Press Room: 2007

Keynote Issues 2006 State of Mobile and Web Computing Report – Year-End Report Details Trends in Web Performance, Online Experience, Mobile Computing, Streaming and VoIP

• Consumers’ Online Brand Preferences Begin to Harden in 2006: Good News for Amazon.com, Google and Expedia
• Service Level Gap (Speed and Reliability) Widens: Best of Breed Sites Report 99.9% Availability, While Some Well-Known Sites Falter Under Peak Season Traffic
• Consumers Expectations for Mobile Email and Web Soar
• Consumers Begin Flocking to VoIP but Quality Issues Challenge Sectors of the Industry
• Complete Report Available for Free Download

SAN MATEO, Calif., — January 4, 2007 — Keynote Competitive Research, the industry analysis group of Keynote Systems (Nasdaq: KEYN), announced the release today of a year-end report entitled, “Keynote’s 2006 Trends & Observations in a Mobile and Connected World,” examining the state of the Internet and Mobile Services markets in 2006. Keynote is the global leader in test and measurement solutions that improve mobile communications and online business performance.

The new Keynote report contains high level observations and trends in five key markets: The Internet (Online Experience and Web Performance), Mobile Quality, Video Streaming and VoIP. The report also includes a summary compilation of key findings from Keynote’s 2006 competitive research studies of key online markets including financial services, retail, travel and search. Keynote also announced today that its 2006 Keynote Competitive Research Studies are available at a major discount. Keynote executives are available to the media to comment on key findings of the report, which may be downloaded by visiting the Keynote Web site.

“Keynote is uniquely positioned to assess the trends and performance of companies in the online, mobile, streaming and VoIP industries, having conducted more than 100 industry-wide and company specific studies of these markets in 2006,” said Vik Chaudhary, vice president of marketing and product management for Keynote. “Interestingly, we have observed common trends that spanned these markets in 2006. Each market is at a different level of maturity, but consumer opinions and experience with each of these technologies – Web, Mobile and VoIP – are hardening into set patterns and preferences. On the Web in particular, it is increasingly clear that consumers, through their choices which are often based on Web site design and performance, are creating a class system, in which the leading companies are putting greater distance between themselves and their competitors.”

The State of the Web: Brand Preferences Harden, Gaps Widen Between Competitors

According to the report, consumer brand preferences hardened over the past year, as the various online markets matured, making it increasingly challenging for competitor sites to overtake the leaders in their markets. Keynote’s conclusion was drawn from the more than two dozen studies the company conducted in the online retail, travel, financial services and search markets. Overall, the company examined more than a dozen vertical markets and surveyed more than 50,000 online consumers as they interacted with 120 leading sites over the course of 2006.

“As the Internet matures, online brand preferences are hardening as consumers become more loyal and increasingly accustomed to the design and organization of their preferred sites,” said Stephen Foster, director of competitive research for Keynote. “In mature Internet markets such as retail and travel, we are starting to see the same types of consumer brand loyalty you would see in the offline world.”

Keynote noted that brands were also solidifying for the second and third-ranked sites in a market, not just among the leading sites. Keynote said future online market growth would more readily come from an expanding online population and from customers frustrated with their online experience at competitor sites, than by luring customers from other top-tier brands.

“In the mature Web markets, it will become increasingly challenging to steal customers from other leading brands, and increasingly challenging to usurp the leader in a market,” said Foster. According to Keynote’s competitive research studies, the leading sites on the Internet are:

Keynote’s 2006 Trends & Observations in a Mobile and Connected World identifies the leading sites in over a dozen key online markets and the best sites in those markets in terms of online customer experience, customer acquisition and brand loyalty, among dozens of other categories.

The report identifies the top trends on the Web in 2006 as:

1. Hardening Brand Loyalty: Consumers are becoming more inclined to stick with their preferred brand than switch to a competitor site.
2. Rising Expectations: Increasingly high expectations from consumers for a satisfying online customer experience.
3. Desire for Specialization: Consumer expectation and demand for specialized and personalized services on leading Web sites.

