Read the section Evolution of the Videoconferencing Industry: based on the information of the section, discuss the favorable factor conditions demand conditions and related supporti

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Malay Krishna and Gursimran Gambhir wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality.

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Copyright © 2021, Ivey Business School Foundation Version: 2022-02-09

ZOOM VIDEO COMMUNICATIONS: FLASH IN THE PANDEMIC OR ENDURING SUCCESS?1

I think a hybrid, I think that’s a future, and I think [at] almost every organization

[they’ve] got to embrace that—give employees flexibility.

– Eric Yuan, chief executive officer, Zoom Video Communications Inc., on the future of work2

By December 2020, the world had been in the grips of the coronavirus pandemic for almost a year. The

world adapted to social distancing and working from home—measures advocated to minimize the spread

of COVID-19— with the help of technology such as Zoom, an online video conferencing app developed

and maintained by Zoom Video Communications Inc. (Zoom), based out of San Jose, California. A measure

of Zoom’s success was that it was the most downloaded app in the United States and internationally, ahead

of apps such as TikTok (a video sharing, social media platform) and Among Us (a video game).3

Zoom’s stock price had soared (see Exhibit 1), but many doubted the company’s long-term growth prospects.

Some believed that it was just a matter of time before large rivals such as Webex by Cisco Systems Inc.

(Cisco), Google Meet by Google LLC (Google), and Microsoft Teams by Microsoft Corporation caught up

with Zoom’s industry leading product features.4 To counter the competition, Zoom needed to continuously

upgrade its products. Skeptics also pointed out that Zoom’s primary driver of growth—social distancing due

to the pandemic—would diminish as vaccines and therapies for COVID-19 became available in 2021. But

some analysts suggested that some of the shift to remote work and online meetings would be permanent.5 If

so, a partial return to in-person meetings was likely. How could Zoom best adapt to this anticipated post-

pandemic world of hybrid meetings? Did the company have other options for growth?

EVOLUTION OF THE VIDEOCONFERENCING INDUSTRY

The term “video conferencing” emerged in 1967, a little after AT&T Inc. introduced “picture phones,” an

expensive curiosity, in 1964.6 In 1982, Compression Labs Inc. launched the first commercial group video

conferencing system, but adoption was limited: the bulky equipment required an upfront investment of

US$250,0007 and calling rates were $1,000 per hour.8

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A surge in the popularity of video calling occurred after 1995, driven by the increasing and widespread

adoption of the Internet, advent of more capable personal computers, and instant messaging software from

Yahoo! Inc., America Online Inc. (AOL), Apple Inc., and Microsoft. By 2003, all major instant messaging

providers offered a video calling service.9 Usually, the service was offered in two formats: free, supported

by advertising; or as an ad-free, paid service targeted at professionals and business customers.10 By 2006,

Skype (developed by Skype Communications S.à.r.l.) had 100 million registered users, making it the largest

video calling platform in the world.11 The advent of smart phones, and in particular Apple’s FaceTime app in 2010, saw another surge in adoption of video calls and messaging.

One substitute for Internet-based video conferencing was videoconferencing using integrated services

digital network (ISDN) technology—dedicated telephone circuits that were optimized for two-way

simultaneous transmission of audio, video, and text. ISDN was adopted by broadcaster media, but it failed

to achieve widespread business and consumer adoption because broadband Internet became cheaper and

more widely adopted.12 Some video conference service providers, such as Polycom Inc. (founded in 1990;

the products were later branded as Poly when the company joined Plantronics Inc.), focused on hardware-

centric solutions for customers.13 However, most providers, such as Webex (founded in 1996), Skype

(founded in 2003), Lifesize Inc. (founded in 2003), and GoToMeeting (developed in 2004 and later acquired

by LogMeIn Inc.), focused on software applications, which could be used on a variety of personal

computers and smartphones.14

In 2019, the global video conferencing industry was estimated to be worth $3.85 billion in annual revenues,

with growth projections of 10–14 per cent annually.15

Customers and Consumers

Users of videoconferencing services could be segmented into individual consumers and business users. For

individual consumers in the United States, Apple’s FaceTime app, with an estimated 45 per cent market

share, was the most popular way to “video-chat” for personal use. 16 Bundled with Apple devices, FaceTime

was free to use but proprietary to Apple’s Internet-enabled devices; hence, FaceTime could not be used

across platforms. Other popular consumer apps included Zoom Meetings, Google Hangouts, and Skype, all

of which could be used across platforms.

Business customers were the biggest driver of revenues for the videoconferencing industry in 2019.17

Businesses had adopted video conferencing as a way of reducing travel expenses while connecting with

suppliers, customers, and others.18 Business requirements for videoconferencing included the ability to set

up meetings easily, in advance, and to connect to a meeting from different devices and operating systems.19

Challenges for business users included unsatisfactory audio and video quality, a tedious meeting setup

process, and difficulty accessing in-meeting documents; business users needed responsiveness from

customer support, an interface that did not tax the business’s bandwidth requirements and that was

compatible with corporate firewalls,20 and pricing complexity and affordability.21 Business buyers were

influenced by expert opinions from research firms such as Gartner Inc. and Forrester Research Inc. and user

reviews at websites such as Trust Radius, G2 (formerly G2 Crowd), and IT Central Station.22

YUAN AND ZOOM

Born and raised in China, Yuan began thinking about video conferencing during his freshman year of college,

then considering it as an alternative to travelling 10 hours to meet his girlfriend.23 In 1997, shortly after his

arrival in the United States, Yuan joined Webex as a software engineer, one of the first 12 employees.24

In 2007, Webex was acquired by Cisco, and Yuan was appointed vice-president of engineering.25 But in

2011, irreconcilable differences came to a head: Yuan had a vision of developing an easier-to-use, cross-

For the exclusive use of P. Ng, 2022.

