Verizon buying Bluejeans for less than $500M

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#3

To me, that says that if BlueJeans was willing to sell out for such a low price now, in spite of all the work from home, it has given up hope of competing with Zoom.

That’s one way of thinking about it. Another way is thinking that instead of “BlueJeans sold themselves”, thinking that “Verizon just bought themselves a competing company”. Verizon now has an offering that lets them offer “telehealth, education, and remote training services” to its huge customer base. Verizon just created a much more viable competitor (not saying that its on the same level as Zoom, but competition is definitely a step up from what it was before).

Also, from the BlueJeans persepctive, I don’t think we have the details to say that BlueJeans sold themselves at a low price. I’m not sure what their valuation was before, but it could easily be cash flow reasons. It could be a variety of different reasons. I would hold off reading into the decision until we know more details.

CloudAtlas
Disclosure: I have no shares in ZM. I think its a great company, but very overpriced.

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#4

I mentioned recently that I work for a Fortune 100 company that is currently making the move to Zoom. I didn’t mention that we have been using BlueJeans. Way too many issues with BlueJeans and the consensus that I’m hearing is that people in the Tech department are thrilled to be moving to Zoom. Also, there isn’t too much concern about security issues - most believe that it is primarily a case of media hype and the company is addressing the issues.

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#5

FWIW, my company forbids the use of Zoom due to security issues. Everyone who can work from home is being encouraged to do so, but no Zoom.

I do not know the details of their security issues. But apparently there are some.

1poorguy

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#6

My thoughts exactly CloudAtlas, I just do not see a very big moat in this business sector. Verizon has very deep pockets and if they choose to put some serious cash into this venture they could make up ground pretty quickly in my opinion. I do have a small position in Zoom and I am watching it closely, I just think the landscape could change fast.

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#7

We use Bluejeans for teleconferencing in our company. I have used zoom since some of our vendors use it and whenever they set the meeting thats when I usually use it. Bluejeans is a bit clunky however I still do not think there is a big moat whether its bluejeans, webex, chime or zoom. Depending on how they sell to corporations, I would have to believe its competitive and price sensitive industry.

Ruhaan

#8

I think you might be neglecting somethings that constitutes a moat. IMO Zoom has an enormous moat based on network effect. To a large extent this is the same moat that Alteryx has. It’s the same moat that Facebook and Netflix has. I’m sure if you were to think on it for a while you could come with several many more companies that rely on network effect as a major contributor to their moat.

The security issues associated with Zoom are real and that’s a rather large oops. But I don’t think it will badly impair the company long term. As to how many enterprise users abandon Zoom in lieu of Blue Jeans or Webex or something else I think it will be a blip rather than a route. In addition, Eric Juan, Zoom CEO was quick to accept responsibility for the failings and very responsive with respect to taking urgent steps to rectify the situation. He has gone beyond just fixing the problem. He asserted that security will be a primary consideration for the company going forward. There’s a big difference between saying, “we messed up, we’ll fix it”, versus “we messed up, we’ll fix it and we’ll alter our process such that security will be at the forefront of everything we do from now on”.

So you’re basically asserting that the disruptor is subject to disruption. While this is true in theory, how many examples of this happening can you name? I can’t think of any, but I haven’t made a point of studying this topic. Zoom is still the leader with respect to innovation in this space. It will be years before the face the dilemma that companies like Cisco and Intel and countless others faced. When they get to the point where innovation threatens to cannibalize their own business there will be something to be concerned about. IMO, Zoom is the undisputed leader in the market and will very likely remain so for several years to come.

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#9

I think you might be neglecting somethings that constitutes a moat. IMO Zoom has an enormous moat based on network effect.

brittlerock, how does Zoom have a network effect, and how would that be different than any other videoconferencing company? I have tried to figure out Zoom’s network effect or moat. I don’t think they have one. Their advantage is superior customer service and a superior user experience. I see no network effect at Zoom. If I am invited to a Zoom conference, I do not need to buy Zoom. I can still keep my bluejeans or Teams account. There is no forced adaption to Zoom. Each customer who purchases Zoom is doing so on their own accord, not because they are being forced onto a platform because others have done so, ie, Facebook or Microsoft.

