The inside story of Zoom's extraordinary, chaotic year as it scrambled to keep up with unprecedented demand and unimaginable challenges — and became a nearly $100 billion company in the process
- Zoom had a chaotically extraordinary year in 2020, with usage and revenue skyrocketing.
- Zoom navigated by staying humble, giving itself time to pause amid the chaos, and recruiting aggressively, execs and others told Insider.
- Now as the world reopens, Zoom faces new challenges to prove that it can continue to adapt and grow in a post-pandemic world.
- See more stories on Insider’s business page.
In early February 2020, Zoom CEO Eric Yuan had to turn off his phone. It had been ringing nonstop for days as the coronavirus started shutting down cities in Asia and Europe, forcing people to use his company’s videoconferencing software to connect.
Yuan said in a CNBC interview at the time that Zoom was seeing “record usage” almost every day.
The pandemic had thrust the firm into the global spotlight, and it scrambled to adapt to a world where suddenly its video-chat app had become imperative for companies to run and for people to see their loved ones. For weeks, its board of directors met constantly to strategize on how to tackle this newfound popularity, and, on at least one occasion last year, Yuan personally held as many as 19 meetings in one day.
Over the course of the pandemic, Zoom has become one of the most recognizable brands in the world, according to the Wolfe Research analyst Alex Zukin. From January 2020 to January 2021, its annual revenue skyrocketed 326% thanks to a wild influx of new users. As of late May, its stock price had ballooned 368% over the past year, and its market cap increased from about $25 billion to almost $100 billion.
It was, in short, a chaotically extraordinary year. The Zoom board member Santiago Subotovsky described the firm’s experience as if a “12-year-old had to go straight to college.”
According to Subotovsky and seven other insiders and executives who spoke to Insider earlier this year, Zoom managed to navigate its whirlwind year by staying humble, giving itself time to pause amid the chaos, and recruiting aggressively, including at its highest levels.
But now that it’s managed to survive the whirlwind, it must put those and other strategies to work once again as it faces its next massive challenge: proving that it can continue to adapt and grow in a post-pandemic world. With the slow but steady return to the office for many workers, Zoom will have to show Wall Street and the world that its videoconferencing software can remain a foundational block of the modern workplace even when people can meet face-to-face.
We’ll get insight into its positioning coming out of the pandemic next week, when it reports quarterly earnings on Tuesday. Investors are looking to see steady revenue growth and more traction from Zoom’s other product lines like Zoom Phone and its app marketplace.
Here’s how Zoom navigated the pandemic and what’s next for the video giant, as told to Insider.
Employees shuffle roles to support the influx of new users
As cities around the world started locking down in March, Zoom’s massive increase in new users stunned execs and had employees scrambling to help the platform scale — including Yuan himself.
The CEO personally helped at least three schools sign up for the service for free, Forbes reported at the time. Bill Tai, an early investor in Zoom, recalled Yuan texting him in March to ask how the video quality was for Tai’s three children attending school through the platform.
Aparna Bawa, Zoom’s current chief operating officer who ran its legal team at the time, vividly remembers people from all corners of her life suddenly asking her about Zoom and her job.
“There was a melding of both worlds,” Bawa said in a February interview. At her home, it was common for there to be six simultaneous Zoom calls as she worked from home and her kids attended school virtually.
“The No. 1 focus was how to make sure the service was provided in a very reliable way,” Bawa said.
Zoom quickly reassigned employees who previously had in-person jobs — like its front-desk workers — to switch to tasks like order management and logistics, and its events team started creating YouTube training videos for teachers.
“Everybody basically rolled up their sleeves and said, ‘OK, if our traditional role isn’t applicable today in this pandemic environment, what could we do to help answer the call in this un-traditional world?” Bawa said.
Every Zoom employee faced increased work pressure in addition to the stressors of a global pandemic.
“It’s tough when you’re responding to that amount of demand and your own workforce is feeling trauma,” Bawa said.
Its sales team was dealing with more new prospects than ever before. Its technical-support team was inundated with customer support questions. Its engineering team was figuring out how to quickly add cloud capacity.
To keep video quality from suffering despite the influx of new users, Zoom needed to expand its infrastructure — fast.
Zoom first turned to Amazon Web Services, having been a longtime AWS customer. When Zoom’s needs exceeded what AWS could provide, it signed a new deal with Oracle to use its cloud infrastructure as well. AWS CEO Andy Jassy and the top Oracle executives Safra Catz and Larry Ellison proactively gave the company a discount on the servers it needed, Yuan told Insider last April, without Zoom even having to ask. Still, the costs were enormous:
“We expect our cost of revenue to increase for the foreseeable future, both in absolute dollars and as a percentage of total revenue, as we expand our data center capacity and third party cloud hosting due to increased usage stemming from the recent outbreak of the COVID-19 virus,” Zoom wrote in a filing in March 2020. Sure enough, its gross margin — which indicates revenue minus business costs — fell from 83% pre-pandemic to 70.4% last year.
