What comes after Zoom?

Zoom’s recent growth has been explosive. The increase in both users and use cases has laid bare the reality that Zoom was never designed for all the purposes for which it’s now being used. As present circumstances reconfigure consumers’ and businesses’ virtual needs and expectations, Zoom and the video conferencing market has arrived at a liminal moment. The changes in consumer and enterprise behavior amid quarantine have unlocked enormous opportunity. The question now is whether Zoom will capitalize on this opportunity or if startups will seize their chance.

Photo by Gabriel Benois on Unsplash

Zoom gets verbified

COVID accelerated Zoom’s rise to mainstream prominence. The platform has entered popular parlance and become the de facto choice for video conferencing in lockdown. Zoom has even become a verb — a surefire sign of success in consumer-facing products. This was not a foregone conclusion, however. Zoom did not have first-mover advantage. Microsoft, Google, Cisco, and Facebook have all invested heavily in the space. In a world where Skype, Google Hangouts, WebEx, FaceTime, and many more solutions still exist, Zoom’s recent hockeystick growth is significant.

How did we get here?

On April 18, 2019, Zoom IPO’d. After its first day as a publicly traded company, the stock closed at $62 — up from the expected range of $32-$35 — and Zoom was worth almost $16 billion. Respect for Zoom’s sensible, organic growth story only increased amid a backdrop of cash-hemorrhaging unicorn IPOs. In its S-1 filing, Zoom reported net profits of $7.6 million. Lyft, on the other hand, IPO’d a month prior with losses close to $1 billion.

Meanwhile, hitherto relatively unheard-of CEO Eric Yuan became a media darling. In an era of excess — defined by cautionary leadership tales like that of Adam Neumann and WeWork — Yuan became a beacon of rational leadership. Smart, measured press appearances further endeared him to the public. On top of that, his habit of only traveling one to two times per year, preferring to Zoom instead — surely fantasy for the CEO of a multi-billion dollar company — cemented his tech legend status. Buffett-level frugality? Check. Mind-bending levels of confidence in your own product? Double check.

Nevertheless, for the remainder of 2019, Zoom’s stock price was up and down, and closed out the year relatively flat.

Then COVID happened

Zoom’s stock started to climb in January 2020 amid the first reports of coronavirus coming out of China. The market quickly started betting that disruption to work and travel would see a rise in demand for video conferencing software, and that Zoom would continue to satisfy this demand. In February, Zoom removed time limits for free users in China as a response. The stock price continued to track upwards.

In April, Yuan announced that March had seen the peak number of daily active users (including both paid and free subscribers), reaching 200 million users. For context, as of December 2019, its maximum number was 10 million.

All the while, its growth has seemed relatively hitch-free. Bill Gurley among others has commented on the relatively seamless 20x in number of users, with per user activity also drastically increasing at the same time.

Unintended use cases

Fast forward to today and Zoom has become the default choice for employees and families spanning generations. Zoom parties have become commonplace. We are seeing happy hours, board game sessions, panels, surprise birthday parties, even family reunions, all taking place over Zoom. Boris Johnson hosted the first virtual U.K. Cabinet meeting over Zoom (and inadvertently tweeted out his private meeting ID, more on that later). Zoom virtual backgrounds have become a brand new canvas for memes, spawning a set of backgrounds dedicated to Netflix’s Tiger King. Zoom also spans religious divides; both Passover and Easter were recently Zoomified. On a recent podcast, investor Gavin Baker noted that Zoom is now “woven into the fabric of our society.”

Why Zoom stands out

Just as Dropbox promised in 2007 that its technology was better than existing solutions like emailing or uploading files with the tagline “it just works,” so does Zoom. It just works. As Baker puts it, “very small differences in UI and UX matter immensely.” He believes that hundreds of billions of dollars of company value can be attributed to basis point-level differentials in quality of UI and UX. Google’s early dominance over competitors like Bing in search speed and latency can be pinpointed to fractions of milliseconds.

