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Eat, sleep, Zoom, repeat?

Assif Shameen
Assif Shameen • 10 min read
Eat, sleep, Zoom, repeat?
Zoom - is it in or out?
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SINGAPORE (Apr 17): From San Francisco to Sydney and Singapore, the commute for office workers these days is from the bedroom to wherever they can use their laptop. Companies, governments and schools around the world have sent employees and students home to prevent infections and to work or study in the largest work-from-home experiment in history as the coronavirus pandemic enters its fourth month. The main enabler of work-from-home and stay-at-home trend is Zoom Video Communications, a videoconferencing software firm whose daily active user base ballooned over 20-fold from 10 million in December to over 200 million in late March. Viral adoption has turned Zoom into a verb, so these days we Zoom someone just like we Google something.

Will Zoom redefine how we communicate in the post-Pandemic world the way landline phones changed how people communicated after World War II or the way mobile phones became ubiquitous in the late 1990s? Or will the intense scrutiny that has followed Zoom’s ubiquity eventually derail it?

Zoom’s software connects people through video, voice, chat and content sharing, and enables face-to- face video experiences with colleagues, business partners, friends and family. While WhatsApp video, Skype or FaceTime can instantly link you with anyone, you cannot attend a yoga class on WhatsApp video or a board meeting on FaceTime. What makes Zoom different is that it is a professional software that can easily be scaled from two users to thousands joining virtual corporate meetings that can be recorded and shared. “Working and studying from home requires software that works anywhere and enables collaboration,” notes James Wang at asset management firm Ark Invest in New York.

Originally aimed as a business-focused software, Zoom is gaining traction from new use cases, including remote education where it is used by universities to broadcast lectures or conduct classes, or for virtual doctor’s consultations, therapy sessions with psychiatrists, as well as social activities like virtual happy hours dubbed “Zappy Hours”, and virtual funerals. It is a virtual utility that doubles as social media.

By one count, tens of millions of students in over 90,000 schools across 20 countries are studying remotely through Zoom and more virtual classrooms are coming online as the lockdowns drags on. Cabinet meetings around the world have been conducted over Zoom, directors are conducting corporate board meetings using the software and Zoom weddings are all the rage. The software is used to broadcast religious sessions from churches, temples and mosques, as well as music concerts and art shows. “Zoom is filling the void that social distancing has created,” Rishi Jaluria, software analyst for DA Davidson in Portland, Oregon, tells The Edge Singapore in an interview.

At its height two weeks ago, the company’s US$46 billion ($65.2 million) market capitalisation was more than the combined market value of the big three US automakers — General Motors, Ford and Fiat Chrysler. Indeed, at one point last month, Wall Street was valuing Zoom at more than all of the listed US airlines, hotels and cruise operators combined.

Mea culpa

Ironically, Zoom’s hyper growth is now threatening to become an albatross around its neck. The software has come under intense scrutiny for privacy concerns as well as security issues. Moreover, competitors such as Microsoft and Cisco have dramatically improved their own video software, adding their own free and freemium consumer versions, and making them more secure, as they try to derail Zoom.

“I really messed up,” founder Eric Yuan said apologetically in a blog post two weeks ago. “We recognise that we have fallen short of the community’s — and our own — privacy and security expectations,” he said in his mea culpa. Yet, despite the hammering it has taken, Zoom has emerged as a formidable global player in the productivity software market that even giants like Microsoft and Alphabet’s Google now have to contend with.

Son of mining engineers from China’s Shandong province, Yuan, a software engineer, had long dreamed of working in the Silicon Valley. He tried eight times to get a US visa, but despite being repeatedly denied one, he just kept showing up at the US consulate until he succeeded. Soon after arriving in America in 1997, he landed a job at WebEx, which was developing a video conferencing software. In 2007, networking giant Cisco acquired WebEx, and Yuan ended up heading the engineering team for collaborative software. But WebEx software was buggy and Yuan could not persuade his bosses to give him the resources to overhaul it, so in 2011, he quit and on a wing and a prayer, launched rival Zoom.

Video conferencing is fiercely competitive, with giants like Microsoft, Alphabet’s Google and Cisco battling it out for corporate customers. Zoom’s revenues are forecast to grow 48% in the current fiscal year ending next January to US$920 million. Zane Chrane, an analyst for Bernstein in New York believes Zoom can convert a decent portion of its new freemium users into paid ones adding hundreds of millions in additional revenues over the next few years. Zoom concedes that there will be gross margin erosion to pay for some of the recent heady growth. Last year, the company had gross margins of 81.5%. Only two software peers, PagerDuty with 85.2% and Slack Technologies with 84.6%, had better gross margins.

