How can anyone fail to have noticed the sudden prominence of videoconferencing app Zoom since the outbreak of the Coronavirus crisis? But why Zoom, rather than the more established consumer favourites, each one a household name and each one owned by a tech giant; Apple, Microsoft or Facebook? What are the competitive factors favouring the newer kid on the block? And what is the significance of turning from a noun into a verb – does this matter and, if so, why?
Evolution of the Business
It’s worth first understanding the origins of the company. Zoom was founded by Eric Yuan, a Chinese-born veteran of Webex, the B2B web-conferencing service launched in the mid-90s. Shortly after obtaining his visa after nine tries and moving to the U.S., Yuan joined Webex in 1997 as one of its founding developers. He stayed with the company after it was acquired by Cisco in 2007 for $3.2bn, and was VP Engineering until 2011 when he left to found Zoom. Yuan says that he had dreamed of building a video telephony app ever since being separated from his girlfriend while studying at university in Shandong, China.
Like Cisco, Zoom is based in San Jose. Yuan was joined by over forty Cisco engineers as he set about building the business. Zoom, which describes itself as a “remote conferencing service that combines video conferencing, online meetings, chat, and mobile collaboration”, went public in April 2019 at a valuation of just over $9bn and its market cap has risen rapidly to the $40bn range at time of writing. Yuan owns 20% of the company, giving him a stake currently worth around $8bn.
Today Zoom is being swept up in the videoconferencing tornado. Great news for the company’s stock price. But this doesn’t come without risks.
Inside the Tornado
Today Zoom is clearly being swept up in the videoconferencing tornado as the preferred choice of a majority of users of all stripes. It’s worth understanding the full implications of this mass-market hypergrowth phenomenon that anoints a few winners and chews up and spits out many more players. No single vendor in a given category – in this case remote conferencing – can create a tornado of their own volition, no matter how compelling their offering. And not every category gets sucked into a tornado. For a tornado to occur, an early majority of pragmatic customers who may have been using different apps for many years suddenly coalesce around a product that seems to offer the best overall experience, and the rush begins. In this case, the major “natural” force at work today is the Covid-19 pandemic.
Besides the rewards that accrue to the winner in a tornado, there are risks. The main risk in many cases is not scaling the service fast enough to keep up with the rush of demand. It is absolutely imperative to “just ship, no returns”. For a cloud-based service like Zoom this means “no outages” – in other words, the app has to work without going down during meetings or losing audio or video quality.
Unfortunately for Zoom, in recent days two highly sensitive issues have emerged, one in security (earlier claims, now debunked, that user/call data is encrypted within the app, and some user data being processed in China) and the other in privacy (selling customer call data to everyone’s favourite villain, Facebook). These problems have resulted in the app being banned by the Australian and Taiwanese governments, the German Foreign Ministry, and U.S. Senate, as well as some corporations. Markets hate it when the vendor they have recently put on a pedestal reveals its fallibility, and they hate it even more when the vendor fails to address the issues quickly and effectively. Time will tell whether Zoom manages to recover its poise or not. At stake are some of the 190m new users the company (that used to have “only” 10m users) has attracted since Covid-19 hit.
Inevitably, Apple, Microsoft, Facebook, and even Google with its Hangouts app will do everything possible to take advantage of any missteps by Zoom. The company will need to do everything in its power to avoid “Zoom outages” becoming a (negative) meme – quite possibly a non-trivial task.
From a Noun to a Verb
Most products start and end life as nouns. Only a select few are successful enough to become synonyms for the category they represent, and fewer still that become verbs. Once this happens, they occupy a privileged and hard-to-replace position as the default choice in the minds of most users.
“We need to talk. I’ll zoom you.”
What causes this to happen and, more to the point, what strategies should other companies adopt in order to have a chance of joining this exclusive club?
- The app needs to become pervasive– so widely adopted that no explanation is needed besides the product name. The main reason for Zoom’s recent success with consumers as well as business users is basically that the user experience with Zoom is superior – easy to set up, intuitive to use, and more reliable in terms of video and audio quality. It runs on any device (Mac or PC, iOS or Android smartphones), and it is a business-grade videoconferencing system that accommodates a large number of participants on each call (up to 99). This ability to straddle both business and consumer usage on any device or OS amounts to significant differentiation against FaceTime, Skype and Whatsapp.