State of Service Levels on the Web: A Class System Established, Gap Widens

Keynote also said that a class system has developed in terms of service levels, defined as the reliability and speed of sites on the Web. Keynote’s service level conclusions were drawn from more than two dozen studies the company conducted on leading online industries, collecting more than 6,500 data points for each, on more than 120 leading sites over the course of 2006.

Keynote said that the leading sites in mature Web industries – including financial services, retail, travel and search – have average availability of 99.9%, meaning they have virtually no downtime nor significant slowdowns. The top sites in any given industry will achieve this high level of availability, whereas other sites in an industry display decreasing reliability and responsiveness.

“A definite class system has emerged on the Web. The best sites in a given market are virtually always available and experience almost no slowdowns or errors. Whereas the second-tier sites on the Web are experiencing major outages and slowdowns during peak periods such as the one observed on Black Friday,” said Ben Rushlo, senior manager of competitive research at Keynote.

The Keynote report said that 2006 marked the year that the Internet as a medium had clearly reached the service levels and reliability levels comparable to utilities such as phone, electricity and cable television services. Keynote said that, as opposed to year’s past, virtually all errors and slowdowns that consumers experience today are the result of either poor planning or poor infrastructure, or both, of the specific Web site owner, as opposed to those of the broader Internet infrastructure.

“Consumers now expect almost perfect service from the Internet and the sites they use online. Their expectations of Web sites are comparable to their expectations for phone and cable television service. They expect them to always be on,” said Rushlo.

According to Keynote research studies, the leading sites on the Internet in terms of service level responsiveness and reliability are:

The full Keynote report identifies all the leading sites in over a dozen key markets and the best sites in those markets in terms of reliability and responsiveness, as well as dozens of other categories, such as broadband speed and page construction. Keynote said the retail and financial services industries continue to have the best performing sites in terms of service levels, although even those industries have their fair share of poor performing sites.

The report identifies the top trends for service levels on the Web in 2006 as:

1. Service Level Class System: A two-tiered class system has been established on the Web, with the top sites performing at 99.9% availability, and lower-tier of sites performing at much poorer levels, causing outages and slowdowns during peak periods, such as Black Friday.
2. The Broadband Migration: An increasing majority of sites are being designed primarily for broadband users; with page designs that make pages so slow they are virtually unusable for narrow-band or dial-up customers.
3. Continued Increases in Volume: Traffic and page volumes on the Web continue to rise and raise demands on site operators to improve their infrastructure and performance.

“As the Internet matures and the number of online consumers continues to grow, we are seeing a few broad issues develop. The first is that users are becoming less tolerant of poor site performance and quality as the Web becomes increasingly central to their daily lives. The second is that the dramatic year over year increase in user volumes is putting site operators in the position of needing to almost constantly expand their infrastructure. This constant expansion creates the opportunity for failures and performance issues and underscores the need for aggressive and accurate monitoring and load testing processes,” said Rushlo.

The State of Mobile Services: Data Usage, Consumer Expectations Rise

In the Mobile Services market, Keynote reported that consumer demand and expectations continued to rapidly rise for services such as mobile messaging, e-mail, music, photos and streaming video. Keynote said that although the technologies and markets for these services are not fully developed, consumer expectations were, nonetheless, quite high.

“Driven by heavy advertising and their experience with other technologies, consumer expectations for mobile service quality is at a very high level, comparable to expectations for computer driven access to the Web, gaming, video, and so forth,” said Manny Gonzalez, senior director of mobile technologies at Keynote. “It will be a challenge for mobile services, many in their infancy, to match these soaring consumer expectations in the near term.”

The company noted that in 2006, one out of every three people in the world owned a mobile phone, exceeding the number of persons globally with a PC or laptop computer, with another 1 billion phones expected to be sold in 2007.

