What about the Microsoft risk? Zoom and Slack have both had growth slow as more traditional end market clients (e.g. finance) never adopt their platforms but instead just use Teams, which already integrates with Outlook etc and comes free. (We switched from a combo of Webex & Zoom to Teams in 2021.) You mention Zoom building out the suite:
"I think Zoom’s enterprise platform is being underappreciated by the market, which still doesn’t realize the breadth of products Zoom has rolled out. When Zoom became a verb, their only product with any traction was the video-calling software we’re all familar with. Over the past ~12-24 months though they have executed impressivley on a product roadmap which includes Zoom Phone, Zoom Rooms, Contact Center, Whiteboard, Team Chat, Calendar, and Zoom IQ for Sales. Enterprise customers can buy the whole suite of products in a bundled offering called Zoom One."
This rollout comes across as "oh shoot we realized too late Microsoft has an incredible moat and now we are trying desperately to compete with Microsoft by building a broader suite" - I know that my company would never switch from Microsoft (too entrenched with Outlook/Excel/etc) - are there end market industries for which the Zoom suite actually makes more sense than the Microsoft suite?
Yeah...the original draft of this post had a throwaway line: "Risks: not easy competing against Microsoft, could be CCP spyware" but I removed cuz I didn't want to stir up a CCP convo.
It is certainly a risk! As you mention, MSFT bundles Teams with the essential Outlook/Exchange/Excel/Word/Powerpoint as a free add-on. For this reason alone I think you can make a compelling argument why you wouldn't want to own Zoom: no long-term sustainable competitive advantage vs. MSFT. Fully acknowledged.
That said, while I think this is mainly a re-rating and valuation story with a 2-5 year holding period, I do think Zoom has a few things going for it long-term:
2) Zoom isn't just competing against MSFT, but legacy on-prem solutions (mainly Cisco/Webex), against which I think the value prop of Zoom's (and Microsoft's!) offering is far superior as outlined in the post. Together, I think "cloud" (ZM+MSFT) is taking share from on-prem (Cisco) and the share gains to cloud will be large enough for both to succeed. Secular tailwind from shift from on-prem to cloud, catalyzed specifically for the UCaaS vertical by covid/hybrid work.
3) Zoom has an easy self-serve option for SMBs that MSFT doesn't cater to...and as these SMBs grow, Zoom can grow with their customers. A royalty on the growth of your customers is the best kind of business. Of course, there is also more churn in this segment, which Zoom is ecperiencing now and I believe is the reason for the depressed revenue growth & stock price and resulting opportunity.
4) Zoom is by far the most used in k-12 schools, meaning there is a long runway of talent coming into the workforce that is familiar with the product and may have developed an affinity for it vs. competitors.
As far as end-market industries Zoom is particularly suited for, I would say tech? Every business is going to need Excel, but businesses with high rates of remote/hybrid workers (tech) I think are going to find it worth it to pay up for the best communications tools.
I think Zoom has a better product with more functionality for businesses. For example, Zoom has a better UI and functionality for conference calls, involving up to dozens of people, with features such as muting all listeners, sharing a screen or presentation with everyone, raise your hand to speak, type questions into a chat box. Zoom also has a free option for individuals which includes limitations like 45 minute max call time.
Facetime and WhatsApp I think are great for individuals and 1x1 calls, but Facetime doesn't even run on Windows OS/Android so it's not suitable for businesses. Skype for business is integrated with Micorsoft Teams, and I think indeed is Zoom's #1 competitor as an integrated voice, video and chat solution. Google Meet is also fine but has simply seen less uptake and the free version has similar limitations to the free Zoom product.
