybe even more than some of the current services we have. And the reason is, as the Internet goes from narrowband to broadband, it’s inevitable that the quality of service is going to be determined by the quality of streaming media -- not just the quality of home page downloads. So measuring streaming media, we think, will be crucial to every e-commerce web site in the world that has any kind of streaming services or content. And certainly to any kind of service provider or content distributor whose job it is to make sure that this kind of streaming is served in a good way.

Q: So, currently, what have you found? It seems you’re mostly doing large webcasts.

A: We have been in beta mode for the last 90 days. We announced the service in June. We expect to deliver formally to all our customers sometime in September, but we’ve had tremendous success with the beta. We are currently measuring more than 130 streaming URLs, for a couple of dozen customers. Most of them are large customers who are either in the business of providing streaming content or are service providers whose job it is to accelerate streaming content. And by and large we’ve gotten positive reviews from everybody. We are delivering the service after providing this capability through our consulting groups. It’s not a new service for us--we’ve just been delivering it with a bunch of professional services. But going forward, it will be available in a very simple way as a monthly subscription for anybody who has any kind of streaming content on the web.

Q: I didn’t know Keynote had a consulting arm. Is that a big part of your company?

A: Consulting represents about 5% of our business but strategically it’s very important because we get to work with out top customers in a more intimate way. Since the rest of our business is a tele-sales-based subscription-oriented business, consulting is our way of making sure that we are in close touch with our big customers.

Q: So how do you remain impartial with your measurement offerings in light of your relationships with streaming providers?

A: The key to our impartiality, and our stature as the Internet performance authority, is that we have no axe to grind. We make no money from anything other than the data we provide or the consulting recommendations we make. So let me show you: when we tell you that you have a problem, there may be a requirement for you to buy more hardware, buy different software, change vendors, possibly choose a particular content acceleration technology. We make no money on any of those recommendations. In fact, we go out of our way to ensure that whenever we make recommendations, we don’t make them biased to a single vendor, but to appropriate technologies.

So in that respect, we’re more like JD Power. We can help you do the crash testing, we certainly do a lot of measurements like AC Nielsen, we can do benchmarking for yourself vs. your competition, we can help assure whether your vendors are living up to your service level agreements. But because we make no money off any of these vendors (they’re all partners but money doesn't necessarily change hands), I think you'll find that people trust our independence and therefore our position in Internet performance.

Q: It seems you have some competition in you streaming measurement, since Exodus recently said they were doing the same thing.

A: That’s interesting. We used to compete with a company a year ago called Service Metrics that was bought by Exodus. Up until they were an independent company we viewed them as our only competitors. They were about 10% of our size and about 1/10th of the number of customers and number of computers and locations--and by and large, 1/10th of our revenues. So we viewed them as a potential competitor about a year ago. They were bought by Exodus and since then we really don’t see them much in the marketplace at all because they are being used more as a captive unit by Exodus doing private measurement for just Exodus customers.

Q: So, you’re saying they don’t measure other providers?

A: They may make claims to that, and they may very well in some cases do that for an Exodus customer, but by and large, they are not positioned as --nor do customers view them as-- an unbiased independent source of data. And they’re more likely to be used as part of an Exodus professional services engagement than a third party check.

Q: So exactly what are the revenue models for your company -- especially the streaming measurement side?

A: Our revenue model for all our products including streaming are pretty straightforward. We have a monthly subscription price, which is typically per URL. The price for our typical page downloads ranges from $295 to $1,495 a month. For streaming URLs, it ranges from $995 a month to $9,995 a month. And the range depends on lots of things, like how many cities you want to measure it from and on encoding bandwidth. So it really depends on URL that you’re measuring.

Q: But I see you’re measuring some big name webcasts like Victoria’s Secret and the Big Brother webcasts. How do those work?

A: We will measure anything based on subscription as long as you have access to that URL. Most URLs that we can measure are on public web sites that we can measure without the permission of the owner. So you can ask us to measure your own site and your competitor's site. We also (in many cases) measure sites free of charge by our public services group, which is responsible for delivering data that is of interest to the industry as whole. We make that data available free to the media and people will often publish an index, like the Keynote Business 40 Index (which consists of download pages for top 40 web sites of the U.S.) or the Keynote Brokerage Transaction Index (which measures the time it takes to do a stock trade transaction on the top 20 brokerage sites).

Q: Will there be a streaming index as well?

A: There will be a streaming index. We’re working on delivering that too at the time we deliver the product next month.

