Zoom has no Moat

I came across this excellent article on ZOOM. As I mentioned before, I do not think Zoom has any moat. Switching cost for video conferencing are relatively low. Our company moved from Bluejeans to Zoom and since the product is so wonderful, we are happy customers. So a good product could be a moat but not for long. Agora, as mentioned in this article is supposedly a good product too. I have not used it so cant comment on its capabilities. Regardless when you have such strong margins, competition is bound to come. Question is, will zoom be able to build the moat around its castle?

https://seekingalpha.com/article/4374201-zooms-blank-check-w…

Thoughts?

Ruhaan

6 Likes

I generally agree, and have said so on this board in the past (but have refrained since repeating myself is both pointless and annoying for other board members).

However, it was pointed out to me -and I have to concede- that broad adoption of the platform is a sort of moat. I don’t think the switching costs are prohibitive, so it’s not a very deep moat. But it is a moat nonetheless. IMO.

1poorguy (no position in ZM)

3 Likes

I came across this excellent article on ZOOM. As I mentioned before, I do not think Zoom has any moat. Switching cost for video conferencing are relatively low. Our company moved from Bluejeans to Zoom and since the product is so wonderful, we are happy customers. So a good product could be a moat but not for long. Agora, as mentioned in this article is supposedly a good product too. I have not used it so cant comment on its capabilities. Regardless when you have such strong margins, competition is bound to come. Question is, will zoom be able to build the moat around its castle?

Every time this question comes up, the discussion inevitably results in a back and forth between people with different definitions of a “moat”.

In my opinion, it doesn’t matter. They’re growing incredibly fast with high margins. Whenever any potential absence of a moat begins to matter, it will show up in growth rates and margins. With a large amount of subscription-based revenue, there will be plenty of time to get out while still enjoying plenty of gains. One of the benefits of being an individual relatively small investor is that you can always move on when weaknesses in a business begin to matter. We have no requirement to leave money in a company as it loses market share or otherwise maintain an investment indefinitely. If something comes along that is much better than Zoom and actually takes market share, Zoom growth will slow or reverse. I think it’s highly unlikely that all companies will simultaneously switch away from Zoom because of a better product.

The analogy of a moat is kind of silly anyway because a moat does nothing to protect a castle from a catapult or a siege attack.

57 Likes

Thoughts?

Toothpaste has no moat, why does Colgate lead in sales year after year? A clock turning to the left is as good as one turning to the right and there used to be some. Why do all clocks turn “clockwise?” The x86 was a crappy chip, why did it win the chip wars? Why did Intel not manage to beat ARM Holdings? Why did Bing fail?

Was Mr. Market stupid to bid up Zoom (ZM) four fold in a year?

Zoom’s moat is Positioning.

Positioning: The Battle for Your Mind by Al Ries and Jack Trout.

https://www.amazon.com/dp/B006B7LQ90/ref=dp-kindle-redirect?..

Denny Schlesinger

53 Likes

I posted something similar last April. Zoom is just one of many web conferencing applications available. Yet, I still bought some because Zoom does web conferences better than anyone else! Is that a wide moat? No, but it has been enough that “Zoom” has replaced “Skype” and a few others as the leader. So for now, they have a shallow moat.

I thought the same thing about Netflix in its early days. Sold for a small profit, missed out on a fortune :frowning:

4 Likes

It’s all been said and asked before. Everywhere I read these days from hospitals, doctors, now dentists, breathing exercises, Zumba, yoga, keep fit classes, to soccer matches
Plus every video conference imaginable all around the world one thing becomes apparent. Zoom is a verb now in everyone’s dictionary. I’m looking where to possibly stay over Christmas in London this morning and there is a magazine called “Time Out” with things to do over that period. Zoom was mentioned 22 times. Yes they have a moat and they are drowning their beautiful sorrows in it. Their drawbridges are only on the cusp of opening for all to see the beauty and merits of their kingdom??Patience. There will always be others to storm their castle but it’s going to take a long while to do so.

