Zoom Is a Disruptive Company

Investment Analysis Clubs Saul’s Investing Discussions
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Of that I don’t think we can debate.

https://slackhq.com/slack-zoom-partnership-announcement?cvos…

Slack is also a disruptive company. Other big disruptive companies(TWLO, OKTA, etc) also love Zoom. The companies making the future love Zoom.

Slack:

So we’re partnering up to build on the success of the current Zoom integration for Slack, which more than 10,000 Slack teams already use on a monthly basis (up over 200% from just a year ago).

Zoom on. Not sure about this valuation, but Zoom is a big deal.

Darth

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Find it pretty funny that the Fool apparently uses both Slack and Zoom a ton for their internal communications, as they have mentioned on numerous Podcast episodes.

Zoom could eventually grow into the valuation they have presently. I will begin looking into buying some if it falls to around $55 within the next month or so. I think I might definitely buy at around $40-ish.

volfan84
Gave ZM a short-term (next few weeks only) thumbs down on CAPS earlier today
http://caps.fool.com/Player/volfan84.aspx

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I am not buying ZM anytime soon, but it is on the watchlist for being relevant, for sure.

Came across this article, which speaks well to Zoom, Slack, and Twilio along with Twilio’s acquisition of SEND.

Basically expense trends in Software:

Look at “Software Trends”
https://use.expensify.com/spend-trends/jan-2019

Dreamer

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Good find Dreamer.

Very telling. I saw article a year before when we were investigating another company. Can’t remember what it was for but I’m pretty sure it was one that was popular here and had a good year.

Darth

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As for Slack…some numbers:

https://www.google.com/amp/s/www.cnbc.com/amp/2019/01/15/sla…

For the year ended in January 2018, Slack had revenue of $221 million, The Information reported based on early 2018 documents. Slack projected that revenue to increase by 76 percent to $389 million for the year ending January 2019, and then growing 64 percent to $640 million the year after that, according to the documents.

Unfortunately this one may be a $20-25b valuation out of the gate ala Zoom.

But on pace for TTD type revenues in next 12 months, but at 60%+ growth rate. Impressive.

I think it shines a spotlight back on other SaaS companies. A rising tide, as it were…

Dreamer

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Hi Darth, First let me say I am a big fan of your post here and NPI. I do not get the assertion that ZOOM is a disruptive company.

In my distant past one of the teams reporting to me was charged with building and operating a very high quality video conferencing networks for a public sector entity. The platform that provided the features and functionality were transparent to the user community (sort of in the cloud before there was a cloud). We had OC3 connections to each site, so bandwidth was not a problem and we used MPEG3 codecs ( real high quality video at the time. We provided telemedicine, distance learning, video conferencing and associated functions. This was in the mid 1990’s. From everything I can read ZOOM is not really providing anything more from a business perspective.

The networks are light years better now, latency is not so much of an issue anymore, session management software is much, much better. Setting up sessions are far easier now but it really was not complicated 30 years ago.

To be honest there is not much barrier to entry into this field and it is already crowded with competitors. I cannot figure out what is disruptive about what ZOOM is doing.

I would appreciate insight into what I am missing.

The valuations really do not make any sense to me. If there is a big TAM (which was predicted in the 90’s but never materialized) that have really good margins then it would be nothing for Amazon, Google, etc to quickly step in and be a significant competitor.

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Hey Hyde,

You ever start watching a movie with your kids or grandkids and somewhere around 3/4 of the way through you realize they had gotten up and left to go play and you’re still watching the kids movie. That was me watching Despicable Me the other day.

The main character, Gru, has a rival villain named Vector. Because he has “direction and magnitude”.

Disruptions in technology are like vectors. They have direction and magnitude.

There have been a good many posts on Zoom’s technology. Some deep dives on it. The stuff works great and customers love it. I mean what about Oktas or Twilio, etc software makes it difficult to replicate. I don’t know exactly but it must be something. Rather than rehash the technology discussion ,because I have nothing new to add, I’ll just stick to explaining why I am saying they are disruptive.

Zoom’s Vector.

What is Zoom disrupting.