- Powerful network effects– the more people use a videoconferencing app, the more new users will join, and so on. One factor that has helped hosts to invite guests onto a call is its freemium pricing model. Like many other business users, I’ve been using the free option for over two years with a consistently positive experience. Combining the smooth user experience on any device with well-thought out freemium pricing has helped Zoom to leverage its network effects to gain exponentially more users.
- The app becomes a platformon which third parties can develop new applications – in the case of videoconferencing this can mean enabling whiteboarding, scratch pads, voting, multiple screens, etc. An increasing number of third-party tools, such as HubVC, Mural, and miro, are now available. Their added value is to make videoconferencing as close to being in the same room as everyone else as possible, and thus escape the somewhat limited, kludgy videoconferencing experience that we’ve all been used to for many years.
All well and good. But even if your app scores high in the above three dimensions, you still might “only” be a noun, albeit quite possibly a very successful one. Examples of this from consumer and business markets include YouTube and Slack – the team messaging app used in many companies.
When a product has become a verb, it occupies a powerful position of affection and/or dependence in the mind of its users that makes it very difficult to switch out for a rival product.
Customers tend to imbue product-verbs with emotional resonance. Consider the place that some prominent verbs have in your consciousness, such as Google, PhotoShop, Uber, Whatsapp, or Venmo – and in earlier times Fedex or Xerox.
Special Attributes of Product Verbs
I’ve identified two additional attributes of successful product-verbs.
The first is a catchy name. Ideally, this should be a single word (Google, Uber, Skype, Xerox) or mashup of two words (FaceTime, WhatsApp, Photoshop, Webex, Fedex). Hyphenated mashups can also work, as past successes like Band-aid and Post-it show, as can non-hyphenated combos like Velcro (= velour + crochet). But the chosen name should ideally be brief, pronounceable in one syllable (such as Skype) or at most two syllables (as with Google and Yahoo!, FaceTime and WhatsApp, Hoover and Taser). Another approach is to co-opt an existing word and make it yours, which is what Zoom has done.
The second special attribute is somehow to latch onto a movement, such as environmentalism, or benefit from a major event, such as in this case the Coronavirus pandemic. Zoom’s good fortune at this tragic period in history is something that needs to be handled delicately. As the Guardian newspaper reported on March 31st, while the pandemic has increased his wealth and that of his investors, Yuan expressed his anxiety for the crisis to be over. He added: “I hope this crisis can be over very, very soon, but one thing I know for sure is that companies will learn this is the way to work. .. Maybe let every employee work from home, maybe once a week. Previously, a lot of businesses didn’t even want to try.”
Zoom appears ready to leverage its freemium pricing model and network effects to grow from its current run rate of $700m in revenues to $2bn and more in revenues within a short time. But it will need to weather the storm of meeting spiking demand and aggressive competition from major players as well as younger startups.
Becoming a wildly successful and valuable company known as a noun takes great strategy and execution; but becoming a verb also requires two magic ingredients: catchiness and simplicity in its name, and being able to take advantage when tornado winds blow, whether by leveraging a movement or taking advantage of a major event.
Zoom still has some way to go before anyone can declare that it has become a fixture at the top of the new videoconferencing tornado. I’m sure that, along with greater success, the company will be fully tested to maintain its moat against aggressive competitors of all sizes, from Apple, Facebook, Google, and Microsoft, which also has its Teams VC app for business customers; to newer startups that introduce bells and whistles that Zoom doesn’t possess today but which enrich the experience for users in a world that looks like sticking with social-distancing apps even after the current crisis is over.
A full version of this article appeared on March 31st at http://www.philiplay.com/
- “Inside the Tornado” – Geoffrey Moore, (c) 1995
- “Zoom booms as demand for videoconferencing tech grows”, Rupert Neate, Guardian newspaper, March 31st, 2020.
Author’s note: I am indebted to technology strategist Robert Greenhood for suggesting this topic, and for reviewing this article for technical accuracy.