So let’s take a look at these basis points of difference that make Zoom just that little bit better than its competitors:

• Setting up a meeting is easier. This takes the battleground for retention to the pre-video call setting. Once users are set up on a call, some may argue the difference between Zoom and other platforms is negligible. The key lies in the setup period. The same rules apply as with user onboarding for any other service — a hint of friction will lead to churn.
• Uniquely easy to share with non-account-holders. Download time for new users is truly a matter of seconds for a user that receives a Zoom invitation but doesn’t have Zoom installed. The speed and lack of friction in the process is immeasurably important. In focusing on this speed, Zoom is greasing the wheels of its own network effect.
• Freemium. Simple but effective. Zoom is free for up to 40 minute calls, and up to 100 people (some might even call this advantageous..!). This is essentially unlimited for your average consumer because a) who even knows 100 people, let alone wants to Zoom with them concurrently? And b) you can always restart your 40 minute meeting after it expires with little to no time lost (again, back to the setup speed).
• Interoperability. iOS, Android, doesn’t matter. Optimizing for the two largest operating systems means Zoom can fight on both fronts.

These features and decisions go some way to explaining Zoom’s rapid growth. It may have been sparked by an environmental anomaly, but it was accelerated by thoughtful design.

Problems appear

It didn’t take long for cracks to emerge. Zoombombing — uninvited strangers entering non-password-protected meetings by guessing randomly generated meeting codes — became an issue. Such an issue in fact that Singapore banned Zoom’s usage in all schools, before subsequently relenting. It got so bad that Yuan announced a 90-day freeze on new features so the company could focus on privacy and security issues.

Yuan’s visible leadership — not least demonstrated by the decision to give the software away to schools for free — has played a part in supporting the stock price amid these very public issues. Zoom shareholders likely feel confident in management’s ability to rectify the issues given that they seem to be symptomatic of user behavior rather than negligent design. As Gurley pointed out, the password feature to protect meetings already existed, most users just weren’t enforcing it. This points not to an inherent product issue, but a product being cast into the spotlight with a set of users it never could have imagined a mere four months ago. Yuan himself admits this:

“Our platform was built primarily for enterprise customers…we did not design the product with the foresight that, in a matter of weeks, every person in the world would suddenly be working, studying, and socializing from home. We now have a much broader set of users who are utilizing our product in a myriad of unexpected ways, presenting us with challenges we did not anticipate when the platform was conceived.”

In addition to the freeze and internal focus on privacy and security, Zoom is also taking important steps to shore up vulnerabilities going forward. In the same announcement, Zoom noted that it will be enhancing its bug bounty program — leaning into the practice of offering rewards to those that can identify vulnerabilities, common among most successful tech firms — by partnering with HackerOne.

The reality is that Zoom has the inclination, motivation, and resources to plug these privacy problems.

The opportunity for Zoom

Zoom finds itself at a tipping point. This black swan event has laid bare facets of human behavior and likely changed the way humans work, live, and communicate. There will surely be lasting changes. There is every reason to assume that Zoom will cement its place at the head of the pack of competing enterprise video conferencing software. But there is so much more ahead.

For Zoom to truly capitalize on what A16Z Partner D’Arcy Coolican coined as product zeitgeist fit — ”when a product resonates with the mood of the times” — it would have to go a step further.

The current crisis has unearthed, or in some cases, accelerated major behavior changes and expectations. In many cases we are witnessing the merging of enterprises and consumers. The rapid adoption of WFH means enterprise video conferencing software doesn’t suffice. Circumstances in this new world require B2B2C video conferencing software that merges consumer-facing UX and ease-of-use with enterprise-level security and privacy standards.

We are also seeing professional and social lives blend: activities that were previously geographically distinct are now taking place through the same media. One can envision a future in which Zoom captures this broad new user base — across professional and social use cases — and creates a new privacy-forward social network for a generation disillusioned with existing social networks.

Users are making Zoom work because it has been relatively easy so far, and there are no compelling alternatives that solve for the new dynamics of the COVID world. Zoom can venture into the unknown to satisfy these new needs, or cede ground to new entrants.

