|Zoom aims to be the next big platform for start-ups to build billion-dollar businesses|
Published Fri, May 29 20208:47 AM EDT
Rebecca Fannin, special to CNBC.com
-- Zoom teams up with start-ups to fast forward product innovation as competition from tech titans heats up.
-- The company held an app marketplace contest online for start-ups to build new features and functions for Zoom using Zoom APIs.
-- Docket — a start-up in Indianapolis with an app to make meetings more efficient with collaborative agendas, note-taking tools, archives and task steps — won the competition and hopes to raise $2 million in venture capital.
Jim Scheinman, founding managing partner of Maven Ventures and an early investor in Zoom Video Communications, is still betting on the videoconferencing company’s future and on the vision of its founder and CEO Eric Yuan. The company has been on a tear — stoked by the need for its essential services during the pandemic — but as competition nips at its heels from Microsoft, Facebook and Google, there is a need to keep innovating its product line. To achieve that goal, Zoom is teaming up with start-ups building the next big app on its open platform using Zoom APIs.
Zoom has grown to 300 million daily users from its launch in 2013, and its market cap has risen from $15.9 billion at the time of its IPO in April 2019 to near-$50 billion. Maven Ventures has reaped a 200 times return on investment during the start-up’s meteoric rise.
To spur the next wave of growth, Scheinman came up with the idea for an app marketplace contest online for start-ups to build new features and functions for Zoom. In a so-called Whale Watch competition held earlier this month with a virtual backdrop of whales swimming, leaders of 10 tech start-ups who were selected as finalists among 600 contestants presented business plans in Shark Tank-like pitches over Zoom to Scheinman and four other judges. They were: Zoom’s Platform and AI head Wei Lei; Carl Eschenbach, a partner of Sequoia Capital; Santi Subotovsky, general partner of Emergence Capital, and Bart Swanson, advisor of Horizons Ventures who are Zoom investors that also serve on the company’s board.
Each start-up team pitched their made-for-Zoom apps, ranging from Pledgeling for pledging donations and iScribeHealth for virtual physician consultations to Bloom for specialized online classes for kids. Votes came in from an online audience poll while the judges went off-screen to decide and then announce the winner: Docket, a start-up in Indianapolis with an app to make meetings more efficient with collaborative agendas, note-taking tools, archives and task steps.
As the contest champion, Docket stands to receive up to $2 million in funding from the four participating venture firms once due diligence is done, said Darin Brown, co-founder and CEO of Docket, which launched in January 2019 with $1.5 million in VC backing and is one of several apps on Zoom. “For us, it was a no-brainer to roll out our app on Zoom because of the number of users and the deep integration of Docket within the video platform,” said Brown. He expects that Docket will reach 10,000 users by the end of May, up from 3,000 at the beginning of 2020.
The growth and venture funding opportunity for other contestants with innovative apps that ride on Zoom could be huge. “Zoom will be the next big platform for start-ups to build billion-dollar businesses,” Scheinman said. “Of the 10 companies we chose as finalists, every single one has a potential $1 billion business opportunity.”
Zoom’s growing pains
Not many start-ups have experienced a surge like Zoom – from 10 million average daily meeting
participants in December 2019 to more than 300 million each day by late April 2020. “The way people communicate will be forever changed,” noted Eric Yuan, founder and CEO of Zoom Video Communications in San Jose, pointing to such benefits as increased productivity and collaboration, and ease of use. “In the long run, working from home and use of video communications will be more accepted as standard practice in day-to-day business,” he pointed out in an email response.
The once scrappy start-up must keep innovating to stay ahead of established tech titans that have ramped up their own video conferencing services integrated within full product suites. The rebranded Microsoft Teams, which replaces Skype for Business Online for voice calls and video conferencing and functions within the collaborative Microsoft Office 365 platform, added 31 million users in one month and reached 75 million active users by late April. Google’s Hangouts, renamed Google Meet in early April and combined with its portfolio of business services such as Gmail, Docs and Drive, is adding about 3 million users every day and climbed to more than 100 million daily participants.
In addition, Facebook has expanded its video conferencing and chat features while Verizon Business entered the race in mid-April by agreeing to acquire Blue Jeans Network, a cloud-based video conferencing and event platform.
The services have similar features such as screen sharing, gallery views and meeting recordings, and even live transcripts such as from Otter.ai, which has transcribed 25 million meetings. Pricing differs little, ranging from free, limited feature versions to monthly subscriptions of $5 for small teams and $15 and $20 for larger businesses and enterprises.