4 Likes

Zooom does have a moat. It’s the only video chat system that takes into account the non-ecosystem use case. All the other options require both users to be a member of the service. If you want to Facetime you both need an iPhone. Google Meet, Facebook, Slack all the same thing.

Zoom is the only service that designed an elegant and easy to use solution that doesn’t require both participants to be a paying Zoom customer. It sounds like a small issue, but obviously it’s huge. And it’s also not an easy option to support. If it was, everyone would do it. But they don’t, and probably never will.

Can you imagine Apple supporting free to download Facetime apps that run on competing hardware? Never going to happen.

3 Likes

Good point on some of the competitors. However, there are competitors that don’t require both parties to be a member. Microsoft’s Teams and Cisco’s WebEx. There might be more but these are two I use on a regular basis. Zoom is, by far, much much better.

1 Like

Correct. WebEx is the closet thing to Zoom. For obvious reasons. And clearly Eric thought there were limitations to the WebEx core technology that prevented it from achieving what Zoom achieved.

Zoom is a great example of user experience design innovation that non-technical people think is trivial, but in reality very difficult. Netflix or YouTube are the same. Delivering streaming video at scale was a very difficult problem for engineers to solve when those services took off. They had elegant engineering solutions that weren’t discussed as moats. YouTube works on its own proprietary video format which was why, at the time, they were able to scale much faster than everyone else. You didn’t need to download a codec. YouTube just worked.

1 Like

So I am not bashing zoom and certainly not undermining them. For what its worth as of today its ~8% of my portfolio. I invested around 4% and it did the rest. My goal was to engender rational dialog from the community and also provide what I thought was an excellent article on the number of ways Zoom might be able to enrich it moat.

I further read the conference notes posted on the premium boards by starrob. For people who have access can read it here:
https://discussion.fool.com/4056/da-davidson-conference-notes-34…

There were pointed questions around what zoom is doing vis a vis MS Teams. Do read the response. They are embedding zoom video in MS Team and they already have this in Slack. I use slack all the time but I am yet to see/find integration. While that makes me glad that they are integrating with other apps I am still wondering about the need to have a separate product where MS team just might suffice.

Zoom is the only service that designed an elegant and easy to use solution that doesn’t require both participants to be a paying Zoom customer.

@GolfCaddy4PLynch you bring up a good point. The way to do it would be using the browser w.o the need to use the app. I believe it’s hard to do but also as mentioned in the article, Agora provides similar ability.

Moats had the advantage of keeping attackers out but also keeping defenders in, making resupply difficult and starvation inevitable. Likewise for tech companies a big moat may hem them in, make it difficult for them to change as markets change. And as IRdoc poss, if there is no functional moat of some kind it will show up in the revenue growth rate.

1 Like

Zoom in Slack? Very interesting. This is what I dug up.

https://slack.com/help/articles/115004062463-Zoom-for-Slack
- Confirm your Zoom and Slack accounts are linked to the same email address.
- Ensure you have either a Zoom Pro, Business, Education, or API plan. To make outbound calls, you’ll also need a Zoom Phone plan.

It requires a paid Zoom account and works through the standard Slack plugin interface. They just treat it like any other app. Integration like this always amuses me, as it doesn’t make using either tool any easier.

I don’t use MS Teams so no idea how it works. Probably similar to Slack.

1 Like

. Regardless when you have such strong margins, competition is bound to come. Question is, will zoom be able to build the moat around its castle?

Here is an example of what it is that will keep Zoom in its leadership Position.

https://seekingalpha.com/news/3614281-zoom-planning-messagin…

This article references a significant upgrade to Zooms messaging capability.

The update would move Zoom’s messaging from a basic text interface to a more advanced messaging setup like Slack (NYSE:WORK), which is a Zoom partner.

Zoom has reportedly hired a “significant number of engineers” to build out the new product, which is likely several months from launching.

Every other day one comes across an announcement like this one describing yet another Zoom development which further increases its advantage. Yesterday there was a major development reported
for phone communications.(Perhaps a restatement of earlier info) .To begin with Zoom is best in its class, and easiest to use and its basic architecture was designed with communication in mind.

