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.

Zoom hopes new version will calm security fears

Video conferencing platform Zoom has rushed out a bunch of new security features in response to serious concerns raised following the massive increase in its use.

Zoom 5.0 is all about security and is part of a previously-announced 90-day plan to sort that side of things out. Earlier this month things were looking dire for the company as even politicians were calling for an investigation into its many security and privacy flaws. At lack of any further major scandals in the meantime enabled it to weather that storm in the short term, but security was clearly an issue that needed a permanent fix.

The most significant single tweak is the addition of support for AES 256-bit GCM encryption, which should do a lot to prevent the hacking into calls and leakage of user information that has been extensively reported. Other than that, the various security tools at a user’s disposal have been aggregated into a single, prominent icon on the user interface, and certain bits of security best-practice have been made default settings.

“I am proud to reach this step in our 90-day plan, but this is just the beginning,” said Eric S. Yuan, CEO of Zoom. “We built our business by delivering happiness to our customers. We will earn our customers’ trust and deliver them happiness with our unwavering focus on providing the most secure platform.”

“We take a holistic view of our users’ privacy and our platform’s security,” said Oded Gal, CPO of Zoom. “From our network to our feature set to our user experience, everything is being put through rigorous scrutiny. On the back end, AES 256-bit GCM encryption will raise the bar for securing our users’ data in transit. On the front end, I’m most excited about the Security icon in the meeting menu bar. This takes our security features, existing and new, and puts them front and center for our meeting hosts. With millions of new users, this will make sure they have instant access to important security controls in their meetings.”

It remains to be seen whether this update will be enough to satisfy users scared off by previous reports and experiences. Bloomberg reports that a bunch of big organizations, including Ericsson, have warned against using the services or have even banned use of it entirely. Even the whole country of India seems hostile to Zoom, so the rest of this 90-day plan had better be convincing.

Zoom’s flaws ungraciously exposed as it heads towards the executioner’s block

Three months ago, most people would not have been able to tell you what Zoom was, but now at the centre of privacy debacles, the video-conferencing business might be knocking on deaths door.

Over the course of the last week there have been several incidents. Individually, the team might have had a chance of fighting back the critics, but with the company being attacked on so many different fronts, it seems only a matter of time before the video-conferencing tool once again fades into anonymity.

Starting in New York State, Attorney General Letitia James announced a privacy probe following several reports of suspect security. This seemingly inspired the State’s Department of Education to ban its schools from using the tool. Following these two events, the Taiwanese Government enacted its Cyber Security Management Act, banning all Government agencies from using the tool.

These events occurred alongside the UK Government getting suspicious of the privacy and security credentials of Zoom, while the University of Toronto’s Citizen Lab exposed the inadequacies of the encryption software and also questioned why some international calls were being routed through Chinese servers. Who and where the technology was developed is also another dubious avenue, with further links to China being unveiled.

With all this happening at the same time, the last thing which Zoom needs is politicians weighing into the debate.

Senator Michael Bennet has written to Zoom CEO Eric Yuan asking for clarification on what information is collected from users, who is sells it to and how much money it makes from these transactions. Senate House Energy and Commerce Committee Chair Frank Pallone is another calling for an enquiry, as is Consumer Protection Subcommittee Chair, Jan Schakowsky, backing the demands of Senator Richard Blumenthal.

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One sentence which Zoom will be dreading to hear is FTC Investigation, but it is becoming a very real danger. And once an agency like the FTC starts investigating privacy and security concerns, as well as links to foreign powers who are on the US naughty list, life can become very difficult.

FTC Chairperson Joseph Simons has previously suggested that when significant privacy concerns are voiced in the press, an investigation is already on-going or is about to begin. Considering the anti-China rhetoric, it would not take much to gather support for such an investigation.

At a time where all Zoom employees need to be focused on creating a product which meets the demands which are being placed on it, the distraction of an FTC investigation is unlikely to be welcomed. These are sticky and messy affairs, which absorb a considerable amount of time. You only have to look at the difficulties Facebook has encountered, but with 20X more employees than Zoom, it was in a much more comfortable position.

In response to the criticism, Zoom CEO Eric Yuan has once again penned a blog post.

“To that end, I am excited to announce two developments: we have officially formed our CISO Council and Advisory Board, including security leaders from across industries; and Alex Stamos has joined Zoom as an outside advisor to assist with the comprehensive security review of our platform,” said Yuan.

Zoom is scrapping and scraping to prove its worth, but each day seems to be one paddle stroke further down sh*t creek. Privacy questions are bad news, especially when there are alternative services on the market. Facebook has managed to shake off the scandals and negative perceptions because there is nothing else out there quite like Facebook; Zoom is certainly not in the same position.

Zoom security flaws and Chinese links make US authorities nervous

Zoom’s rise to fame might only be match by the fall from grace as security flaws and apparent ties to China are laid bare for all to see.