Q: You made a deal with Jupiter recently. How does that affect what you do, especially in light of Jupiter’s merger with Media Metrix?

A: First of all, with Jupiter and Media Metrix as one company, I think our relationship with them is going very well. Their business is to provide e-commerce companies with marketing advice and data that helps them understand how popular their web sites are. Our data is much more technical and provides you with specific information on quality of service of your web site, your competition, and your industry. And that data is part of the overall relationship with Jupiter. So Jupiter will take our data and incorporate it into their practices.

Q: So who’d be the person most interested in the measurement data you collect?

A: There are typically two or three people in the company interested in our data. Clearly whoever is in charge of e-commerce is interested, usually also the VP of operations or technology because they want to make sure they’re doing a good job for their customers and meeting their own internal quality benchmarks, and also to verify if their vendors are doing their job.

Q: Have you ever had a company say to you: "Hey, because of your data we switched vendors. Thanks a lot?"

A: Actually we have a lot of customers that use that data for that purpose but typically they don’t use our data on a one-time basis to make a decision. That's because . . . companies like Digital Island and Akamai use our data constantly to prove to their customers that if you "Akamaized" a site you can accelerate your content. And in an ongoing basis these companies use our service to prove that they're continually doing a good job. Recently Digital Island, for example, announced an agreement with their customers where they will deliver service level agreements with Keynote data to determine if they're doing a good job. If Keynote data shows that performance was poor or below a certain level, then they will refund a certain amount of money. That’s all based on Keynote data.

Q: But how can a company justify using (and paying for) your service when they can use in-house stream analysis software or use Arbitron?

A: The value we provide cannot be done with in-house data or any other service, to my knowledge. We are able to measure your Quality of Service (QoS) from the viewpoint of an end user, in multiple cities across the globe. Typically in-house monitoring tools will tell you what the performance is like inside your firewall, but Internet performance varies hugely over geography. You can take a streaming clip and get a certain level in San Francisco but incredibly poor quality in San Antonio because the connections were poor. So on the average you really need to measure from multiple locations, across time (because quality varies over time) and get statistically valid samples to make those decisions. And not base them from anecdotal information from customers or from one probe sitting next to your firewall.

Q: You reported profitability in your last quarter, but your company's stock price has been steadily going down. Can you comment on that?

A: Well I try not to comment too much on our stock price, because so much of what happens in the stock price is a function of the market and not just us. When I look at our stock price today versus many comparable companies and compare them to where we were three months ago, I think our stock price has taken quite a hit. But other companies are down there with us. Now it’s true our stock price took a hit right after we announced earnings as many others typically do -- its normal profit taking. My sense is that some of it was pure confusion.

Q: I take it you're referring to something we wrote in Streamingmedia.com's Chat Room Spotlight a few weeks back that said your company's entire profit was due to interest?

A: You quoted someone from a chat room as saying that our entire profit was due to interest. When in fact we had an operating loss. That is simply not true--it’s false. We showed 11 cents a share pro forma profit. No doubt that significant amount occurred because of interest we had from $350 million sitting in the bank, which is pretty large compared to other companies. But analysts were already expecting a certain amount of interest anyway. One of the reasons we surprised analysts was that analysts thought [we had] a $4.5 million operating loss and we ended up with $2.5 million operating loss. In other words, we were $2 million better than analysts expected. And that’s been a consistent trend. So that’s been our pattern for the last few quarters. We’ve been beating analyst estimates in top line and bottom line. While I would not project any numbers at this stage other than what analysts put out there, I would point out that we fully expect to either meet or beat analysts' expectations this quarter and in the quarters ahead.

Q: You mentioned you had $350 million in the bank. What are you going to do with that? Any specific plans?

Well we recently did an acquisition a few months ago of a company called VeLogic which is a load testing [company]. This permits us to offer customers with service for testing and verifying that their e-commerce site is ready to do business with the load they expect beforethey put it into production. So that was a good example of using some of our cash to buy a company. We continue to look at other acquisition opportunities that would make sense for us in a complementary basis -- that are also accretive to us in our earnings side or at least not dilutive. We've identified quite a few that we’re looking at and certainly having cash in the bank helps you in these kinds of situations.

Q: Are you looking at getting more involved in streaming companies?

A: I’d rather not speculate on the specifics of companies but I’d like to point out that our goal is to continue to add to our product line for measuring Internet performance for all kinds of media whether they be streaming, wireless, or telephony. All of these are things in the future, and whether we build it ourselves or acquire them--we’re agnostic.

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