In my distant past one of the teams reporting to me was charged with building and operating a very high quality video conferencing networks for a public sector entity

Nope. That’s already been disrupted. Skype and Webex and others made it much easier than that to set up video communications. They were the next generation. Zoom is the new next generation. Zoom’s direction is to disrupt those platforms for sure. But I think Zoom’s aim is more than that. They are pointing their platform at all forms of communication. Video, voice, textual, physical presence, meetings, training, etc. Everything. If you want to communicate with someone for any use case, Zoom wants their platform to be considered in how to do it.

Magnitude.

How much better is Zoom than competitors and how successful are they at achieving the disruption?

The case has been made on how much better Zoom is. I think at this point you either agree or don’t. But Zoom is achieving remarkable success. No need to rehash the financials. They are superb all over. Growth machine.

And evidence is everywhere for this. Gartner peer reviews. 3000+ reviews with a nearly unheard of 4.7 rating.

The Okta State of Businesses report.

https://www.okta.com/sites/default/files/Okta_BW_2019v3.pdf

Zoom is the only app to be both fastest growing and most popular(by # of customers). On page 11 Okta labels them a “Best in Breed” app. And the chart is impressive. No other app has moved as much space since 2015 as Zoom. 2015 Zoom was in 3.6%. 2016 up to 7.9%. Then 15.4% in 2017. And last year Zoom was up to 23.7%. They are very rapidly expanding and look at all that white space still to fill.

More confirmation from the Google trends of Zoom rising in interest while competitors retreat or don’t even have enough to show up at all.

And then you have this Slack partnership with Zoom announcement that started this thread. Not an app integration, they already had that. And so do Skype, Webex, and BlueJeans. Of those Slack is entering a strategic partnership to expand integration with Zoom. Why? Zoom’s better I guess AND 10,000 Slack customers use the Zoom app each month. AND that expanded 3x from last year.

How’s that for a vector for Zoom?

What would be the vector for competitors?

Skype 4 Business? Webex? BlueJeans?

What’s their vector Victor? Where are they headed and with how much effect?

Darth

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I don’t believe Zoom is disruptive, at least not from what I’ve seen. Zoom can still be great, innovative, succeed and steal market from the bigger more established players. It adds some features, builds upon existing products, may execute it better. But I see its product as an incremental advancement, not a disruption.

They call me,
MrTBS

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I don’t believe Zoom is disruptive, at least not from what I’ve seen. Zoom can still be great, innovative, succeed and steal market from the bigger more established players. It adds some features, builds upon existing products, may execute it better. But I see its product as an incremental advancement, not a disruption.

The old Rule-breaker analysis is that you want to invest in a top dog and first mover. Companies like AOL or Amazon would be wonderful examples of that. But consider too the case when people are unhappy with the first version of a major innovation. If people are unhappy with the innovation, then people are underwhelmed. And those stocks do not become monster stocks. It’s the company who perfects the design who gets all the success.

Apple is an obvious example. The iPhone was not the first cell phone, or the second or the third. Apple was late to the party. They were anything but the first mover. But Apple perfected the design. So, sure, the cell phone was a major disruption. But it wasn’t the first movers in that business who won. It was Apple’s “incremental advancement” that got all the rewards.

Google is another one. Lots of companies were providing internet search. But Google did it better than anyone. Google was head-and-shoulders above the crowd. So Google got all the marbles and the first mover–whoever it was–got the scraps.

Video communication should be disruptive, right? It’s like the difference between radio and television. What was audio is now video. It’s a major advance in technology.

And yet how many of us engage in video communication? We’re still talking on the phone like it’s 1959. I feel like video communication is a major disruption to the status quo. And yet we haven’t crossed that chasm yet. Why did WebEx and Skype get bought out? Greed, sure, but also because their technology wasn’t world-beating stuff.

Consider the possibility that people are exited about Zoom because video communication is a fundamentally disruptive idea.

Zoom customer service chief Jim Mercer was then working at competitor GoToMeeting when a colleague opened a Zoom account to see what the hype was about. “One click, we were in, and there were 25 feeds of participants at the same time,” he says. “We were like, ‘What is this voodoo? How are they doing it?’?”

