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King of the Quarantine Economy

The word Zoom meant very little to most people until the outbreak of the coronavirus. It was well known only in the tech industry and in companies that already had a remote working culture. This changed after the imposition of lock-downs in many parts of the globe resulted in the universal adoption of work from home policies. It elevated the video conferencing application from the status of being just another software enterprise company to become almost synonymous with its function. Just how Google and Uber are now verbs, so is Zoom. Its blistering growth into a ubiquitous application coupled with immense hype on social media prompted many to take a closer look at this application that is currently sitting atop app stores in most countries, having a market value more than Uber and Lyft combined. The series of events that have unfolded to propel Zoom to the spotlight has raised the question of whether this application is simply a one-hit-wonder due to the crisis or is its explosive growth and presence an augury of all future communication.

One might be surprised to know that the seeds of innovation planted in Eric Yuan's mind stemmed from his difficulty in meeting his girlfriend who lived far away from him. The enamoured youngster was looking for an alternative that would not involve taking a ten-hour train ride to meet her. After immigrating from China to the United States in 1997, young Eric joined Webex as an engineer which was later acquired by Cisco. He rose to the rank of Vice President and grew the engineering team which built one of the earliest video conferencing products in the market. However, he was dissatisfied with the product and its low approval rating and thus decided to leave Cisco Webex to start his own video conferencing company in 2011. With the help of 40 engineers, Zoom launched a beta version in September 2012 that could host conferences with up to 15 video participants. The company has since then gone from strength to strength, growing at a blistering rate each year and on April 18, 2019, the company became a public company via an Initial Public Offering(IPO). After pricing at US$36 per share, the share price increased by over 72% on the first day of trading. The company was valued at US$16 billion by the end of its first day of trading.

Due to the coronavirus outbreak, and the surge in demand that the company faced, it gained 2.2 million users by February 2020 - more users than it had amassed in the entirety of 2019.

The average daily usage of the app has skyrocketed from 10 million users per day in December 2019 to 300 million in April 2020.

Though the coronavirus outbreak has made Zoom services as essential as having internet access, the company had already laid the foundations for success in the way it had built the product and the key features of the app that made it the juggernaut that it is today. The key features that gave Zoom the competitive advantage that facilitated its aggressive growth are as follows:

  • Zoom built a customer-driven product- Since day one, Zoom has focused on building a product that solves a problem for the customers, not an application that causes frustration and angst due to its glitches, a common phenomenon in most early versions of videoconferencing products in the market. It is this customer-centric approach that enabled Zoom to create a product that stood out for its ease of use. This proposition is backed by its robust growth even before the outbreak of the virus.

EBITDA stands for earnings before interest, taxes, depreciation, and amortization, and its margins reflect a firm's short-term operational efficiency. EBITDA is useful when comparing companies with different capital investment, debt, and tax profiles.

Its main advantage is that one does not need a zoom account to join meetings. This simple feature in itself has been a game-changer compared to other applications because many shun away from using applications simply because it requires them to create an account to access the same. Other features such as hand raising and break out rooms have made a big difference in terms of seamless communication when multiple people are on call.

  • Zoom aimed to be the best in the business - They had a tunnel vision focus on making the best product with the best user experience. They listened to their customers and fine-tuned their software to become exactly what the market needed. They constantly monitored their Net Promoter Score, which currently stands at an industry-leading score of 72. As a rule of thumb, a score of 50 is considered to be an impressive score which goes to show you the lengths to which Zoom has gone to build a solid product. They managed to achieve this impressive feat by gathering and acting immediately on customer feedback.

The NPS can be calculated by using an answer to a key question using a 0-10 scale: How likely is it that you would recommend this app to a friend or colleague?

  • Delivery of the service- It is not just the quality of the app but the delivery that has given it a competitive advantage. Zoom's video conference features are free to use for 40 minutes. Why 40 minutes you ask? They decided on setting the limit at 40 minutes because prior studies have shown that the ideal duration for a video conference was 45 minutes. The time limit was perfect for first-time users to get a complete experience of its features as well as the appropriate tipping point to coax them to switch to a premium version. It is this freemium model, coupled with word of mouth that has been driving their customer acquisition.

It has not been a smooth journey for this company which is now rocked with security breaches and "Zoombombing" events, which engendered a depreciation in its share value. Governments and companies alike have issued notices regarding the app's vulnerabilities to being hacked and have requested not to hold confidential or sensitive meetings on the same due to fear of information theft. The Indian government has also announced an innovation challenge for the development of a video-conferencing application. In response to the crisis, Zoom acquired KeyBase, a 25-person security start-up in New York, to add end-to-end encryption to video calls. It is its first acquisition in its nine-year history. This acquisition is part of a larger 90-day plan to fix its security flaws. Does the security crisis forewarn the end of the dream run for Zoom or is it just another roadblock in its quest to dominate the videoconferencing space? With other applications such as Microsoft Teams and Google Meet quickly gaining traction, only time will tell if Zoom will be able to retain this massive surge of users. While critics argue that the application is burgeoning due to fortuitous circumstances, others contend that it didn't appear because of the coronavirus, nor will it disappear once life returns to normal. Although the stock is enjoying some hype right now, an ever-growing consumer base combined with a reality that now necessitates videoconferencing foretells a future that looks bright for this technology stock.




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