Usually what this would mean, is not a dominant market share, but a fragmented one made up of a few large players. There are exceptions of course, like Google having 80%+ search engine market share with no network effect or significant moat, other than the same thing Zoom has, superior user experience.

So you’re basically asserting that the disruptor is subject to disruption. While this is true in theory, how many examples of this happening can you name? I can’t think of any, but I haven’t made a point of studying this topic. Zoom is still the leader with respect to innovation in this space.

Yahoo! is a perfect example. Yahoo! was the early leader in search, until Google came along. In fact I went back one day and saw analysts were negative about the Google IPO because it was priced high relative to what Yahoo! was, who was the dominant leader therefore should be trading at a high premium.

I can think of tons of examples but the first off the top of my head is Bowmar Instruments. They were one of the first leaders of hand held electronic calculators until companies such as Texas Instruments came along, with their vertically integrated model, wiped out other players who had to buy components from Texas Instruments or some other company to build their own calculators. Betamax vs. VHS, HD DVD vs. Blu Ray, etc. There are countless examples.

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#10

CloudAtlas, we have been following bluejean’s development. Their adaption rate had been slowing, their valuation in the private market had been stagnant. These are not signs of an up and coming disruptor that will dislodge Zoom. And Verizon doesn’t suddenly change that. How many times has a large company purchased a small one to enter a new industry to catch up to a leader? How many times does it pan out? I’d say very rarely. Unless they give it away for free like Microsoft. Some recent examples are Carbon Black getting bought out by VMWare, has not changed Crowdstrike’s trajectory yet, and I doubt they will.

The only thing Verizon has in their favor is their large customer base, yes. But Microsoft has a large customer base as well and we see that O365 customers are still adapting Zoom like mad. If Microsoft has nothing for them, I don’t see how Verizon does.

#11

I see no network effect at Zoom. If I am invited to a Zoom conference, I do not need to buy Zoom. I can still keep my bluejeans or Teams account. There is no forced adaption to Zoom. Each customer who purchases Zoom is doing so on their own accord, not because they are being forced onto a platform because others have done so, ie, Facebook or Microsoft.

Isn’t the whole reason Zoom went from 10 million to 200 million DAUs network effect? The reason you’re using Zoom is because the person you’re talking to is using Zoom.

Just like the reason you’re on Facebook is because your friends are on Facebook. To say that another way, the reason you’re not using the social networks Diaspora or Mastodon is because your friends aren’t. And the reason your friends aren’t is because you’re not.

Network effects become very powerful. Just look at Google. The more people who use it the better it becomes at search, and so the more people use it. It’s hard to compete.

Chris

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#12

Have you Bluejeaned?

Me neither, but I Zoom several times a week a now. So does everybody.

Zoom you later.

Network effect.

Darth

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#13

Yes, I get the whole network affect aspect of Facebook. But if I have a WebEx account, and someone sends me a Zoom meeting, I may download the meeting, thus someone sees that a “Network Effect,” but it doesn’t mean I became a paying customer. I downloaded the Zoom app to attend a meeting because someone else has a Zoom account. Meanwhile next time I host a call I am using WebEx. Zoom never saw a dime from me. Zoom’s business is not having people download their app. Their business is getting paying hosts to send them $19 a month.

Maybe on a scale of 1-10, Zoom has a network effect of 5, whereas Facebook is 10. The only network effect I can see is, someone saying “I was on a Zoom call today, that software is pretty cool, I may switch from WebEx to Zoom.” But that’s about as powerful a network effect as someone riding a Tesla or BMW and saying the same thing.

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#14

To me a real powerful Network Effect is people sign up or become a paying customer of a product, because other people/businesses are. Microsoft, you have to have a Microsoft computer because that’s what all the applications are written for. And app developers aren’t going to waste their time writing programs for some obscure operating system. I become a paying customer of Microsoft for that reason alone. I don’t even like Microsoft but I am forced to buy it! Facebook, that one is obvious though so is Microsoft to everyone here. The telephone has a network effect. Fax machine. All these things require someone to become a paying customer if they want to talk to other people. Zoom does not have that. I can send a bluejeans meeting invite to someone and they talk to me over bluejeans even though they are not a paying customer. Then that afternoon, since they have Zoom, they send me a meeting invite over Zoom, and I have the Zoom meeting with them, maybe even on a regular basis, even though I am not a Zoom customer. So all those downloads don’t mean anything if they are not paying customers. It is this reason I do not consider Zoom to have a strong network effect. I even tried to figure out how Zoom Rooms have a network effect, but I don’t see it. Zoom is growing because they have a superior product, and superior customer service. And as this Coronavirus grows, their namebrand recognition has grown. Nobody is coercing people to buy Zoom so they can talk to others that already have a Zoom account.

