Why the ZM threats don't scare us

Investment Analysis Clubs Saul’s Investing Discussions
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Some newer board readers here might wonder why many of us are so sanguine about Zoom in the face of competition from Facebook and Google.

In a post way back in 2018, I highlighted a quote from a podcast about competition. The speaker said:

Is there any high growth start up…that hit escape velocity, that a large competitor has ever, basically beat?
https://discussion.fool.com/maybe-we-have-the-advantage-34087724…

Perhaps he wasn’t entirely correct. You might be able to find one or two if you look back 25 or 50 years. But I like those odds.

A few months ago I posted about AYX competition, and I think my conclusion could also be applied to Zoom:

The main thing is that customers want a solution everybody can use. The more it can be compatible with other things a subset of employees want to use, the better.
https://discussion.fool.com/customers-or-competition-34386909.as…

Neither ZM, nor AYX, nor ROKU, nor any of our companies are doing things that no other company can possibly do. But their customers love the way they’re doing it, and that attracts other customers. And that’s enough. We don’t even need to know all the reasons why their customers love them. We can follow the numbers.

Lastly, don’t assume best price leads to adoption. Brand names cost more than generics even for consumer products. For organizations, let’s say a large accounting firm has to pay Zoom $100 or $200 or even $1,000 each year for each of its employees to have Zoom and Zoom rooms and everything they need…but this firm pays those employees 50k or 75k or 100k or 150k or 500k each year…well, the Zoom expense is relatively negligible, no?

The price isn’t always right even when the price is “free.” Companies pay for things (Slack, Zoom, etc) that they may already have included in Microsoft Teams – WHEN it’s worth it to them! That is already happening, and has been for some time.

People often make competition out to be a lot scarier than it is. Competition is healthy capitalism. Don’t fear it so much.

Bear

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Thanks Bear. I have a different take.

“Neither ZM, nor AYX, nor ROKU, nor any of our companies are doing things that no other company can possibly do.”

It would take a competitor a long time to replicate Roku, or Alteryx, and ROKU and AYX would continue to innovate while competitors would be trying to catch up - moving targets they would never catch.

Many companies have duplicated Zoom technically - maybe Zoom has a great new feature coming that other companies won’t be able to replicate, but I doubt it.

When this is all over, will Zoom’s customer base shrink, as people return back to the office and other players nibble away at Zoom’s base? Maybe I’m wrong, but that’s my expectation.

I have a little bit of Zoom, but I’ll ditch it if they jump after a good quarter, as I believe a bad quarter won’t be far behind. They’re a winner only because of a pandemic, one that I hope will be over soon.

I appreciate and respect everyone’s opinions - I’m providing my own counter narrative, and I could very well be wrong.

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Bear,
There is no such thing as a free product at the enterprise level. There are products with zero acquisition cost, but that does not make them free.

Before I retired I was often involved in product evaluation exercises. This applies to all products, whether or not they are provided by a vendor or custom built in house. The cost analysis was based on the total cost of ownership over a seven year span (which I believe is the IRS standard depreciation schedule for s/w). Support costs often far outweigh acquisition cost. Support costs are almost always born by IT. They include in house expertise which can be called on to address problems. There’s also the cost of vendor coordination which is comprised of internal surveys on utilization, problem reports, and so forth. This information is used to negotiate contracts and to influence the product development roadmap. Vendors like to be (or at least appear) responsive to the wants and needs of their largest customers.

In any case, the point is that acquisition cost is just one of the costs that come with any product. It does not represent the full cost of ownership.

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We can follow the numbers.

Bear this could have been in bold as well! There’s a lot of things I’ve learned from this board and this is absolutely one of them. In my investing career I’ve sold because I personally didn’t like the product and bought because I loved the product - and lost money in both scenarios. In the end, my preferences matter not one iota. Follow the numbers!

-AJ
long ZM @ 20% allocation

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