The majority of its added capacity on AWS and Oracle Cloud helped support its huge increase in education users, said Yasin Mohammed, an engineering manager at Zoom who manages its cloud operations. To keep up, the engineering teams for infrastructure, deployment, and developer operations were sometimes working 18-hour days, he said.
The company also doubled its hiring targets for the year in March and started bringing on temporary employees in tech and customer support, Chief People Officer Lynne Oldham said at the time.
“Key to making sure the customer’s happy is making sure they have somebody to talk to as they onboard, as they get used to using the tool,” Oldham said at the time.
The surge came with high-profile privacy and security mistakes
With a record number of new users came heightened scrutiny and higher-impact mistakes. Zoom built its service for corporations, not regular consumers, and was buckling under the pressure of its growth surge and unexpected uses.
The litany of issues included a new phenomenon called “Zoom-bombing,” in which uninvited people would join calls and harass participants; reports that revealed the service was not end-to-end encrypted as it claimed in its marketing materials; and the leak of thousands of users’ personal emails and photos. The firm was also hit with a class-action lawsuit accusing it of handing data to Facebook.
But instead of trying to sweep away concerns, Yuan decided to bring operations to a shuddering halt. On April 1 at 11 p.m. he published a blog post that took responsibility for Zoom’s recent catastrophes and froze all of Zoom’s new features for 90 days to review and remedy its flaws.
“We recognize that we have fallen short of the community’s — and our own — privacy and security expectations,” he wrote. “For that, I am deeply sorry, and I want to share what we are doing about it.”
The company also brought in outside security experts to advise it, including the former chief security officer for Facebook, Alex Stamos, and promised to release a transparency report of their findings.
At the time, Zoom was holding weekly — sometimes daily — board meetings to discuss everything the company was dealing with, said the Emergence Capital partner and board member Subotovsky, who led an early investment in Zoom. He said he felt both surprised and impressed that Yuan had implemented a broad hiatus on new features, especially as Zoom was starting to see more competition from Microsoft Teams, Google, and Cisco Webex.
“A lot of the sleepy giants started waking up,” Subotovsky said. “We had a product road map — there were a lot of things that we wanted to build that people were asking for — but Eric and the executive team were determined to just put everything on hold, to address the infrastructure that was required to maintain trust with customers.”
That humility was classic Yuan, Subotovsky said, and part of the reason the company was able to remedy its issues so quickly.
Greg Holmes, Zoom’s former head of sales, echoed that sentiment. Yuan always tried to keep customer happiness and employee well-being front and center, said Holmes, who retired in January 2020 but kept in touch with former colleagues.
As part of the 90-day plan, Yuan hosted a weekly “ask me anything” webinar on Wednesdays that gave free users, paying customers, journalists, or whomever the opportunity to ask questions that varied from how to turn on safety features like meeting passwords to how Zoom was thinking about its new users.
“He’s still into the details,” said Tai, the early investor, of Yuan. “And when things happen, it’s not like he just hands it off. He’s not a micromanager, but he hires A-plus people, lets them run but shifts the emphasis to where it needs to be when it needs to be there.”
Yuan told employees that it was not the time to think about sales and marketing: “I told our employees several times, ‘Let’s focus on the end user, let’s focus on committing to society and focus on the crisis and doing the right thing, showing our corporate social responsibility,'” he said in the April 2020 interview. Companies that focus on marketing during a crisis have a “horrible culture,” he added.
At the time, he declined to talk about any plans to build a consumer business on Zoom. He said he was focused on making sure the company addressed concerns and made people comfortable using the product.
Going from a video-chat app to a communications platform
By July, Zoom had seen years of growth in less than six months, and it began paving the way forward through big hires and launches.
Yuan had learned to rely on his executive team to handle challenges, he told Insider in an interview last summer.
“I’ve learned during this time that I can’t be a bottleneck,” Yuan said. “I need to lean on my direct staff to make decisions to move the company and platform in the right direction quickly, and I need to focus on the vision, strategy, and growth of the business.”
The firm added new executive leadership, too.
It made the CEO of the security firm Keybase, which it acquired in May 2020, a key engineering exec; hired the company’s first diversity officer, Damien Hooper-Campbell; poached Jason Lee from Salesforce as its chief information security officer; hired Velchamy Sankarlingam as its president of product and engineering; and promoted Bawa from chief legal officer to chief operating officer.
Longtime execs like the marketing chief Janine Pelosi and the product chief Oded Gal were also front and center, helping the company adapt.
