Zoom and its overnight success: Product Stories #2

Zoom daily active users increased from 10mn to 200mn in last 3 months (Part 1 of 2)

These days, I have this productivity-boosting morning routine of

• waking up

• checking corona cases count

• brushing teeth

• checking corona memes

• find something to eat

• fail at finding anything to eat

• watching an endless stream of corona memes

• go back to sleep

• wake up at lunchtime.

Today, while following this meticulously well-crafted schedule, I found a funny clip of video conferences in real life. It reminded me of the pre-Zoom era.

Zoom has been in news a lot lately. It has gone from being an enterprise solution to a household name pretty fast.

Its daily users have risen from 10mn to 200mn in the last 3 months. Its stock price has also risen significantly up.

Sam Freedman @Samfr

Zoom is now valued at 50% more than all the US airlines put together.

While Zoom is growing exponentially (much like the number of corona cases ), let’s dig a little bit deeper into what laid the foundation of such an overnight success.

Zoom and the Red Ocean Strategy

Zoom was founded in 2011 when Eric Yuan decided to quit WebEx after working there for 14 years. 10 years he spent at WebEx and subsequent 4 years at Cisco WebEx (after $3.2bn acquisition of WebEx by Cisco). WebEx was, in fact, one of the first SaaS (Software as a Service) companies ever. They had the SaaS model even before Salesforce, which many consider as the first SaaS company.

WebEx was a videoconferencing solutions company and Eric was one of its earliest employees (9th engineer). After working so long at the company, he wanted to build a new video conferencing solution for Cisco. He felt that there were a lot of legacy issues with the current solution and new-age customers had different needs.

Even though he was VP Engineering he could not build it inside the company. The Cisco leadership then felt that “it would cannibalize the existing market”. Wow! Talk about missing out on an amazing opportunity.

Eric went on to quit the company and raised a bunch of money. He decided to build a new video conferencing app in a market full of big incumbents. The list included big companies like Skype, GoToMeeting, WebEx as well as well-funded startups like BlueJeans).

This goes against a lot of startup advise. Conventional wisdom states that one should try to find a market with lesser incumbents or have a very differentiated/unique value proposition.

Zoom did none of that. Let’s try to understand why would he not adhere to conventional wisdom:

1. He had managed to raise $3mn from people who were willing to invest in him (as opposed to the business). A lot of the investors did not even know what Eric was working on. This would definitely have provided him with enough confidence/firepower to power through

2. When you look top-down on the video conferencing market, you do see a lot of competition. But whenever Eric talked to his customers, none of them were happy with their videoconferencing solution. Customers were deeply dissatisfied in spite of so many solutions. I can attest to that as well. Video conferencing never used to work seamlessly. For more context, refer to the video I posted at the beginning.

3. But just because users are unhappy, does that mean a new startup can be built on top of that problem? What if it’s technically not feasible? If Google/Cisco of the world, with all their technical might, can’t solve this problem perfectly, how can a small startup do that? That’s what most of us would think. I believe what made Eric think otherwise would be the fact that he had already done that for 14 years. That too for one of the top companies in the space and from scratch.

I think another example of the same approach would be Superhuman. Almost everyone I know hates email but can’t do away with it (in spite of Slack). Even though there were a bunch of email clients already, both by big companies as well as startups, Superhuman founders thought they could solve this problem better than them.

Lesson here. Sometimes it’s a good idea to not be too bothered by competition. If the users still feel the problem, and you have the belief that you can solve it. It’s probably a better idea than most others (given it’s already validated that a problem exists). A lot of times, we try to solve problems that don’t even exist for a large userbase.

Zoom and its MVP

When Eric left WebEx and raised $3mn before even starting with Zoom, he also hired 40 of his ex-colleagues. All of them engineers.

Basically, from Day 0 he had a huge team of engineers. A lot of Silicon Valley products are built with “Move fast and iterate” philosophy, just like Reddit (which we covered in our last edition of Product Stories). Eric was from a different school of thought entirely.

He was in a building phase for about 2 years. He launched Zoom in 2013. Towards the end of these 2 years, he also had an engineering team of 130. That is a lot of engineers and a lot of time, especially in the startup world.

According to Eric, if you are building a completely innovative product like Uber or Airbnb, then the “move fast and iterate” model of building products makes sense. But if you are building a product that competes with a bunch of other products, you need to make sure that your product works (and is better than everything else out there).

A corollary of this (although it implies that one should build products with a more unique value proposition; the exact opposite of what Zoom did):

lpolovets @lpolovets

Observation about building Minimum Viable Products: the more unique, compelling, & differentiated your key value prop, the less you need to build for a Viable product. Example: FB, but ephemeral -> small MVP FB, but red instead of blue theme -> need feature parity and then some.

2 years is a large amount of time working on a product with no validation from outside. Eric himself agrees that he has had the urge to launch early many times but he had to fight that urge, to make sure that the product was right.

Few of the finer product features they wanted to nail before launching:

1. Maximum latency of 150ms even in choppy internet connections (150 milliseconds is the maximum latency before conversations feel unnatural)

2. Even in cases of up to 40% packet loss, Zoom should seem to work fine. They prioritize audio over video in order to do that. In a meeting, choppy video is fine but intermittent audio makes the meeting intolerable

3. No password and cross-device joining of the meeting (this was a big pain point with the current solutions of the time. Almost everyone required the new joinees to join via a password)

4. Security features built-in to set them up for going to enterprise customers later on

This worked fantastically for Eric but I am not sure if this is a lesson that is translatable to most other founders. Eric could do this because he had whole-heartedly believed in the problem and was playing the long-game. “Move fast and iterate” model is for times when you are not 100% sure whether you are working on “something people want”. In case you are not, it helps you to cut your losses and spend your time building something which people actually want.

During these 2 years’ time, he also planned a lot around the business model and the go-to-market which I will cover in the next edition of this mail. But one example of extreme meticulousness would be the freemium limit in Zoom.

Zoom one-to-one meeting are always free but for group meetings, it is limited to 40 minutes. 40 minutes is not just a random number. According to Eric and his WebEx experience, 45 minutes is the duration of most effective meetings and hence wanted to keep the free limit below that. Note that he did have to waste time doing A/B tests to figure out if this limit is the best for conversion or not. This enabled him to focus more on new features for the customers rather than optimizing this conversion funnel.

If you look at Zoom’s growth post-2013, it is nothing short of a dream. It’s not just because of the fact that they are customer-obsessed. A lot of founders are customer-obsessed but they don’t see the kind of dream success that Zoom sees. What you work on is sometimes much more important than who you are. Also, a lot of the foundation of that hypergrowth was built in those 2 years.

Lesson here. There is no one correct way of building products. It all depends. On the founder’s individual constraints as well as the market constraints.

That’s it from me today. Stay indoors and safe. Please do share this article with anyone who you feel might benefit from reading this - any startup founder, Product Manager or in general tech enthusiast.

In the second part of Zoom’s product story I will cover the following aspects:

• The “delivering happiness” mission of Zoom

• Go To Market (SMB vs Enterprise)

• Early Metrics