Television was invented in 1927. But the golden age of radio was 1930-1949. It took a long damn time for people to migrate from radio into television. But it was inevitable, yes?

I would suggest that if Zoom is the company that crosses that chasm, that takes us all from audio communication into video communication, then it is profoundly undervalued at these prices. If they pull off what they are trying to do, then this is Google, this is Apple.

If they fall short, of course, it’s going to be a really bad investment.

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And yet how many of us engage in video communication? We’re still talking on the phone like it’s 1959.

While screen sharing and the like certainly is a big plus … having given presentations to user groups in Russia from my office in Illinois, I can certainly testify to that … I can’t help but wonder a bit about mere video of the other person. To be sure, it can add something … but it might also be bucking the trend of working from home in one’s bathrobe! :slight_smile:

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I don’t want to be a Zoom naysayer because I think this is a disruptive market, if not a disruptive company in that a macro trend is in place where more people work at home, and across broad geographical markets and need to collaborate in new ways. Video conferencing still doesn’t beat face to face relationships in effectiveness but it is orders of magnitude more cost effective and convenient. It is a trend that is here to stay and several companies can be major winners over the next decade. Zoom may be one of them.

All that said I just used Zoom for a presentation (by another companies request) and frankly I saw absolutely no difference between my experience with Webex or GoToMeeting. Nothing. It worked well, we had about 25 people on the line. We were able to share screens easily, the video quality was good. But nothing jumped out at me that was anything special or different than my experience with its competitors that would cause me to become a loyal fanatic. And the stickiness is near zero, since I use all three regularly. It’s a simple client download to your laptop, or just run them on your phone or in the browser, about a 5 minute switching effort.

If I was managing the budget for a large company and cutting a PO to any of these companies and one of the competitors came to me with 1/2 the cost, I’d seriously consider switching. You’d get gripes from people the first couple days and then they’d shut up and start using the replacement. I don’t know how they can get significant pricing power here, although they may grow fast enough overall to make this a good investment.

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Darth as always I really appreciate you sharing your knowledge, very helpful.

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https://zapier.com/blog/zoom-vs-gotomeeting/

This neutral and detailed comparison does not sound like Zoom is a disruptive company. What it sounds like is Zoom offers some superior features that are material. Thus Zoom is an incremental improvement that many customers are finding attractive when they choose a video service. However, if Zoom were to disappear tomorrow the world would not end.

A disruptive company is one that provides not an incremental improvement but a new way to do things. Salesforce, cloud CRM, Amazon web shopping, Mongo NoSQL, OKTA identity security in the cloud, etc.

Zoom, has some superior features in a few material categories, and a few features that GoToMeeting does not appear to offer that are great but not disruptive.

This puts the pressure on GoToMeeting. Can GoToMeeting create some of these features themselves?

Anyway, the blog provides the details. For the most part the products are interchangeable but Zoom does have a few superior features.

For me, since I need more document sharing, I would choose Zoom for my own use, but I do not think my world would be rocked if GoToMeeting was forced on me.

Tinker

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I’ve been refraining from joining this discussion but the expression “Disruptive Innovation” is often misused. It was coined by Clayton Christensen who commented on CNN

The first are “empowering” [disruptive] innovations. These transform complicated, costly products that previously had been available only to a few people, into simpler, cheaper products available to many…

The second type are “sustaining” innovations. These replace old products with new…

The third type are “efficiency” innovations. These reduce the cost of making and distributing existing products and services…

https://www.inc.com/christine-lagorio/clayton-christensen-ca…

For me clearly Zoom is sustaining innovation as are Apple’s “iProducts.”

Denny Schlesinger

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I agree the switching cost is low. Zoom Phone might be a game changer. So far, none of other choice can offer us to talk to a landline directly along with online audience. Our company is using Skype for Business, that is why we still keep everybody an expensive phone, even 90% of time we don’t use landline phone anymore.

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I think good points have been made on both sides of the disruptive/not disruptive argument, and on its face I lean more towards the not disruptive camp. But one has to wonder, if this is not disruptive technology, what is driving such stellar revenue growth if Zoom’s product is merely incrementally better than their competitors? Is their sales force really that superior?

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