What about the Microsoft risk? Zoom and Slack have both had growth slow as more traditional end market clients (e.g. finance) never adopt their platforms but instead just use Teams, which already integrates with Outlook etc and comes free. (We switched from a combo of Webex & Zoom to Teams in 2021.) You mention Zoom building out the suite:
"I think Zoom’s enterprise platform is being underappreciated by the market, which still doesn’t realize the breadth of products Zoom has rolled out. When Zoom became a verb, their only product with any traction was the video-calling software we’re all familar with. Over the past ~12-24 months though they have executed impressivley on a product roadmap which includes Zoom Phone, Zoom Rooms, Contact Center, Whiteboard, Team Chat, Calendar, and Zoom IQ for Sales. Enterprise customers can buy the whole suite of products in a bundled offering called Zoom One."
This rollout comes across as "oh shoot we realized too late Microsoft has an incredible moat and now we are trying desperately to compete with Microsoft by building a broader suite" - I know that my company would never switch from Microsoft (too entrenched with Outlook/Excel/etc) - are there end market industries for which the Zoom suite actually makes more sense than the Microsoft suite?
Yeah...the original draft of this post had a throwaway line: "Risks: not easy competing against Microsoft, could be CCP spyware" but I removed cuz I didn't want to stir up a CCP convo.
It is certainly a risk! As you mention, MSFT bundles Teams with the essential Outlook/Exchange/Excel/Word/Powerpoint as a free add-on. For this reason alone I think you can make a compelling argument why you wouldn't want to own Zoom: no long-term sustainable competitive advantage vs. MSFT. Fully acknowledged.
That said, while I think this is mainly a re-rating and valuation story with a 2-5 year holding period, I do think Zoom has a few things going for it long-term:
1) Anecdotally, people hate Teams and love Zoom. Zoom is actually a technologically superior product, with higher VMAF scores, up-time and max resolutions than Teams/Webex/Google Meet (https://blog.zoom.us/which-meeting-calling-solutions-deliver-the-best-quality-experience/).
2) Zoom isn't just competing against MSFT, but legacy on-prem solutions (mainly Cisco/Webex), against which I think the value prop of Zoom's (and Microsoft's!) offering is far superior as outlined in the post. Together, I think "cloud" (ZM+MSFT) is taking share from on-prem (Cisco) and the share gains to cloud will be large enough for both to succeed. Secular tailwind from shift from on-prem to cloud, catalyzed specifically for the UCaaS vertical by covid/hybrid work.
3) Zoom has an easy self-serve option for SMBs that MSFT doesn't cater to...and as these SMBs grow, Zoom can grow with their customers. A royalty on the growth of your customers is the best kind of business. Of course, there is also more churn in this segment, which Zoom is ecperiencing now and I believe is the reason for the depressed revenue growth & stock price and resulting opportunity.
4) Zoom is by far the most used in k-12 schools, meaning there is a long runway of talent coming into the workforce that is familiar with the product and may have developed an affinity for it vs. competitors.
As far as end-market industries Zoom is particularly suited for, I would say tech? Every business is going to need Excel, but businesses with high rates of remote/hybrid workers (tech) I think are going to find it worth it to pay up for the best communications tools.
Zoom highlights wins from Raymond James, NASDAQ, Aramco and Barracuda in its latest quarterly report (slide 7: https://investors.zoom.us/static-files/a1c397c3-460a-49b5-8ed4-ef17f409c744)
Interesting writeup, as usual. But why would people pay Zoom when Google Meet, Skype, Facetime, What's App and more are all free?
I think Zoom has a better product with more functionality for businesses. For example, Zoom has a better UI and functionality for conference calls, involving up to dozens of people, with features such as muting all listeners, sharing a screen or presentation with everyone, raise your hand to speak, type questions into a chat box. Zoom also has a free option for individuals which includes limitations like 45 minute max call time.
Facetime and WhatsApp I think are great for individuals and 1x1 calls, but Facetime doesn't even run on Windows OS/Android so it's not suitable for businesses. Skype for business is integrated with Micorsoft Teams, and I think indeed is Zoom's #1 competitor as an integrated voice, video and chat solution. Google Meet is also fine but has simply seen less uptake and the free version has similar limitations to the free Zoom product.