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signing up at slidebean.com/youtbe. These are strange times and, if you are in
your house (which you should be!) chances are you’ve used some sort of video call
to talk with family, friends or even go to school. And, most likely, it’s been Zoom.
The videoconferencing software has taken the world by storm. But, in the presence of giants
like Microsoft with Skype and Teams, and Google with Hangouts, why is everybody using Zoom?
To find the answer, we must go back a few years. And, yes, spoiler alert, this is Forensics,
so not all is glitter and glamour.
Let’s talk about one of the most popular apps right now, Zoom, and how it became
successful.
If you google Zoom and successful, you might be surprised to see articles praising the
software that date back as far as, well, its launch in 2013.
The reason for this praise is mostly due to this man. Meet Zoom’s CEO Eric Yuan.
In the late 80s, he emigrated from China to the U.S. to work in tech. He had the vision
that one day, technology would allow portable, easy-to-use videocalls. And this became his
obsession.
As an engineer, he landed a job in a company called WebEx Communications. From the start,
Yuan became a key player in developing their video conference software. WebEx became one
of the first options for videocalls in the market and, at first, it seemed geared for
success.
So much so, that Cisco bought it for $3.2 BN in 2007.
Yuan doubled down his efforts to improve the software, at the same time climbing up the
ranks, reaching the rank of VP of Engineering. Under his guidance, WebEx grew to more than
750 engineers and had annual revenue of more than $800 million.
WebEx was not only one of the first, but also one of the most complete, videoconference
tools. So, it was a hit at the time.
But it wasn’t perfect: connectivity was unstable, audio and video would lag, and the
installation process was frustrating for IT departments. Remember this.
WebEx survived because there was very little competition in the market. But things wouldn’t
remain the same for long.
Yuan was aware of WebEx’s deficiencies. In fact, he suggested changes, but upper ranks
didn’t go along with them. And, after dealing with a lot of resistance, he left. But his
time in WebEx taught him valuable lessons.
Check out what he said in an interview:
This gave Yuan a north: customers had to be happy. So, he took all these new problems
and aimed to create a videoconference software to solve them.
Was it a bit crazy at this stage?
Well, others believed in his idea too. In an interview with Forbes, Yuan recalls that
close 40 engineers left with him to pursue this goal.
Investors believed in it too. In 2011, he raised $3 million to start his idea and within
two years, he had created the first Zoom iteration and here we have to highlight a key element
in his strategy. He created Zoom with a video-first mentality.
Other companies, like Skype, had created audio first and then adjusted to video, which proved
costly.
With Zoom, Beta testers were very happy with the product and, after finetuning some issues,
it launched in January 2013.
From the start, it was massively successful. By May, Zoom claimed, they had reached 1 million
participants.
With the launch, they clinched another round of funding, this time for $10 million, with
a valuation of about $25 million. And by late 2013, another round of funding secured them
$6 M more and doubled the company’s valuation. By, 2014, Zoom claimed 10 million users. But,
why was it so good?
It was so good because it provided a lot for very little.
Tech magazines like CNET highlighted its 3-in-1 package: HD video conferencing, mobility and
web meetings, all for $9.99, which was cheaper than other options which only provided one
or two of these services.
Zoom was as compatible as it possibly could with browsers like Firefox, Chrome, and Safari.
It also detected devices instantly, so there was no need to have versions for Mac or PC
and its data use was low enough that it worked well even in slow or weak connections.
Plus, Zoom had free features that other competitors like Skype charged for, at the time like group
video calls. Microsoft would eventually learn from their mistakes and make them free on
Skype.
But Zoom didn’t tend only to the users. Remember how WebEx was particularly hard for
IT departments?
Well, Zoom wasn’t. Cloud meetings meant intrusive installations weren’t as frequent,
and when they were needed, the process was easy.
Then, there was this: 150 milliseconds.
That’s all it takes for a conversation to feel unnatural. So, CPO Oded Gal has stated
that they work hard for their entire platform to ensure that those 150 milliseconds are
never surpassed.