Zoom had 4,422 employees as of January 2021, almost double the 2,532 it had in January 2020.
All this hiring set Zoom up for its next chapter: evolving the company from a video-chat app to a robust platform for communication of all kinds. In the fall, it launched the ability to use apps within the videoconferencing experience, including popular productivity tools from Dropbox, Atlassian, and Asana.
This was an important next step because it helped in building an ecosystem that will drive more usage toward Zoom, said Tai, the early investor.
The firm also announced a new online events platform for both consumer and business users to host and charge for online events. The product is in testing with select customers and will be publicly available over the summer.
A few months later, the company announced that its cloud phone service, Zoom Phone, hit 1 million users, two years after launch.
“Our customers have always played a key part in how we innovate Zoom: They help drive new features, products, and so on,” Yuan said in an email in February 2021. “During the pandemic, users found so many new and creative ways to use Zoom, and we were delighted to innovate to meet those needs.”
How Zoom will adapt to office reopenings, internally and externally
As vaccine rollouts help the world inch closer to reopening, questions swirl about how Zoom will adapt as people return to offices. But the company is betting that not everyone will.
“I think the future of work has forever changed,” Bawa said.
Hot tech firms like Atlassian and Dropbox have opted for a fully remote option, while giants like Salesforce and Microsoft are offering employees more flexibility to work remotely sometimes.
Zoom itself will likely ask employees to come into an office two days a week and work from home the rest of the time, Yuan said at The Wall Street Journal’s CEO Council Summit in May. The company is still working out the specifics about when it will reopen offices and where employees can work, but it will be adopting some kind of hybrid work model to provide flexibility.
While Zoom adapted to remote work quickly, the company did have a very in-person, office-centric culture before the pandemic, said the former sales head Holmes. He predicted the company will have to grapple with how to support employees after such a tumultuous, jam-packed year.
“They’ve got their work cut out for them to continue to find ways to keep people excited and invigorated and find that time to make sure they keep a decent work-life balance,” Holmes said.
To that end, the company has implemented strategies like “no meeting Wednesdays” to help maintain balance, CFO Kelly Steckelberg told Insider in April.
“We as a leadership team are trying to be very thoughtful about boundaries in terms of punctuating your day,” she said. The firm is also encouraging people to take time off, even if they don’t travel, and sharing how they’re using the time to recharge.
For example, one idea Steckleberg loved was when Zoom’s head of sales ops decided to take a Friday off earlier this year to camp in her backyard with her children.
New challenges as Zoom adapts to the future
From a business perspective, Zoom’s biggest challenge will be adapting to its new size and scale, said Zukin, the Wolfe Research analyst.
“Exiting the pandemic, the company has an opportunity to really take the lifeline that they’ve given to a lot of businesses, schools, societies, and turn that into a platform to really unlock and reimagine, ‘What does communication look like in a world where location has been removed as the dependent variable for most interactions?'” he said.
Zoom’s wild growth will inevitably slow in 2021, meaning another quarter of 300% revenue growth is unlikely. But analysts still expect hearty revenue numbers on Tuesday and that demand overall will continue to increase if the company’s road map takes advantage of new hybrid-work needs, as with its cloud phone product and conference-room tools.
Analysts also expect the company’s margins to improve once it no longer offers its product for free for educational users. Since last March, Zoom has been providing its service for free to 125,000 K-12 schools, with an estimated 95 billion free minutes provided total. When schools reopen, Zoom will likely remain in school districts for things like parent-teacher meetings, PTA meetings, school-board meetings, and for administrative use.
A spokesperson for Zoom says that the company will reevaluate later this summer whether to continue offering its service free to K-12 students, depending on vaccinations and the general state of school re-openings.
The firm also needs to figure out how much it wants to commit to its new consumer user base, Zukin said.
“Zoom has a bit of an identity crisis. They don’t know who they want to be when they grow up, whether it’s truly an enterprise software company or also a consumer software company,” Zukin said. “And, by the way, you can do both successfully.”
Another question on analysts’ minds is what Zoom plans to do in terms of mergers and acquisitions. Keybase was its first acquisition, though on its earnings call in March, CFO Steckleberg said the company is looking for potential M&A to add talent or technology but hasn’t found the right match yet.
Analysts think acquisitions could be one way for Zoom to improve its chat experience or expand into other communication tools like email and calendar. Zukin and the Nucleus Research analyst Trevor White said that buying a company to expand its cloud phone service makes logical sense.
Ultimately the most important thing to Yuan is listening to the customers and letting them drive the direction of the company, he said: It’s the strategy that’s always worked best for Zoom.
“Our customer base is now much broader and more diverse,” Yuan said. “So going forward we will be listening to a larger range of customers and innovating for more use cases than before.”
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