“Over the past few years the industry has been driven purely by the growth of the number of mobile phones in use and on delivering the best network and voice packages in the market,” said Gonzalez. “However, in 2006 mobile data services have emerged as a significant factor in the market both in usage and revenue growth.”

Keynote said that the number of mobile phone subscribers adding mobile data services skyrocketed in 2006, noting that Verizon added more than $1 billion in revenue based on mobile Web and data services – and more than $3 billion in games were downloaded globally in 2006. Keynote said a demand for mobile e-mail in business circles – and cultural and entertainment phenomena, such as text message voting during the American Idol program, helped fuel the growth of such services.

“Mobile phone companies are dedicating a lot of advertising to mobile data services – and they are beginning to derive huge revenue figures from these services – and in response consumers are expecting a very high quality of service,” said Gonzalez.

Keynote identified the top trends in mobile services in 2006 as:

1. Rising Consumer Expectations: The rise of consumer expectations to the point where they expect mobile quality to match land line quality – and they expect mobile Web and data services to match the quality of those services as delivered by a PC or laptop on a broadband connection.
2. The Rise of Data Service: The skyrocketing demand for Web and data service via mobile phones including e-mail, text messaging, gaming and video streaming.

The State of VoIP: Demand for Cable VoIP Booms, Challenged by SoftPhone

In the Voice over IP (VoIP) market in 2006, Keynote oberserved significant growth in demand for VoIP services, the emergence of cable as a dominant market force, and performance issues related to the quality of VoIP services that are keeping even larger numbers of consumers from turning to VOIP.

“This year was a watershed year for the VoIP market. A large and growing number of consumers were willing to give VoIP a try. The experience these relatively early adopters have with VoIP will help determine how fast the market grows in the near future,” said Arun Bhardwaj, senior product manager for VoIP services at Keynote.

Keynote noted that VOIP has entered the mainstream as an acceptable means of voice communication with the US VoIP customer base increasing from approximately 1.3 million subscribers in 2004 to more than 7 million in 2006. Additionally, the report noted that more than 100,000 traditional land phone lines a month are being replaced by VoIP services. However, VoIP still has a long way to go, as traditional analog telephony still claims more than 132 million subscribers in the U.S.

Bhardwaj commented, “Traditional voice services over Public Switched Telephone Networks (PSTNs) are facing increased challenges from Analog Telephone Adapter (ATA)-based VoIP providers such as Verizon, EarthLink and Vonage,” However, Bhardwaj noted that both types of voice communication providers are going to be under increasing pressure from the growing base of PacketCable providers (Internet telephony service over the cable network) such as Comcast and Time Warner, and SoftPhone providers such as Skype.

“The PSTN providers and ATA-based providers such as Vonage have been strong in VoIP up to this point, but they will be challenged by the quality of service that cable companies provide and by the ease of switching to cost-effective VoIP services that SoftPhone providers such as Skype and MSN Live Messenger can deliver,” said Bhardwaj.

Keynote, which measures the quality of VoIP services, said that the primary consumer hesitation in switching to VoIP is a concern that the call quality will not match that of land-line service. Keynote’s measurements show that cable providers consistently record the best VoIP phone service quality, providing a level of quality comparable to land line service. The company also noted that most VoIP services require hardware installation, whereas the newer SoftPhone providers simply allow consumers to download VoIP software to their computers over the Internet, shortening the time to receive service and providing a key competitive advantage. Leading Internet companies such as Yahoo!, MSN and Skype have entered the SoftPhone market.

“The big challenge for VoIP companies in 2007 will be retaining their customer bases – and protecting and advancing the reputations of their services. All this rests on the consumer’s perceptions of the quality of service,” said Bhardwaj. “Consumers as a whole are still in the very early stages of learning and assessing VoIP services, the experience of the early adopters will really have a tremendous impact on the direction of this market. Of course, quality is important in every industry, but in 2007 quality of service is of paramount importance if a VoIP provider is to make it to the next round of growth in the market.”