But in the end, all of this is a reflection of what mattered to Yuan: the people. He has
insisted that eye-contact is essential for success and for happiness, so the company
has worked hard to make this happen as easily as possible.
It seemed like there was no stopping them.
What do most, if not all, tech companies want?
Well, to be profitable. But very, very few companies are able to get there and, as we’ve
said, Zoom seemed unstoppable. All cylinders were firing, and people loved the app and
customer service.
CEO Yuan would even reply to tweets from unhappy customers.
This is a quote for a former Cisco customer who switched to Zoom:
So, investment came easy.
From 2014 to 2016, funding increased and so did the company’s valuation until, in January
2017, in their Series D funding, Zoom received $100 million and finally reached a $1 BN valuation.
And, oddly enough, Yuan has said that they weren’t even looking for funding. Sequoia,
one of the main investors, just knocked on the door. Who wouldn’t love that?
So, this means that Zoom was now a unicorn: a company valued at $1BN. But a very different
one at that. Contrary to most unicorns, Zoom was making profit year after year.
So, with the 1BN valuation in 2017, solid growth in the next two years, it was time
for the company to go public. In April 2019, when it went public, shares went up 72%, from
the original $36. That day, Zoom was valued at $16 BN. Not too bad!
Do you notice one thing about this episode?
Zoom’s success happened before 2020. It did a lot right beforehand. So, it should
come as no surprise that Zoom was a hit when people were sent home and WFH took off.
But it still was. Why?
Because it seemed as though everything was already taken. Besides Zoom, there was Microsoft,
Google, WebEx, GotoMeeting, just to name a few. But none provided a complete package.
Zoom even gave users free 40-minute meetings for up to 100 people! And it works in slow,
saturated internet.
And, sure, Zoom couldn’t have predicted what happened in 2020. No one could. Since the entire
world was taken by surprise by this situation, searches for webinars, videoconferencing tools
and VPN spiked in a matter of days, if not hours.
So, all these years working on making video calls easy came in handy at the right time.
People needed a tool that was ready for the job and, amidst all of them, there was one
that stood out: Zoom.
But this is Forensics, right? You know this show.
No one knows what will happen, especially right now. But experts have highlighted some
possible areas of risk for the company. One is its stock. Even if use has spiked, its
share value is volatile.
In late March, it traded at a value 37 times higher than what the company had estimated
for 2021, because of this very same spike in use. But, at the same time, since companies
will definitely look to cut costs and increase employee efficiency, Zoom continues to be
a tempting offer in the market. The key for them will be to turn all those sudden free
users into paying, loyal customers.
And it’s not like Zoom is free of conflict. As this crisis has evolved, reports have
surged that the app is facing security issues. Not a good thing when many people are diving
right into Zoom to have conferences, including prime minister Boris Johnson.
The bad news? This isn’t new. Security issues have surfaced in the past.
In 2018, a security vulnerability was raised as it was found that users were prone to message
processing. Zoom worked on this issue, but it didn’t stop there.
2019 saw Apple create an update to remove the Zoom server from its devices, after it
was found that the server-rendered Mac computers vulnerable, even after uninstalling it. Again,
Zoom created patches and upped its security. And, again, it didn’t stop there.
In the midst of this most recent crisis, reports came up of phishing scams, impersonating Zoom
cloud meetings to retrieve information.
Zoom is a great example of a company that did three things right: it worked hard at
solving a big problem, they aimed for a problem that affected many people and, all the while
focused on the customer.
But Zoom might just be a victim of its own success. We don’t know yet. Does that mean
that we are seeing our first, real-time episode of Forensics as it evolves?
I don't think so. I think Zoom is going to keep growing like crazy.
What I also think is that you might like a new Slidebean t-shirt. Which you can get by being
one of the first 10 people to leave a comment in this video.
If you are on lockdown you can also spend that time watching the stories we published of over 20 failed
companies that we've broken down in this Company Forensics series.
Including WeWork, Toys r Us, and Forever 21.
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See you next week.