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platform video conferencing app for businesses while Cisco wanted Webex to emphasize aspects of social

networking, emulating the likes of Facebook.26 Yuan left his job and several co-workers followed him out

of Webex and into Zoom, the new venture Yuan founded.27

Yuan revealed that the early days of Zoom were heavily focused on product development.28 For the first

three years, most of Zoom’s workforce consisted of software engineers who focused on enhancing Zoom’s

video conferencing platform.29 The developers deliberately avoided the strategy of reusing existing, open-

source software. Instead, Zoom chose the long and arduous, build-from-scratch journey because the

developers wanted to “do it right.”30

Zoom also delayed hiring a product manager until 2016, compelling the engineers to directly interact with

customers. Yuan claimed this resulted in product development that was more responsive to customer needs

and challenges.31 Yuan himself was deeply attentive to customer needs and was known to personally

respond to user complaints.32

In 2019, Zoom reported 300 improvements to the Zoom platform and a Net Promoter Score (a customer

loyalty metric) of 70, compared to an average score of 58 for the software/technology sector.33 In the words

of one Silicon Valley power user, “Previous to Zoom, I felt like the debate around videoconference apps

was ‘Which do you feel is least terrible? Let’s use that one.’ . . . Zoom had an intersection of stable, high-

quality performance plus ease-of-use, and the network effect started snowballing from there.” 34

Even though Zoom was popular among individual consumers, its target customer segment was

organizations with more than 10 employees.35

In April 2019, Zoom invested in integrating its software solution with complementary hardware devices.

This included collaboration with Internet-enabled telephone device makers Poly and the Neat Company

Inc. (Neat) with the idea of making it easy to integrate a video call with a regular telephone call.36

Zoom’s marketing efforts in the United States included billboard advertising and providing technology to

a basketball team in return for branding inside the arena during the games. 37 Zoom recorded revenues of

$151.5 million in 2018 and floated an initial public offering (IPO) in April 2019.38 By December 2019,

Zoom’s market capitalization was $18.8 billion, up 18 per cent since its IPO.39

THE COVID PANDEMIC AND ZOOM

As the pandemic continued through 2020, businesses realized that remote working could be a sustainable,

new way of working. Tata Consulting Services Ltd., a global information technology (IT) major, declared

that by 2025 as much as 75 per cent of its 597,500 employee base would permanently work from home.40

Hayden Brown, the chief executive officer (CEO) of Upwork Inc., a global freelancing platform, said in a

tweet, “Building on our 20 years of experience as a remote work company, we are now permanently embracing a ‘remote-first’ model.”41 In May 2020, the CEO of Shopify Inc., a Canadian multinational e-

commerce company, said in a tweet, “As of today, Shopify is a digital by default company. We will keep

our offices closed until 2021 so that we can rework them for this new reality. And after that, most will

permanently work remotely. Office centricity is over.”42

Customer Acquisition and Retention

As use of videoconferencing grew, many businesses chose Zoom as their provider. While pricing data

indicated that Zoom’s prices were often higher than competitors’ (see Exhibit 2), customer reviews and

feature listings suggested an edge in product functionality and service quality (see Exhibits 3 and 4). Typical

competitive advantages for Zoom included the ease of a quick download and a few clicks to start a meeting

from anywhere, be it home, office, or on the go; a simplified interface for creating and attending webinars;

cost-effectiveness; higher reliability even during slow Internet connections; and better security.43

For the exclusive use of P. Ng, 2022.

This document is authorized for use only by Ping Sum Sammy Ng in MBA 661, Summer 2022 taught by CHEN LIU, Trinity Western University from Jun 2022 to Dec 2022.

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Ironically, security and reliability were perceived as vulnerabilities for Zoom in the early part of the

pandemic. In April 2020, Zoom was sued for sharing its user data with third parties without the consent of

its users. 44 Another issue was the phenomenon of “Zoom-bombing,” in which uninvited guests trespassed

on scheduled meetings. As a result, several organizations, both businesses and schools, boycotted Zoom.45

Yuan went on record to say, “We recognize that we have fallen short of the community’s—and our own— privacy and security expectations. . . . For that, I am deeply sorry.”46

Zoom doubled down on privacy and security issues, releasing several related enhancements. For example,

changes to the app meant that all meeting participants were placed in a virtual waiting room by default, thus

enabling meeting hosts to vet each participant before allowing them to join. Zoom also acquired Keybase

Inc., an encrypted messaging company, and announced that it would offer end-to-end encryption as an

option to all users. 47 Zoom also partnered with CrowdStrike Inc., a provider of network security services.48

Another issue that was impacting customer experience was service outages, which were becoming increasingly

frequent. A major incident in August 2020 brought all meetings to a halt in the United States and Europe.49

Despite these setbacks, Zoom downloads from the Google Play and Apple App stores combined broke the

record for worldwide app downloads with more than 300 million downloads over the second quarter of 2020.50

Customer Segments

Zoom’s growth was consistent across customer segments. In October, the number of corporate customers

with more than $100,000 in annualized revenue had grown 136 per cent, the nu

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