Zoom's torrid 90 day sprint: Security, increased competition and becoming a verb

With Zoom's first quarter earnings on deck it's worth considering how much the company's standing, market cap and prospects have changed in just 90 days amid the move to remote work.

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Zoom may have had one of the most torrid quarters of growth, crisis and rising expectations in recent memory. And on June 2, we get to see how this Zoom boom played out.

When Zoom reports its first quarter earnings on June 2 we'll get a first glimpse of the company's new normal. Wall Street is expecting Zoom to report first quarter revenue of $202.5 million with a non-GAAP profit of 9 cents a share. For fiscal 2020, Zoom delivered revenue of $622.7 million.

SEE: Life after lockdown: Your office job will never be the same--here's what to expect (cover story PDF) (TechRepublic)

Simply put, 3 months ago Zoom operated in a different world with smaller expectations and a longer growth horizon. The COVID-19 pandemic changed all of that in just a few weeks.

Since Zoom last reported earnings on March 4 the world has changed dramatically amid the COVID-19 pandemic, move to remote work and economic fallout. When Zoom reported its fourth quarter earnings on March 4, the company didn't mention the COVID-19 pandemic in its press release. CEO Eric Yuan said the company added customers and executed well.

As work-from-home arrangements became the norm as countries locked down their economies, Zoom went from and enterprise video collaboration platform to one of those rare companies that became a verb. We don't Skype. We don't Microsoft Teams. We don't Google Meet. We don't WebEx. We Zoom even when we're using another platform, say Blue Jeans or GoToMeeting. Zoom became a public company with a go-to-market strategy that relied on the upsell, viral demand and word of mouth. Zoom had buzz and then some.

Enter Zoom happy hours. Zoom birthdays. Zoom doctor appointments. Even Zoom funerals. Families stayed connected, educational institutions went to class virtually and enterprises realized that they could maintain productivity and sales with the help of collaboration tools like Zoom. Even UK parliament ran on Zoom. Zoom quickly rushed out differentiating features such as backdrops that weren't exactly green screen quality, but good enough. Folks even discovered Zoom fatigue as usage surged.

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Indeed, Zoom was anointed one of the winners in the new normal economy along with companies like Slack as well as cloud giants AWS, Microsoft and Google and other collaboration players. Zoom's stock chart is worth 1,000 words.

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Thomson Reuters

But Zoom's transition from enterprise video conferencing company to household name and part social network brought more attention. Hackers began to poke holes in Zoom's infrastructure. Some enterprises and organizations dropped Zoom due to security concerns—and likely good deals from rivals.

Security concerns gave rivals an opening. Usage of Microsoft Teams surged as the software and cloud giant ramped up marketing and added new features. Google rushed to make Google Meet a common part of the G Suite experience. Verizon bought Blue Jeans for its enterprise unit. Facebook launched Workplace Rooms for B2B and Messenger Rooms for consumers in a bid to give video conferencing a social twist. In addition, Zoom's infrastructure providers also became strong rivals. Zoom runs its own data centers, but also burst to the cloud. Given the big three cloud providers all have video collaboration tools, Zoom cut in Oracle Cloud as a partner.

This tale could have been one of an upstart making a technology mainstream and getting squashed by giants, but Zoom's response to its security issues was swift and decisive even as best practices were written on the fly. Zoom is now publishing encryption white papers to lay the groundwork for future video conferencing. Consider this timeline from March 4 to present:

Rest assured, that Yuan is going to spend a good bit of time on Zoom's next public comments on that timeline and the company's plans. Overall, Zoom's response has earned some credibility with businesses that initially were going to drop the company but kept it. Yuan on April 1 rolled out a 90-day plan to bolster its privacy and security initiative. The company also created a chief information security officer council and advisory board and named Alex Stamos, former Facebook security chief, as its advisor. Zoom has also kept customers updated on its security cadence.

Yuan said in a blog post:

Collaboration across the industry is one of the most effective ways to ensure we are implementing security and privacy best practices. I am truly humbled that — in less than a week after announcing our 90-day plan — some of the most well-respected CISOs in the world have offered us their time and services. This includes CISOs from HSBC, NTT Data, Procore, and Ellie Mae, among others. The purpose of the CISO Council will be to engage with us in an ongoing dialogue about privacy, security, and technology issues and best practices — to share ideas and collaborate. 

Within our CISO Council, we are establishing an Advisory Board that will include a subset of CISOs who will act as advisors to me personally. This group will enable me to be a more effective and thoughtful leader and will help ensure that privacy and security are at the forefront of everything we do at Zoom. The initial members of our Advisory Board will include security leaders from VMware, Netflix, Uber, Electronic Arts, and others.

Is Zoom out of the security woods? Not at all. But Zoom's leadership recognized the importance of security and privacy and took definitive steps. Those moves win Zoom a lot of enterprise cred in a few short weeks.

Competitive landscape

What remains to be seen is whether Zoom can retain its foothold in the suddenly popular video conferencing space. While Zoom competes with the likes of Microsoft Teams and Google Meet, both of the company's larger competitors have the ability to bundle. Meet will simply be integrated into the G Suite mix. Teams has integration with Office 365 and is part of a Microsoft 365 buffet of enterprise software. Even Facebook's new Workplace Rooms rides shotgun with the broader Workspace platform, which now has 5 million customers.

Microsoft Teams recently checked in with 75 million daily active users and Google said it hit 100 million active daily Meet users. On Google's first quarter earnings conference call, CEO Sundar Pichai said: "There are now over 100 million daily Meet meeting participants, stay tuned for much more."

The question for Zoom is whether the video conferencing pie is large enough for multiple competitors or does it become more zero sum.

Stifel analyst Tom Roderick said in a research note following Verizon's purchase of BlueJeans:

The work from home movement caused by COVID-19 has pushed more companies to take an interest in the video conferencing and unified communications industry. Zoom seems to have benefited the most in activity pick-up, while RingCentral and Verizon are targeting video conferencing for new product expansion. Zoom has also been in the crosshair the most for its issues with security and privacy of late, leaving the door open for some of the momentum to swing back toward Cisco WebEx, Microsoft Teams and now Verizon.

Roderick said that Zoom is likely to face momentum swings but remains the premier video conferencing player with an efficient go-to-market plan, strong usage and the ability to generate cash flow. Toss in focus and Zoom will garner its share of wins.

In its Magic Quadrant report for Meeting Solutions, research firm Gartner put Zoom in the top quadrant along with Microsoft and Cisco, which owns WebEx. The report, published in September and pre-COVID-19 predicted that by 2024 only 25% of enterprise meetings will take place in person, down from 60% today.

Safe to say that timeline for virtual meetings has accelerated.

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As the new normal develops, Zoom will increasingly clash with rivals that are layering other features and coming at the market from other directions. Zoom will have to bridge its video conferencing with phone and other collaboration features. For instance, Zoom Phone, a calling feature, is now generally available. Phone calls are a primary use case for Microsoft Teams too.

With Zoom's integrations with multiple collaboration providers, there's no rush to necessarily own new functionality, but you do wonder whether the company's new valuation paves the way for acquisitions in the future. For instance, Zoom's $49 billion market cap gives it options for a merger with a complementary player such as Slack, which is valued at $18 billion.