2020 will see a video conferencing profit boom, but it could be short-lived

Zoom might be riding a high for the moment, but unless it starts to add additional value into its products it will soon wither away to the realms of irrelevance.

Yesterday, June 2, Zoom announced its financial results for the three-month period ending April 30. Total revenues increased by 169% year-on-year, while the management team boasted of more than 265,000 customers with more than 10 employees, up 354% year-on-year.

The coronavirus pandemic has certainly been profitable for the video conferencing firm.

“We were humbled by the accelerated adoption of the Zoom platform around the globe in Q1,” said CEO Eric Yuan. “The COVID-19 crisis has driven higher demand for distributed, face-to-face interactions and collaboration using Zoom. Use cases have grown rapidly as people integrated Zoom into their work, learning, and personal lives.”

For some companies, the rapid shift in working behaviour has been a welcome change, and while some of these trends will remain permanent, what remains to be seen is whether the profits will be.

Telecoms.com Poll – Do you think your business will continue the current work from home dynamic once the coronavirus pandemic has passed?
34% Yes, we’ll be given the option to work as we please
25% Yes, but we’ll have to check into the office occasionally
4% No, but others job functions in the company will
6% No, can’t do my job properly unless in the office
6% No, my company is still not convinced by remote working

What has been made quite clear over the last few weeks is that the remote working dynamic will at least partly be embraced. The digital transformation programme companies have been strong-armed through has proven successful, economies have not ground to a halt through COVID-19, and even the most traditional (dated) managers would have to keep some of the new working practices.

Admittedly this is a small poll, but Gartner supports the outcome, suggesting that while 60% of meetings take place in-person today, this could drop to as little as 25% in 2024.

Employees are happier, productivity has been maintained and cost-savings can be realised with a more mobile workforce. What is there not to like?

But the question some suppliers will ask is how much money can be made in the future?

According to Gartner unified communications (UC) research, overall spending on video conferencing software will increase 24.3% in 2020. This is the second-fastest growing category in the UC market, only behind cloud-based telephony. Both of these surges can be easily explained by the coronavirus pandemic.

Worryingly for companies like Zoom, this growth is forecast to taper off in 2021, while are suspicions that cloud expenditure could be rationalised over the mid-term, effectively penalising niche suppliers who do not offer a portfolio of services.

When we spoke to Nick McQuire of CCS Insight, he highlighted that while increased cloud spend might be sustainable post-COVID-19 as mobility trends are embraced, there are likely to be rationalisation projects on the horizon. As many of the decisions made to enable remote working were likely to have been knee-jerk reactions, overlap within organisations could exist or decisions might have been poor ones.

These rationalisation programmes could manifest in numerous different ways. Centralised procurement could mean single suppliers are selected, contracts could be ended as better options are found, or free services could be bundled into existing commercial contracts as value adds.

The final possibility is one which should be feared by all nice software providers who specialise in single areas. Best in breed suppliers could be sacrificed at the altar of financial efficiency. You have to consider what is out there currently.

Zoom is a video conferencing service, with plans to offer a cloud-telephony service in addition, however it offers little else. Other companies will offer the same services, perhaps not as high a quality, but as long as a satisfactory experience is achievable this is a palatable concession for a bundled contract.

Google, for instance, has made its video conferencing services free for all. This is temporary, but it could be made free for corporate customers in the future bundled into a contract which also includes desktop virtualisation, cloud storage, data analytics and numerous other elements. Bundled contracts are generally cheaper for the customer, and Google would most likely be very accommodating.

GoToMeeting is another niche player in the video conferencing world, though it is part of the LogMeIn group which also offers desktop virtualisation and user authentication services. This is not as broad as a supplier like Google, but there is an opportunity to bundle. Another example of a niche service is BlueJeans, however this was recently acquired by Verizon and will certainly be bundled into larger connectivity contracts for enterprise customers.

During the recent earnings call, Zoom CEO Eric Yuan said the business would continue to be ‘laser-focused’ on video and phone service, though competition should be welcomed to encourage innovation. Being the best in one area and little else is fine in a perfect scenario, but the world is very rarely in such a state. Decision makers will state that they will search for best in breed, but sometimes concessions have to be made. Budgets do exist after all and the ultimate objective is to make money.

This is the risk that niche providers will face. They could be muscled out of the market as enterprise decision makers elect for more cost-effective bundled service offerings. Such thinking would benefit the tech giants, but with a recession on the horizon it might be a trend we’ll have to get used to.

China reportedly escalates trade war with ban on foreign computer kit

All Chinese public bodies need to replace all foreign computer hardware and software within three years according to a report.

The scoop comes from the FT, which says it’s a publicly-known instruction, direct from the Communist party – i.e President Xi Jinping. No clear reason seems to have been given for the directive, but it’s clearly part of a drive to make China as self-reliant as possible so it can’t be held to ransom by the US.

The biggest losers from this move stand to be Dell, HP, Apple and Microsoft, while they must be breaking out the bubbly at Lenovo. To what extent non-US companies might get a pass is unclear and presumably Taiwanese ones get a pass since China likes to insist it owns the place. Assuming that’s the case China is pretty well served by companies such as Acer, Asus, etc.

This particular move doesn’t seem to directly affect the telecoms industry, but the precedent it sets is ominous. By banning Chinese companies from its telecoms sector the US has made it clear it’s prepared to use business as a political weapon. This directive has apparently been in place for a few months and IT has presumably been chosen because that’s the industry China is best placed to be self-reliant in.

But while its easy to imagine the entire Chinese public sector using only Lenovo PCs in three years’ time, what software they will run on them is less clear. Microsoft obviously dominates globally when it comes to operating systems and productivity software, so a switch to home-grown equivalents feels like a massive undertaking.

That’s the real statement being made with this move, that the Chinese state is willing to do whatever it takes to be as independent as possible from the US when it comes to trade. It’s easy to imagine China extending this band to its private sector and, whenever it considers such a thing possible, to extend the ban to other industries such as telecoms. This geopolitical tussle between China and the US looks set to escalate a lot more before one of them blinks.

Tech Mahindra gets UK/India pact off to a good start

Tech Mahindra has announced a number of new investments into the UK, indicating the technology partnership signed between the UK and India recently was perhaps more than a PR stunt for the Prime Minister.

The UK government is in need of friends right now, and India is looking like it could be our new trading chum. As part of the announcement, Tech Mahindra has set up a new research lab, ‘Makers Lab’, at Adastral Park near Ipswich in collaboration with BT, has opened a new office in Salford, Greater Manchester and also plans to roll out an apprenticeship programme in the UK.

“Innovation is the key to survival in the digital future,” said CP Gurnani, CEO and MD of Tech Mahindra. “The UK-India Innovation partnership draws from the best learning and skills of both developed and developing economies in shaping the digital future. We at Tech Mahindra are taking the philosophy of disruption by design to our client ecosystem, academia and people through our research arm Makers Lab in UK.”

The ‘Makers Lab’ will aim to focus on a number of different areas such as artificial intelligence, machine learning and quantum computing to make citizen services and experiences simpler. The investment itself will form part of the TechMNxt Charter strategy, its global program to explore emerging technologies like AI, Blockchain, Cybersecurity and AI-infused IoT solutions.

While this might seem like a small partnership based around R&D for the moment, there is huge potential here. Tech Mahindra is a $4.7 billion IT services company with 115,00 employees across 90 countries and 903 global customers. Tech Mahindra is also part of the $19 billion Mahindra Group that employs more than 200,000 people in over 100 countries. As far as introductions go, this is a pretty good one to make, offering a lot more potential for investment and growth in the future.