The State of Streaming in 2006: Social Networking Sites Drive Furious Growth in Streaming Content

Keynote reported that the continuing growth in broadband adoption in 2006 led to an increase in social web applications and a furious growth in the availability of video. The majority of growth in the streaming video market was driven by user generated content, but there were ample examples of traditional media companies experimenting with the delivery of their programming.

The report predicted that consumer-developed video will continue to drive streaming growth in 2007, but next year will see media and Internet companies produce higher quality video and niche programming aimed at augmenting the TV viewing experience. The increased distribution of video content will also fuel growth in peer-to-peer platforms as legitimate mechanisms for delivering streaming media.

“Consumers, through social networking sites such as YouTube, drove the growth and popularity of streaming video in 2006, but traditional media companies are beginning to focus seriously on this medium and market,” said Jeff Geiser, global director, streaming media and VoIP at Keynote. “Collaboration between content owners, advertisers and manufacturers will provide a new array of offerings to a wider set of audiences.”

Keynote said the video ad market will also be radically impacted by the growth of the streaming market – and that the revenue models associated with delivery of video ads will mature. Increased user control of content will require a higher level of interactivity and creativity among video ad campaigns.

Keynote identified the top trends in streaming as:

1. Explosion of Consumer Driven Content: The explosion of consumer developed content and the rise of social networking sites such as MySpace and YouTube.
2. Media Companies Increase Quality: As the streaming video market expands beyond the tech-savvy/early adopter stage, media companies will dedicate more resources to streaming content, and the quality of the viewing experience w ill need to match expectations that have been set by traditional television.
3. Audience Fragmentation Provides Opportunities: Niche markets and audiences are providing opportunities for new video offerings. The Internet allows media companies to inexpensively target these audiences and expand overall advertising opportunities.

To download your free copy of the report entitled, “Keynote’s 2006 Trends & Observations in a Mobile and Connected World,” visit the
Keynote Web site.

About Keynote

Keynote Systems (Nasdaq “KEYN”) is the global leader in test & measurement solutions that improve mobile communications and online business performance. As an independent and trusted third-party, Keynote provides IT and marketing executives with an unbiased view into their Internet services from around the world. For over a decade, we have been providing measurement data and testing capabilities that allow companies to understand and improve their customer’s online and mobile experience. Keynote has four test and measurement businesses: Web performance, mobile quality, streaming & VoIP, and customer experience/UX. In addition, our industry analysis group called Keynote Competitive Research publishes proprietary studies measuring customer experience and service levels across a wide range of industries.

Known as The Mobile and Internet Performance Authority™, Keynote has a market-leading infrastructure of 2,400 measurement computers and mobile devices in over 240 locations around the world. Keynote also maintains one of the most representative panels of online users consisting of 160,000 consumers. Our on-demand, hassle-free infrastructure allows businesses to access services they need, when they need them to pinpoint and fix mobile quality and Internet problems before they impact customers.

We help over 2,600 corporate customers become “the best of the best” by helping them improve online business performance and mobile communications quality. Our customers represent top Internet and mobile companies including American Express, BP, Caterpillar, Dell, Disney, eBay, ESPN Mobile, E*TRADE, Expedia, FedEx, Microsoft, SonyEricsson, Sprint, T-Mobile, Verizon and Vodafone.

Keynote Systems, Inc. is headquartered in San Mateo, California and can be reached at www.keynote.com or by telephone in the U.S. at (650) 403-2400.

Keynote, The Internet Performance Authority and Perspective are registered trademarks and The Mobile and Internet Performance Authority and True Experience are trademarks of Keynote Systems, Inc. Other trademarks are the property of their respective owners. © 2007 Keynote Systems, Inc.

Editorial Contacts:

Dan Berkowitz, Keynote Systems, (650) 403-3305, dan.berkowitz@keynote.com

Dan Cahill, Roaring Communications, (415) 552-3999, dcahill@roaringcommunications.com