The opportunity for startups

Even if Zoom decides to double down on its current product zeitgeist fit and optimize for the brave new world of WFH, remote education, and distanced socializing, there is huge opportunity for founders to capitalize here as well. As a recession looms, startups like Uber, Slack, and Airbnb — all founded during the last recession — stand as popular examples of entrepreneurial ingenuity amid a downturn. Startups in this space that succeed in the current climate will have to confront the following realities:

1. We are entering a recession, possibly the worst in modern history.
2. Core human and business practices are experiencing profound changes.
3. Video calling is core infrastructure that underpins them all.
4. The market is fragmented, and even the recent leader, Zoom, is not adequately positioned to meet present or future demands.
5. Much of the technology already exists — the innovations will be in human-centered design and thoughtful applications.

These five factors should excite entrepreneurs and concern Zoom in equal measure. The COVID era may end up being a false dawn for Zoom on the consumer side. To borrow a phrase from Steve Schlafman, we may be in the MySpace phase of video conferencing. There are major opportunities to create the Facebook in this equation.

Designing for the COVID world

First, we can expect APIs like daily.co — which enables embedding of video chat to websites and apps — to take off. There are then a host of apps to be built to solve the human problems that quarantine has illuminated, and particularly exciting are the use cases where Zoom really falls down.

• Groups >5 people. What if you had a movable object you could drag to the “corner of a video call room” to simulate real corners of rooms? You could chat to a few people, then reinsert yourself to the middle. And the audio would follow you. This could be a way to drown out the noise in a crowded Zoom call and solve the problem of groups within groups on large video calls.
• Social gatherings. Zoom has been a fine hack for this, but at the consumer level, sending Zoom calendar invites that resemble professional meeting invitations feels off. Back to the pre-video call arena — whoever can match a reliable video experience like Zoom with an organic social setup flow will win.
• Simulating spontaneity. Zoombombing aside, Zoom cannot simulate spontaneity of interactions, even within a contained set of registered users. Consumers have had to adapt and pre-schedule all social interactions. This may stick to an extent, but we can surely expect spontaneous social gatherings — both virtual and in-person — to flood back once mobility returns. Houseparty has come close, but is targeting a younger demographic with its focus on in-app games and quizzes over communication.
• Shared experiences. Zoom doesn’t lend itself well to co-watching videos or online experiences. Playback of in-call video is just about good enough for a quick clip or demo, but not for, say, a movie if you want to watch together virtually. Netflix Party, a Chrome plugin that enables group chatting for concurrent watching, comes a step closer but has yet to tackle face-to-face interaction.
• Public event curation and discovery. With the acceleration of virtual events, many open to the public, discovery and curation of public events can merge with the event platforms themselves. There is room for a video conferencing tool to support an events platform like Meetup.

Exciting new players

One example of a startup capitalizing on COVID-era opportunities is Pragli — bitmoji for enterprises. Pragli uses virtual avatars to signal how distributed team members are spending their time, translating the real-word presence cues we use to coordinate collaboration into an online workplace for distributed teams. Pragli breaks down the inherently exclusive nature of video conferencing, and layers in IRL social cues. This is just one exciting example of features that can be built to elevate the video conferencing experience to do things like simulate spontaneity or enable shared experiences.

Another new entry is Online Town, a digital video chat world in which personal avatars can move around and video chat with each other, in both public and private rooms, simulating both spontaneous and planned encounters. Again, the layering of real human behavior onto existing video chat infrastructure is the special sauce to capitalize on this opportunity.

New companies in the space should also take heed from one of the most powerful growth hacks from Zoom’s story — that built-in network effect. Zoom greased its own wheels with thoughtful UX and painstaking attention to setup time and everything outside of the actual video call. This is now table stakes — all the product zeitgeist fit in the world can’t make up for high-friction UX.

Looking ahead

A broader silver lining of the current crisis may be the uptick in frequency of conversations with people outside of immediate face-to-face worlds. Are people going to revert to happy birthday texts for faraway friends after they have attended virtual birthday parties? Will in-person events remain exclusively in-person after COVID has demonstrated the ease of joining remotely? In quarantine, many have built or strengthened new lines of communication, and are unlikely to be willing to let them lapse even if quarantine ends soon.

It seems that the new, broader base of video chat users is here to stay. The stakes are high and the market is primed for a face-off between Zoom and new entrants.