San Mateo-based Keynote Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KEYN)") else Response.Write("(Nasdaq: KEYN)") end if %> provides measurement and diagnostic services companies use to measure and improve the performance of their websites. We spoke with CEO Umang Gupta about making his company's service "mission-critical" for customers and the importance of direct sales.
TMF: The thing to do might be to have you start by talking about what Keynote is doing, since you're relatively new to the public market.
Gupta: Measures, assures and improves the quality of service of electronic commerce websites. Very specifically, what's unique about us is that we're an infrastructure service that's designed to help sites like Amazon.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %>, Cisco <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCO)") else Response.Write("(Nasdaq: CSCO)") end if %>, Dell <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %>, Microsoft <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %>, E*Trade <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EGRP)") else Response.Write("(Nasdaq: EGRP)") end if %>, Schwab <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SCH)") else Response.Write("(NYSE: SCH)") end if %>, etc., all improve the speed and reliability of their websites for real users from lots of locations across the country.
For example, if you're hosting a big website, you're never really sure if you've got users in San Francisco being able to do a transaction or see a page in seven seconds whereas for users in San Antonio it might be taking 70 seconds. And the only way we really know if you're doing a good job or a bad job or if you can isolate problems that might be causing this is to have somebody physically measure your website all of the time, constantly sampling it from all of these different locations and that's what we have done.
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"We're very comfortable with our direct focus and I think every great company needs to have one dominant method of selling."
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We've put computers in about 100 different locations in about 50 cities across the world and what they do is sample our customers' websites and collect all of this information and then make it available to our customers who then use it to either assure themselves that they are meeting service levels for their customers or compare themselves to their competitors or diagnose hard-to-find problems on the Internet.
TMF: So, they get a report from you. What kind of information is in it and where do they go from there?
Gupta: We collect almost 15 million data points every day as of right now on more than 5,000 pages of websites and the data we provide, first of all, comes a variety of different ways for a different kind of person, so if you happen to be a nontechnical person, e-commerce manager, a marketing manager, a CEO -- myself for example -- you would typically get an email from us every day that would tell you a very quick summary that you could peruse in just a few minutes -- actually a few seconds -- that tells you how your website did relative to the "Keynote Business 40," which is the compendium of top 40 business sites that we're constantly measuring and for whom we've created a performance index, much like the Dow Jones Index, or the S&P Index.
If you're a more technical operations manager or analyst or network engineer you would have secure access to our website where your detailed data is collected and you can then use a Web browser to analyze that data through graphs, charts and bar charts and essentially drill down to whatever level of detail you need on the cause of the problem you may have. And if you were a console operator or manager or somebody running a network operations center where you want minute-by-minute access to what's going on with your website, you can get pagers and alarms from us on a real time basis, or a semi-real time basis -- every few minutes -- that will tell you what's going on.
TMF: And then your customer will go back to its own engineers or to whoever it uses for its services, say "Here's the problem we found through Keynote," and get them to work on it?
Gupta: Most of our customers are fairly sophisticated websites with good engineering talent, [and] typically they would use our data and be able to interpret it in-house. It's a very hassle-free, very simple, straightforward way of interpreting the data that they can use.
However, many of our customers -- if they have especially difficult problems to solve or they don't have enough specialized resources in network engineering -- use our consulting services, which is a separate unit we have where they can then get access to interpretive facilities and diagnostic advice and, in general, any other additional advice they need to improve the quality of their site.
TMF: In the long run, do you think more of your growth will come from customer acquisition or from growing out your service offerings?
Gupta: Our history to date has been both and I don't really see it stopping for a while in both. We've been growing our customer base over the last 18 months quite nicely. At the end of the previous quarter that was reported in our S-1, we had about 400 direct customers and if you added up both direct and indirect customers we were actually close to 1,500 customers.
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"We expect to begin inroads into Europe and Asia next year and I certainly believe that there should be some nice increases."
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That growth rate has been approximately 40% a quarter, quarter-on-quarter, in terms of new customers. But, on the revenue side we were also growing faster than that in some cases. Much of that additional growth was coming from existing customers re-upping the amount of service that they will purchase from us.
TMF: Do you see some future consolidation in the Internet measurement industry?
Gupta: Well, there's a lot of consolidation going on in the industry. In the management team we're constantly focused on meeting the needs of our customers today and doing a good job of building our business and value into it, but at the same time constantly watching the chess board as it might unfold.
In my opinion, the Web tracking and measurement landscape can be roughly divided into four quadrants: people who are measuring performance and people who are measuring profits, and then those people who are measuring performance or traffic via software solutions versus those who are measuring it via a service-oriented solution.
The people who are measuring traffic are companies like Media Metrix <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MMXI)") else Response.Write("(Nasdaq: MMXI)") end if %>, for example, or Nielsen Media Research's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NMR)") else Response.Write("(NYSE: NMR)") end if %> NetRatings, and they offer it via service. Those who measure traffic via software are companies like Accrue <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ACRU)") else Response.Write("(Nasdaq: ACRU)") end if %> and WebTrends <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WEBT)") else Response.Write("(Nasdaq: WEBT)") end if %> and we actually complement these services. The customer, for example, can get information from Media Metrix or WebTrends or Accrue that will tell them how their website is being visited, how many visitors are coming through, what are the click-throughs and then, in general, they can then correlate this traffic information into our information will tell them how their website is performing in terms of speed and reliability, and they can use this correlated data to do a good job of capacity planning.
There are also companies that sell software -- companies like Concord <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CCRD)") else Response.Write("(Nasdaq: CCRD)") end if %> and Micromuse <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MUSE)") else Response.Write("(Nasdaq: MUSE)") end if %> and Tivoli <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TVLI)") else Response.Write("(Nasdaq: TVLI)") end if %> and Hewlett-Packard's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWP)") else Response.Write("(NYSE: HWP)") end if %> OpenView -- these are either enterprise or ISP-based software solution plays that have largely found our service a complement to their software so with many of them we're actually talking about providing data feeds of our data into their software solutions so customers can get a combination of intranet measurement software from them and Internet measurement services from us.