Zoom has been gaining share from legacy video conferencing tools by differentiating itself from competitors like Cisco’s WebEx, Google Hangouts, LogmeIn’s GoToMeeting, Microsoft’s Teams, and video and teleconferencing equipment maker Polycom, who lack some of the large event, video and learning integration that Zoom has. Not only does Zoom have one of the best video conferencing products in the market, its customer care and support are miles ahead of its peers. Yuan has built a customer-centric culture at the firm, focusing on making the most user-friendly software that “just works”.

Zoombombing

Zoom is popular because even kids can use it with just a click or two. You do not need to log in, create an account with your credit card or go through a bunch of steps that most software force you to do. With Zoom, until last week when it started to tighten up its processes, all you needed to do was to download the software or its app, and you were ready to roll. Ironically, Zoom’s biggest asset, its ease of use, has become its main flaw. As it has morphed into a mass market product, people are sharing their Zoom yoga classes and weddings on Facebook or Instagram and, if you are a troll, all you need to do is find the link, guess the password, if the user actually has one, and can just Zoombomb away.

Much to the world’s chagrin, as we become more reliant on Zoom, hackers and pranksters are intruding with graphic porn and racial slur to disrupt classes and company meetings. Bad actors have been exploiting security vulnerabilities in the software for a while now. Zoom encourages users to try features like a waiting room, a meeting lock as well as a screen sharing limit to avoid such attacks. Last year, Zoom installed a web server inside macOS when users downloaded its software on their computers to allow itself to easily work inside the operating system. It unwittingly created a loophole that allowed any website to open up a video-enabled call on a Mac that had Zoom installed. But, even if you uninstalled Zoom, the web server persisted and was able to reinstall it without human intervention. Not surprisingly, Apple’s top brass went ballistic and quickly pushed a software update to remove Zoom’s web server.

There were other issues. Zoom was sharing data with Facebook, which could sell that data to advertisers. Imagine if you were a doctor’s patient or a member of a corporate board and Facebook was creaming off all your data. Zoom has since fixed that issue and Facebook no longer has access to your data through its software. Then there was the issue of Zoom’s promise that video calls were encrypted endto-end for all meetings. They were not. “I am deeply sorry” for implying that all calls were encrypted end-to-end for all meetings, Yuan said last week, claiming he has given himself 90 days to fixing Zoom’s problem. New York City schools have since banned Zoom and asked students to switch to Teams or Hangout. Last week, Singapore schools temporarily suspended use of Zoom as well. It followed a similar move by Taiwanese schools. “Zoom needs to do better,” argues Jaluria. Any company that has grown exponentially over three months “will inevitably have some growing pains, if they can even provide the service at all, as such it is worth considering the full context of Zoom’s oversights and alleged transgressions,” says Chrane.

Zoom’s problems are unlikely to send all of its customers to Microsoft. It is easy to switch yourself off from Zoom but it is hard to switch on to other products like Teams, or Hangouts. Even after the world returns to some sort of normalcy, Zoom will continue to be a beneficiary as businesses change their attitude towards working from home. That is because “companies have been investing heavily in software such as Zoom that enables remote work and collaboration while ensuring that the right systems and processes are in place, particularly in areas where compliance is a key component,” Jaluria says.

Having captured mindshare and with its stock trading at three times its IPO price a year ago, Zoom needs to quickly move to raise cash which it can then deploy for acquisitions. R&D and boosting security. In February, just days before the market peaked, Tesla raised US$2 billion in a secondary offering when its stock was trading at over US$800 a share. Last week, Slack, whose messaging software has a cult-like following, raised US$750 million in a convertible debt issue. Analysts say even in current market conditions, Zoom could easily raise up to US$2 billion, possibly more.

Zoom can also quickly remake itself and reposition for the post-pandemic world. In the aftermath of its own IPO six years ago, Facebook’s stock hovered around US$17 with a billion users, no traction on mobile, and no clear path to profitability. Since then, Facebook has soared over 10-fold to US$180 despite all the scandals, regulatory fines and privacy concerns. Zoom can monetise its huge and growing customer base, which may be upset about privacy but still loves the software’s user experience.

Though a transformational merger with collaborative software firms such as Slack or London-listed Atlassian Corp are considered a long shot, there are plenty of mid-sized firms that might benefit from embracing Zoom, like work management software maker, Asana. If Yuan refuses to play predator, he might become prey to the likes of Salesforce.com, which already has a small stake in Zoom, or even Amazon. com. Zoom is not for sale, insists Yuan. But having brought the company to global dominance, he is unlikely to let Microsoft or Google trample on him. Yet Zoom now desperately needs to earn back the trust of corporate customers who have been zoombombed. A partnership with a giant that has credibility with large corporations, and which keeps Zoom a dominant player in the collaboration software space, might just be what the doctor ordered for the company once the Covid-19 pandemic is in the rear-view mirror.

Assif Shameen is a business and technology writer based in North America

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