It seems to me Zoom is on the attack which makes a “moat” an irrelevancy.

cheers

arnie

4 Likes

Maybe we shouldn’t worry so much about Zoom’s moat while it is busy ransacking everyone else’s castle.

57 Likes

Zoom is the only service that designed an elegant and easy to use solution that doesn’t require both participants to be a paying Zoom customer.

I am not arguing that Zoom may be fairly well protected, but I am fairly sure most other services require only the organizer to be subscribed. All the other participants just need to download the client. GoToMeeting is definitely that way.

1 Like

Maybe we shouldn’t worry so much about Zoom’s moat while it is busy ransacking everyone else’s castle.

LOL That is great stocknovice. It’s really hard to stand and tell a Viking they don’t have a moat as they are taking all of your wealth!!

Andy

1 Like

I’m not familiar with the Seeking Alpha article writer, but the article offers some intriguing suggestions about what and why Zoom should consider buying other companies to capitalize on its current position and create a service that would be even more adaptable and harder for companies to switch from.

The writer emphasizes that Eric Yuan made a brilliant decision to rebuild video chat rather than trying to add an app onto a weak product when he left WebEx. At the time, he was told that the video conferencing field was too crowded, but he proved his critics wrong.

It notes that there is a good reason Zoom’s stock trades at higher multiples than comparable companies: it’s growing much faster.

The writer argues that just as Google and Facebook used their stock to neutralize threats and fuel growth through acquisition. Zoom needs to do the same.

He thinks that Zoom should buy Agora because It’s a bigger threat than Google or Microsoft, it would give Zoom moats (switching costs and scale economies), and it would be a reunion.

Agora CEO Bin “Tony” Zhao was an engineer at WebEx in 1997 along with Yuan. He left in 2004 after the WebEx audio streaming product "started receiving so many complaints: their session was cut off, the quality was bad, and so on.”

Later, Zhao realized:

If someone could provide an easy integrated API to support that capability, application builders everywhere would have less barriers in using real-time audio and video in their apps. This would open up a world of possibilities and use cases.

Evidently, Agora does that well and new startups are using Agora. The writer states that The threat to Zoom is that thousands of companies plug Agora into their products and offer a better experience for the thousands of use cases that people use Zoom for today.
Among his reasons for an Agora acquisition are that it would Give Zoom a better foothold into the new use cases . . . by becoming the platform on top of which thousands of companies build video-based products [and] … Agora gives Zoom an API product.

He also suggests that Zoom consider buying:

Loom (access to asynchronous video messaging)

Whereby (for use by smaller casual users)

Icebreaker (video chat for social gatherings which is not Zoom’s strength)

Hopin or Run the World (for large events)

The writer notes that Zoom has hired a Head of Corporate Development, Colin Born, and an analyst which suggests that Zoom is going to start buying companies.

I don’t know enough about Agora or the other companies (or their technology) to evaluate if they are a good fit for Zoom. However, it is worth watching to see if Zoom does decide to buy companies and what companies they buy.

Making the right decisions on what company to buy and when to buy it can significantly influence a company’s success.

It would be interesting to see reactions to the writer’s proposals versus a “what is a moat” and “does Zoom have it” debate.

All the best,

Raymond

21 Likes

Zoom is the only service that designed an elegant and easy to use solution that doesn’t require both participants to be a paying Zoom customer.

I am not arguing that Zoom may be fairly well protected, but I am fairly sure most other services require only the organizer to be subscribed. All the other participants just need to download the client. GoToMeeting is definitely that way.

Correct. But by this definition, you’ve reduced the competitive set down from all the platforms that provide video chat (Facebook, Google, Apple, etc.) to just the subset that offers paid video conferencing software. Of which there are just a handful and none of them have any scale that comes close to Zoom except for WebEx. In this subset, the network effect will act as a moat given Zoom’s significant scale.

Zoom is a verb now in everyone’s dictionary.

Anybody remember the days when using a trademark as a verb was guaranteed to bring the lawyers out of the woodwork by the hundreds?