“The services all do have similar features but the differences come in how various features are de-emphasized in the mix,” said Dan Rothman, president of software development consultancy Flatbridge Technology in New York. He pointed out that Google Meet is good for social grouping because it can be easy to access contacts, while Microsoft Teams is more business oriented, integrated with Office 365.
Beyond the usual start-up growing pains, Zoom also has contended with a needling perception that it’s made in China and subject to foreign spies listening in. In early April, Yuan admitted that some meetings had been mistakenly routed through China, to handle surges in traffic.
Zoom isn’t made in China – rather in Silicon Valley. But Zoom has a large developer team in China to supplement higher-level R&D teams in the U.S. According to researchers at the University of Toronto who studied the potential security issues, some 700 Zoom engineers work in China. Zoom plans to expand in the U.S. with engineering centers in Phoenix and Pittsburgh, and hire 500 engineers in the U.S. over the next few years.
Not a Chinese app
An American citizen, founder Yuan grew up in Shandong province, China, and earned a bachelor’s degree in applied mathematics from Shandong University of Science & Technology and a master’s degree from China University of Mining and Technology and later, in 2006, an Executive MBA from Stanford University. Inspired by the dotcom boom, he moved to the U.S. in 1997, joined video conferencing start-up Webex as a code developer, learned English, and worked his way up through cultural and language barriers to become a v.p. in engineering. He helped to build Webex over 14 years, including a $3.5 billion acquisition by Cisco Systems in 2007, and stayed on for a few years as corporate v.p. of engineering.
With the dream of starting a new, user-friendly cloud-based video service, he left Cisco in 2011 after his idea was rejected and took with him 40 Cisco engineers to start his own company, Saasabee. The start-up was renamed Zoom after early investor Scheinman came up with the name from a children’s book Zoom City he used to read to one of his kids.
When Zoom went public in April 2019, Yuan became a billionaire and his venture investors hit pay day. But as Zoom ballooned in users this year when Covid-19 spread globally, security flaws surfaced. Built for the enterprise market, Zoom was suddenly was being used by consumers to work, study and socialize, explained founder Yuan.
To deal with high-profile problems such as “zoom bombers” suddenly interrupting online meetings, Zoom put a freeze on development of any new products and set up task forces led by executives on a 90-day, fix-it plan, beginning April 1.
Among the fixes that were hastily made: introduced data routing controls so Zoom hosts can choose which data center regions (including China) their meetings use for real-time traffic; added a security icon in the meeting menu bar to secure users’ data in transit; acquired Keybase, a secure messaging and file-sharing service, to accelerate Zoom’s plan to build end-to-end encryption; embedded meeting passwords by default, and named former Facebook and Yahoo chief security officer Alex Stamos as a security consultant.
Despite such fixes, security issues still haunt Zoom. Citing security concerns, Google has banned employees from using Zoom for any business purposes. Other companies including Bank of America and Daimler AG have taken similar measures.
“Zoom has been fighting four or five Goliaths since the day it was born,” said Zoom angel investor Bill Tai. “Microsoft and Google are copying features all the time and Zoom will leave them behind in the dust,” Tai said, who added he is a big believer in the company’s proactive, transparent culture. He was the first to commit to funding Zoom’s founder after the two friends and prior co-investors in tech start-ups Treasure Data and Tango.me lunched together and discussed Yuan’s idea to make an easy-to-use, high quality video service accessible in the cloud from multiple devices. Tai hasn’t sold any shares in Zoom and proudly counts an investment return of 1,100 times from his bet.
Getting additional funding for Yuan’s start-up idea wasn’t easy but a lengthy memo by Tai finally convinced other angel investors that another video conferencing service could fill a gap in the market and compete in a crowded space against Microsoft-owned Skype and Webex.
“Skype stopped innovating and Webex will live inside Cisco,” Tai said, who added that he “never doubted that Zoom would work. The question was how big this was going to be.”
In early 2013, Zoom picked up $6 million from Maven Ventures, Yahoo co-founder Jerry Yang and his firm AME Cloud Ventures, and Qualcomm Ventures. Later that year, Horizons Ventures, the private investment unit of Hong Kong tycoon Li Ka-Shing, led a $6.5 million second investment. In 2015, Zoom raised $30 million from existing investors and Emergence Capital, then $100 million led by Sequoia Capital in January 2017 before Zoom’s IPO in April 2019 when it was already profitable.
Zoom’s 90-day fix-it plan is ending on June 30 and the while the U.S. economy is reopening, challenges for the company aren’t going away. The app marketplace that Zoom and its venture investors are working on to introduce new features and functions could give Zoom an edge it needs in this new world of online everything.