TMF: You're doing that now or that's something you're considering?
Gupta: There are actually a few players with whom we are working today that I cannot talk about, but at this moment we are in fact working with at least a couple of players in that area.
TMF: How much could some of those deals potentially expand your customer reach?
Gupta: The reach comes from two different ways. One is the number of customers we get and the second in the mission criticality that our service then provides. I think the complimentary data feed into products offered by companies really helps both improve the potential number of customers that could now get to know about us, but also helps to make ourselves even more mission critical.
They already view these other software packages as very mission critical to them and then when our data feed shows up in the middle as part of that solution then they can find it even more mission critical. So we don't really worry too much right now whether it's going to ad x number of leads. We're going at such a fast rate and the number of leads coming in are coming in from so many different sources that I view this effort more in the class of attempting to build more mission criticality into our services.
TMF: You market your services not only directly, but also through companies like Verisign <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VRSN)") else Response.Write("(Nasdaq: VRSN)") end if %> and Network Solutions <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NSOL)") else Response.Write("(Nasdaq: NSOL)") end if %>. I wonder if you could talk a little bit about a breakdown of what percentage of your sales comes from direct sales and through your partners?
Gupta: Actually about 80% of our revenues come through direct telesales-based activities. Twenty percent or less come through what I would consider indirect sales. And those indirect sales are primarily through web hosting companies like Digex <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DIGX)") else Response.Write("(Nasdaq: DIGX)") end if %>, NetCenter, Exodus <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EXDS)") else Response.Write("(Nasdaq: EXDS)") end if %> and others. These companies take our data and then essentially make it available to their customers. That's also true for VeriSign, though Verisign is a combination kind of deal. On the one hand, customers get a version of our service for one month through VeriSign and that gives us some number of additional subscribers every month, but then at the end of the month we have the opportunity to upsell those customers and make them long-term subscribers for us and that gives us means for doing more with them.
And we have a similar arrangement with Network Solutions which is designed to get leads for our low-end service, Lifeline.
TMF: Is that 80/20 split something you think is OK?
Gupta: We're very comfortable with our direct focus and I think every great company needs to have one dominant method of selling because that way you avoid conflict and that's where you also focus the company's sales culture in a single way. For a company like ours, which offers a very low cost service that customers use pretty much on a pay-as-you-go basis, there is not a very long sales cycle involved. I think the most cost-efficient way to do the job is through telesales, at least in the United States, though overseas it might be different.
TMF: Can you talk a little bit about your pricing?
Gupta: We priced our service based on how many URLs you measure or how many transactions you measure and a transaction is typically a collection of URLs. So if you want to measure one URL from 10 cities in the United States, our price is $295 a month. Twenty-five cities, the same URLs is $495 a month. Thirty-five cities across the globe is $695 a month. A transaction is a collection of URLs, like for example buying a book or doing a stock trade or making a travel reservation and we charge based on, again, 10 cities, one transaction, $995, but it's limited to five pages. If you wanted more pages in your transactions, which most customers do have, we just charge you more based on how many pages there are.
TMF: Is it pretty service-intensive to start up a new customer?
Gupta: The beauty of our business, and I think one of the biggest reasons why customers like our service and enjoy doing business with us is that we are a really hassle-free, completely outsourced way to provide quality statistics on website quality of service. So, customers call us and they can place an order for a URL to be measured and typically within 24 hours we've pointed our computers at that URL and data is being collected and they can then start to use that data within 24 hours. In fact for our low-end service, Lifeline, customers don't even need to call us. They can literally get onto our website and use a credit card to place an order on that particular site and they can then get going with that with a 30-day, money-back guarantee because it's a credit card purchase.
For our high-end customers -- for our top 20 or 25 customers -- clearly there's a bigger contact that happens after we've engaged with them. There was a customer that I will not name, a major financial institution, that in December of last year started with a service order for one URL at $495 a month and by August of this year, just eight months later, they were paying us $20,000 a month. They liked our service, they started ordering more URLs, they started buying URLs belonging to their competition because they are in a highly competitive industry and they also wanted a transaction service and some of our industry indexes. Obviously, as these numbers increase we provided more support, more on-site interaction with them and of course they are now a part of our large account sales. We have large accounts who we provide special services.
TMF: You spoke briefly about international operations. Where are you in that now and where do you see that going?
Gupta: Well, they're two parts to that question. We have a pretty extensive international infrastructure for measuring the websites, so many of our American customers want to measure their websites not only from the United States, but from all over the world, so out of the 220 computers across the world, I'm going to estimate that we probably currently have about somewhere around 60 or so computers internationally. We think over time that number will go up so as we increase our infrastructure, we will certainly have a higher percentage of our computers located overseas than in the U.S. because there are a lot more geography, a lot more backbones to cover.
From a customer acquisition view point, we have virtually no customers today from overseas, though on occasion some large corporations from overseas will order services from us through their American subsidiaries, or through their American parent company. We expect to begin inroads into Europe and Asia next year and I certainly believe that there should be some nice increases. Hopefully [there will be] revenues from that part of the world over the coming years, but Europe is about a year or 18 months behind right now.
TMF: You would need to set up entirely new direct sales operation to do that?
Gupta: We are still evaluating possibilities. I believe that in many of these countries a telesales operation may not necessarily be the best way to go and a more consulting-centric sale may be the right way. So we are looking at ways to approach these markets that's appropriate for that market and in some countries telesales may be the right way; in others consulting may be the right way.
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