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#15

Hamilton Hemler, the author of “7 Powers”, the book about Network Effects being one of the 7 Powers that businesses can have that drive his investment decisions, had Zoom in his fund Strategy Capital as of last year. So either Hemler believes Zoom has Network Effect, or one of the other Powers. It could be that it’s Counter-Positioning, which is another Power to him. Zoom built something from the ground up for the Cloud while WebEx is goofing around trying to make old teleconferencing software work and connect to modern cloud software applications. That alone makes them successful. Same way it does for Datadog. A new improved product developed during the time of the cloud. The same it was, until recently, for ZScaler, or now, Cloudflare as well as Okta. Network Effect is not the primary driver here, it’s they built new software better suited for the cloud era while other incumbent players are trying to get their legacy products to adapt.

#16

I am utterly baffled at how one can say that Zoom does not have a network effect. Zoom links to meetings are getting sent out by the hundreds of millions daily. Up from tens of millions a few short weeks ago. People all over the world are Zooming each other just to say hello or to have a drink with friends.

Zoom is the very essence of network effect.

Darth
Extremely baffled

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#17

I already explained it and don’t see any other way how. Does Smartsheets have a network effect if I download their software so I can fill out a smart sheet a customer uses? Even though I will never pay Smartsheeets a dime?

If I download a DocuSign app so I can refinance my hone and the bank uses DocuSign, is that a network effect? I don’t consider it that.

I don’t see how Zoom is any different than that. I am clearly missing the network effect here because I do not see how downloading an app so I can talk to someone on Zoom is a network effect, when THEY are the customer, not me, is a network effect.

Right now I have a security app on my phone because someone wants me to use it to log on to their system. I will never give them (Microsoft in this case) a dime.

I do not see this as network effect and clearly missinn the point here and need it explanained very slowly with small words, because I am missing it. Or, my expectations for a network effect are higher. Peloton o think has a higher network effect than Zoom. You become a paying customer of Peloton because others are. You do not become a paying customer of Zoom because others are. You may download a free app but that’s about it.

#18

Not my words, but words to consider in this debate about “Network Effect”:

A network effect (also called network externality or demand-side economies of scale) is the effect described in economics and business that an additional user of goods or services has on the value of that product to others.

Direct network effects. An increase in usage leads to a direct increase in value for other users. For example, telephone systems, fax machines, and social networks all imply direct contact among users. A direct network effect is called a same-side network effect. … This is also called a cross-side network effect.

Sure seems to me as a non-techie that Zoom certainly has and benefits from a network effect.

Harley

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#19

There is no network effect at all with Zoom in my opinion, at least for the most important category of customers: enterprise customers.

CIO (or different senior management function) will decide on which videoconfering tool to be used across the enterprise and this will then be rolled-out for everyone. Where is the network effect here? The users will simply follow what management has decided. If a competitor comes the next day to offer a different videoconfering tool with comparable quality at half the price, I don’t see what kind of network effect would prevent the company to switch again? It’s not difficult to roll-out a new videoconferencing tool to employees…

For individual consumers, I agree there may be a network effect as it’s convenient if your friends and family already have the app rather than going through the process of downloading a new app (although this only takes a minute so wouldn’t call this a strong network effect). However this is only because Zoom can be used for free, most people wouldn’t mind downloading a new tool if they can then save money.

Real network effects are in companies such as Visa, Facebook, Match group, AirBnB, Copart, Zillow etc. To give an example, switching your house listing from Zillow to a site that no one uses is probably not helpful in selling your house so you are kind of stuck with Zillow (or other websites with lots of traffic), switching from Zoom to a competitor is a 2 minute process and the call will most likely be as good as with Zoom.

#20

Thank you Rubenslash, I see it exactly the same way. I’m starting to think I’m bonkers over here being the only person to claim Zoom does not have a network effect.

