Let’s take a look at how and why Zoom became the go-to platform during the pandemic, how it’s handling the influx of users, and whether the company’s growth can be sustained after the coronavirus crisis is over.
Meet Zoom’s CEO Eric Yuan, a US immigrant from China who had a vision from his college days that technology would allow portable, easy-to-use video calls for people to stay connected. This vision became his obsession.
Yuan decided to go to the U.S. because of the Internet boom, which he knew was the wave of the future. After two years and eight rejections, he finally received a U.S. visa and arrived in Silicon Valley in 1997. He then joined a company called WebEx as an engineer in 1997. WebEx was one of the first companies to introduce video calls in the market.
In 2007 WebEx was acquired by Cisco for $3.2Bn, and Yuan became Cisco’s Corporate V.P. of Engineering. Under him, WebEx had more than 750 engineers, and the annual revenue crossed $800 million. Though WebEx was one of the complete video conferencing tools at that time, there was something that bothered Yuan.
During his time at Cisco, Yuan would often meet WebEx customers and talk about the product. He soon learned that the customers weren’t happy with WebEx’s offerings. Users often complained about the unstable connectivity, lag in audio and video, and the installation process was frustrating for I.T. departments.
Yuan went back to Cisco and suggested the changes, but the upper ranks didn’t go along with him. Yuan firmly believed he could develop a platform that would make customers happy. So in June of 2011, after dealing with a lot of resistance, he left Cisco to build Zoom. After two years of Beta testing and fixing issues Zoom launched in January 2013.
- Growth and IPO
Leaving such a high position sounds a bit crazy. Well, it certainly wasn’t for Eric, nor for the 40 engineers who left with him to pursue the goal. In an interview with Forbes, Yuan recalls how those 40 Cisco engineers believed in his goal and left with him to build Zoom.
Zoom reached a million users within a few months of its launch, 10 million in a year, and 40 million by February 2015. Sequoia Capital invested $100 Million in January 2017 in Zoom. The company was now valued at $1 billion, putting it in the vaunted unicorn club. After two years, Zoom went public in April 2019 at $36 per share that valued the company at $9.2 billion – about nine times its previous valuation.
Shares soared 72% on its very first day of trading and nearly 84% from the initial price in just over a week, which made Zoom the best-performing IPO of a U.S.-based company of 2019. Zoom ended 2019 running profitably.
In late March this year, Zoom stocks traded at a value 36 times higher than what the company had anticipated for 2021. 49 years Yuan’s net worth jumped 112 percent to $7 billion in the past three months, and he is now ranked number 231 on Bloomberg’s list of the 500 richest people in the world. As we speak, Zoom has a market cap of roughly about $38 billion and currently listed on the NASDAQ.
- Investor’s darling
Not only the 40 engineers who left Cisco with Yuan, but the investors believed in him too. In 2011, Yuan raised $3 million to start Zoom, and within two years, he had created the first iteration of the platform.
What made Zoom an interest for the investors was the video-first mentality. While other companies, like Skype, went audio first and then adjusted to video, Zoom was focusing on videoconferencing from day one.
With the launch in 2013, the company raised another round of funding of $10 million, with a valuation of $25 million. And by the end of 2013, another $6 million doubled the company’s valuation.
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 billion valuation. Zoom was now a unicorn, but a very different one at that. Contrary to most unicorns, Zoom had mastered the art of profitability and growth.
- Why everyone loved Zoom
Zoom was so good for its customers as well as for the investors because it provided a lot for very little and still managed to grow its revenue year on year. Traditionally, video conferencing platforms have been very expensive. But what Zoom provided to the customers was a 3-in-1 package: H.D. video conferencing, mobility, and web meetings, all for $9.99.
Plus, Zoom had features like group video calls that other competitors charge for. Microsoft would eventually realize their mistakes and make them free on Skype.
Zoom was the first platform that offered mobile screen sharing within video conferences. Mobile users could initiate and join meetings; send invitations via email, SMS, and IMs; and utilize a full suite of collaboration features. Zoom even gave users free 40-minute meetings for up to 100 people! And it works on slow, saturated internet connections.
But Zoom didn’t only focus on the users. Remember how WebEx was tough for I.T. departments to setup?
Zoom, on the other hand, was a true cloud-based solution, with no dedicated on-premises hardware necessary. It used the hybrid cloud model that runs on any virtual machine, can run behind an enterprise’s firewall, and meetings that happened within the organizations’ own private clouds. This allowed the companies to keep meetings local while using Zoom’s public cloud infrastructure to conduct meetings.
Then, there was this: 150 milliseconds. That’s the maximum delay time before conversations feel unnatural. In an interview, Zoom CPO Oded Gal stated that Zoom works really hard to stay under that 150 milliseconds latency.
Rather than optimizing the connection for all devices, Zoom looks at the specific operating system of the participant, looks at the device, and tunes the communication specifically for that network or for that device to ensure that those 150 milliseconds are never surpassed.
But in the end, what matters to Yuan are the customers. He has insisted that eye-contact is essential for customer happiness, so the company has worked hard to make that happen. Yuan used to reply to customer's tweets and even personal emails to every customer who canceled their subscription.
There was this incident which Yuan recalls, where a customer replied to his email accusing Zoom of sending auto-generated emails “impersonating” the CEO and went ahead to accuse Zoom of dishonesty.
Yuan wrote back to that customer saying the email was indeed from him, and that it wasn’t auto-generated. However, the customer still wouldn’t believe it, so Yuan wrote back again and offered to meet him on a Zoom call right that minute to prove it was him writing the emails. The call never did take place, but that customer certainly stopped accusing Zoom of being dishonest!
- Success in the pandemic
As you have read, Zoom’s success happened well before 2020. It did so much right beforehand that when people were sent home, and work from home took off, Zoom became a massive hit.
So, all these years working on making video calls easy and existing customers happy came in handy at the right time. People needed a platform that was ready for the job, and, there was one that stood out: Zoom. It now has more than 300 million daily Zoom meeting participants.
- What does the future hold for Zoom?
No one knows what’s there for Zoom in the future. But the main concern relates to what’s going to happen when people go back to work. Are they going to continue using Zoom or immediately drop off once the social distancing measures are lifted?
Zoom’s revenue comes from its video conferencing subscriptions. But the recent spike in usage comes from people signing up for free accounts. The toughest part for the company would be to turn all those free users into paying, loyal customers.
Zoom has been open about this and agrees that the company itself doesn’t have the clarity of how much revenue it will make out of all these free users they’re accumulating. Zoom has been exploring new verticals, though. It’s going after the cloud telephony market with it’s offering called Zoom Phone.
Whatever happens in the future, Zoom seems to stay in the game for the long haul. It’s been a perfect example of a consumer-centric company that did the right things, worked hard to solve a real problem, and focused on making its customers happy.
Source: The August