It was only last week Zoom CEO Eric Yuan had to pen a blog entry to calm fears over the video-conferencing service, but this additional post is to address statements from University of Toronto’s Citizen Lab. Zoom has rolled out its own encryption software to enhance security, though the Toronto researchers suggest there are ‘significant weaknesses’.

“We appreciate the questions we are getting and continue to work actively to address issues as we identify them,” said Yuan. “As video communications become more mainstream, users deserve to better understand how all these services work, including how the industry — Zoom and its peers – manages operations and provides services in China and around the world.”

Firstly, the Toronto researchers have questioned how effective the security features of Zoom actually are. On one hand, the encryption is not end-to-end by industry standards, despite the company claiming so, while the way in which it has been designed and implemented is also questioned.

“The Zoom transport protocol adds Zoom’s own encryption scheme to RTP in an unusual way,” the researchers state.

“By default, all participants’ audio and video in a Zoom meeting appears to be encrypted and decrypted with a single AES-128 key shared amongst the participants. The AES key appears to be generated and distributed to the meeting’s participants by Zoom servers. Zoom’s encryption and decryption use AES in ECB mode, which is well-understood to be a bad idea, because this mode of encryption preserves patterns in the input.”

These encryption keys could also be distributed through Chinese servers, which is a bad idea for anyone as companies can be legally compelled by the Government to hand over these keys. Zoom has said this oversight has been corrected and no international meetings will be routed through Chinese servers, but the damage may well have already been done.

When security and privacy in the digital economy are being discussed, it makes a tarnish on the record which can be very difficult to remove. Zoom has an incredibly long list for a company which continues to trade, but a link to China is one which is almost impossible to shake off. Especially when it comes to operating in the US.

Zoom is a company which is listed in the US on the NASDAQ, but the software appears to be developed by three companies in China, all known as Ruanshi Software, only two of which are owned by Zoom. The ownership of the third company, also known as American Cloud Video Software Technology, is unknown.

As it stands, 700 employees are currently in China, which is not unusual as it can save on salaries in comparison to the US, though it does open up the firm to pressure and influence from the Chinese Government. This is not a position which will make US authorities comfortable.

In New York, the Department of Education has banned all schools from using Zoom for remote learning, stating teachers will have Microsoft Teams functionality available as soon as possible. New York Attorney General Letitia James is also probing the privacy and security credentials of the company, a worrying sign for the business.

Security is a major component of the digital economy and Zoom just does not appear to be up to scratch. For every leak in the hull which is fixed, three more seem to emerge. The long list of security vulnerabilities was always going to catch up with the team, though it remains to be seen whether Eric Yuan can talk his way out of the apparent links to China, a potential death sentence in the US.

Zoom promises to get better at security

Video conferencing firm Zoom is now one of the most recognisable brands across the world, but recent days have seen a barrage of criticism directed towards its security and privacy credentials.

Answering the disapproval, Zoom CEO Eric Yuan has penned a blog post to explain how the company got into the uncomfortable position and what it is doing to take the platform forward.

“We now have a much broader set of users who are utilizing our product in a myriad of unexpected ways, presenting us with challenges we did not anticipate when the platform was conceived,” Yuan said.

This should be taken as a reasonable explanation. Like everyone else in the world, COVID-19 took Yuan and Zoom by surprise. Even the most optimistic CEO could not have envisioned the rapid uptake of services Zoom has experienced over the last few months. As a point of reference, Zoom share price has almost doubled in the last three months, and the latest price (April 1) is after a 14% decline over the last week.

Since this rapid rise to fame, Zoom has been sued in US Federal Court for illegally disclosing personal data to third parties including Facebook, New York State Attorney General, Letitia James launched a privacy probe, the UK Ministry of Defence banned its use, Bleeping Computer discovered that Zoom could allow hackers to easily obtain the user’s Windows password and Zoombombing became a dark web pastime.

The issue which Zoom is facing is this is not a product which has been designed for widespread usage. There are currently more than 200 million Daily Active Users (DAUs) though this is an application originally built for large corporations. These customers would have in-house IT teams who could make security assurances; the vast majority of today’s users are not in this advantageous position.

While users are perhaps being forced to compromise with the current state-of-affairs, if Zoom’s success is to be sustained for the long-term, these issues will have to addressed.

“Over the next 90 days, we are committed to dedicating the resources needed to better identify, address, and fix issues proactively,” said Yuan. “We are also committed to being transparent throughout this process. We want to do what it takes to maintain your trust.”

Engineers will no-longer focus on new features, but all will be directed towards enhancing security. Reviews of all different customers will take place to ensure all needs and nuances are accounted for. Transparency reports will be prepared. A bug bounty programme will be introduced. More rigorous security testing procedures will be created.

These new activities add to changes which have already been made to the business. The privacy policies have been rewritten. SDKs which enable the collection of unnecessary data have been removed. Features which violated privacy have been removed.

Should all of these elements be fruitful, there is no reason Zoom should not continue to be a successful business. No application is 100% secure, hence the bug bounty programme, but it is fair to say Zoom was caught by surprise by success.