Harley,

Sure seems to me as a non-techie that Zoom certainly has and benefits from a network effect

How?

And I don’t want to keep laboring this point, because I keep hearing over and over how Zoom has a network effect, and until now, was the only one who seemed to think that.

So I will give a hypothetical rollout of Zoom and maybe someone can explain how I am not getting it, OR, what I really am starting to think is the case, Zoom’s network effect is not going to be a main driver of sales, if it moves the needle at all.

Scenario: A company decides to adapt Zoom. So, all the employees download the Zoom app onto their computer, and even mobile phone. They start talking to one another on Zoom. Network Effect: They are all using the same app, Zoom. However this is a corporate wide adapted program so there is really no network effect anymore than everyone using Smartsheets or any other SaaS talked about on here.

Scenario 2: Bill from Acme inc. wants to have a Zoom discussion with Sally at Brand X to get some clerical accounting stuff straightened out. So, Bill sends a Zoom invite to Sally. Sally’s company uses Teams, so, she downloads the Zoom app to talk to Bill at Acme. Sally has the discussion, and goes on about her day. At no point does Sally, or Acme Corp become a paying customer of Zoom. Nor will they ever. Sally does have an app installed though! A free app, that Zoom will never be compensated for. But I think this is where people are claiming a “network effect” where one does not really exist. Not one that will lead to revenues at least.

So that’s my understanding of it. And that may be where people are talking about “network effect.” They are talking about needing to download an app to talk to a paying Zoom customer. That network effect does not generate revenue. It’s meaningless as far as I’m concerned. Sally and Acme corp are still Teams users at the end of the day and never gave (oor will give Zoom a dime, nor will they become paying customers).

Compare this to Visa, Match, etc., listed above, where, if you are going to use the product, you are going to pay. THAT is a meaningful network effect. Sending out free Zoom links and free Zoom software apps so paying customers can use their product is not a networking effect.

I realize I have said the same thing over now, but I still, continue to hear “Zoom has a network effect” without really explaining how. Either I’m missing something or it’s just a very weak network effect not worth mentioning. So I’ll stop here.

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#21

12X…perhaps you are correct; however, perhaps we are just talking past one another. Perhaps the difference lies in our discussion that is not addressing one-sided network effect vs. two-sided network effect.

As it relates to WhatsApp, Skype, InstaGram, TikTok, Zoom, etc. it just does not make sense to say “an additional user of the product or service provides no value to that product and the users of that product” (which is in essence the definition of network effect).

What value would an InstaGram account have to you if the network was limited to just you and your sister on the InstaGram network…it might have some, but the value increases for you with each friend, family member, former classmate, etc. that joins the product network which allows you to expand your network. The same with Skype, Zoom, etc. The same argument can be made for Zillow…what value would the network have to you if the network consisted of one buyer (you) and one seller…Match.com; what value would the network be to you if it was just you in Maryland and a compatible match in California?

I could continue to expand on this thought, but it is just so clear to me that I don’t think it warrants further explanation.

Zoom has a network effect…value is added and value expands with each additional Zoom user added to the network whether they are paying members or not.

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#22

All this focus on paid users and enterprise customers is warranted in terms of money flowing to the bottom line, but it ignores the very powerful effect of huge numbers of people who are being exposed to Zoom, whether for work or not, and then, even if they go back to the office after this is all over, and corporate tries to get them to use another product which does not work as well, there can be a strong push to convert to Zoom. Plus, I expect that lots of people will not go back, at least not full time. Plus, lots of small businesses are discovering ways to deliver their services without being in person and that may continue as well. If a very large part of that new usage is happening with Zoom, then a lot of it is likely to stick with Zoom as long as Zoom continues to deliver superior service and some will turn into paid use.

E.g., a friend of mine who is treasurer of an AAII chapter and I were talking about this area. Their chapter lost a very desirable location a few years ago and has had less than desirable places for meetings since. And, unsurprisingly, the audience has shrunk with the flowering of resources on the web. This chapter just had their first Zoom meeting … despite a national lean toward GoToMeeting … and the users were very pleased with lots more interaction than they were used to having with their in-person meetings. This included a screen sharing presentation by one of the members.

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