Collaboration and communication tools have been the backbone of pandemic-induced remote work and the solution to corporate and societal social distancing. During the early days of the Covid-19 crisis, companies transitioned people to working from home and schools threw children into online learning. Zoom quickly became the go-to app for companies, schools, families and friends to gather virtually.
Over a short period beginning in 2020, the company saw massive growth. In the first fiscal quarter affected by the pandemic, Zoom's revenue increased by 169% on an annualized basis; the next quarter, that figure was 355%. And 81% of that revenue came from new customer subscriptions (and low customer churn).
In February of this year, the company posted better-than-expected earnings results for the fiscal year that ended in January 2023. Adoption of Zoom One (a bundled service offering) continued accelerating and helped drive revenue. Zoom Phone's cloud-based system grew more than 100% year-over-year, surpassing 5.5 million total seats in FYQ4.
Collaboration tools face stunted growth in a down economy
Yet Wall Street analysts have expressed concerns about Zoom’s consumer business and competition from offerings like Microsoft Teams. For starters, the macroeconomic climate has reduced the growth trajectory for Zoom and other collaboration services. Many companies brought workers back to the office at the same time that social distancing guidelines were relaxed. These trends, along with the possibility of a recession, significantly contributed to slowed growth for Zoom and others. The economic environment has also led companies to look more closely at costs, while layoffs have also likely led to a decline in subscriptions.
Last month, Zoom itself announced plans to lay off 15% of its workforce—about 1,300 employees. In response to mistakes in over-hiring, Zoom CEO Eric Yuan is taking responsibility by cutting his own salary by 98% and forgoing bonuses. In an email to employees he stated, "I want to show accountability not just in words but in my own actions." While the move likely doesn't materially impact Yuan’s finances, it does show a level of accountability beyond that of many tech executives who have enacted recent layoffs.
The market responded positively to the company's layoffs, with Zoom shares rising roughly 10%.
A bright spot on the roadmap encourages "watercooler moments" with hybrid work
I recently wrote about people's fears about return-to-office (RTO) orders and proximity bias—the notion that company leaders could give preferential treatment to the non-remote employees working in closer proximity to them. Zoom Spots, introduced late last year, aims to improve the hybrid work experience with a way for hybrid and remote workers to gather watercooler-style.
According to a recent Gallup Poll, two out of 10 workers feel they have a "best friend" at work. Robert Waldinger, a psychiatry professor at Harvard Medical School, reports that people with close friends at work "were much less likely to leave their job for another one because they had a friend at work." Zoom's focus on facilitating connections within an organization shows that the company is paying attention to workers' evolving needs as RTO orders combine with the ongoing trend of hybrid work.
Collab competition is heating up
When Zoom became a household name and took its leadership position in the video conferencing market, it edged out incumbent rival Skype, which is owned by Microsoft. The best (and most honest) depiction of this is illustrated in comedian Hasan Minhaj's Netflix comedy show. Minhaj joked: "By the way, Skype, how did you drop the ball here? This was your moment! You had a 17-year head start and Zoom ate your lunch in two weeks. You're a verb no one does! Your friend will be like, ‘Let me Skype you,’ to which you say: ‘Cool, send me the Zoom link.’” As the adage goes, many truths are said in jest.
However, while Microsoft may have missed the mark during the pandemic in terms of maintaining its incumbent leadership position, the company is making its mark in the collaboration space with Microsoft Teams. Teams integrates neatly with Outlook and a suite of Office365 tools, making it the most logical choice among video conferencing tools for Outlook and Office users. Teams also provides longer free meeting sessions, as well as a growing list of other features. Meanwhile, Cisco's Webex is also unseating some Zoom users with a more user-friendly interface, longer free meeting times and more flexible pricing.
Zooming out to the big picture
Zoom must adjust to economic and workforce realities during its internal reset, homing in on pricing strategies and new products while staving off competitors. While Zoom is a leader thanks to its technology and capabilities, it is also priced accordingly, making it more expensive than some competitors.
I think that Zoom shows a keen awareness of the ever-changing needs of workers whether they are in the office, remote or hybrid. The platform really did earn its brand-as-a-verb status during the pandemic when it became the default solution for many people. (My own children even referred to "Zoom school" during lockdown.) Products like Webex and Teams are creating a strong challenge to the company's leadership position. But by introducing platform enhancements like Spots, Zoom is showing a roadmap that is prioritized for human connection, which I feel will be increasingly important in a disparate workforce.