When you look at all of the “pandemic stocks”, few had a better 2020 than Zoom. Yesterday, the video conferencing company closed at $349.61. That’s up almost 200% since March 1, on the eve of our long national confinement.
Zoom began 2020 as a pretty successful video conferencing platform. It ended the year as a verb. As in, “let’s Zoom it”. It also evolved into a common noun. It’s now the Kleenex of videoconferencing. Not many brands achieve that level of recognition or ubiquity.
But there is a downside to Zoom’s success. We often tire of or even grow hostile towards ubiquitous things. And many among us would rather swallow poison than sit through another Zoom meeting. Let alone another Zoom cocktail party.
But Zoom’s looming challenges are much deeper than a brand backlash. The company simply may not be prepared for the pivot it needs to make to remain relevant in a post-pandemic environment. While we all acknowledge that there will be a “new normal” that outlives the pandemic, it won’t be the same as life at the pandemic’s peak. Many will return to their offices for at least part of the week. Large events will eventually return, even if more business interactions will be virtual than in the before times. The new normal may be “pandemic-ish” but it will not sustain the current volume of Zoom meetings.
Is Zoom ready for this? Many are arguing that the company may be forced to make a big move to position itself for its next phase. When that next phase happens remains murky as the vaccine rollout stalls. But whether it’s 2H 2021 or early 2022, it will happen.
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Buy, Sell or Get Out of the Way
There is a growing chorus of pundits and analysts who argue that Zoom needs to become something much bigger than just a video platform in order to justify its nearly $100 billion market cap. This creates pressure on Zoom to either use its stock as currency to make a big acquisition or two. Or go find a buyer.
Zoom’s fundamental issue is that it basically does one thing, videoconferencing. And that alone isn’t very sticky. it’s fairly easy to switch video platforms, And Zoom is facing off with at least two major competitors — Microsoft (owner of Teams) and Salesforce (owner of Slack) that are more diversified and could buy Zoom with the daily fluctuation in the valuation. Well, at least Microsoft could. As could Google, which at least half-heartedly competes via Google Meet.
It’s easy to see Microsoft and Salesforce coming after Zoom with a collaboration suite that has higher switching costs, particularly for enterprise users.
Zoom does seem to understand this. It’s 2021 plans include the addition of tools that include its own email and calendar services. These certainly are moves in the direction of making Zoom a complete collaboration suite vs just a video platform. But just adding some features doesn’t seem big enough to overcome Zoom’s Johnny One Note problem. Or, as Prof. Galloway put it on his podcast recently, Zoom’s predicament “is like single-title publishing.”
Weighing its Options
Here are a few options that Zoom could pursue to shore up its defenses against Microsoft, Salesforce, et al. We have no knowledge that Zoom is considering these. We just think these are some of its more obvious choices.
Team Up with Atlassian. As the maker of countless collaboration tools, this merger could move Zoom from one-trick pony to an enterprise collaboration platform monster. With a market cap of $57 billion (today), Atlassian is a big bite for Zoom. A partnership might be more likely.
Buy Smartsheet and/or Dropbox. This option, suggested by some Wall Street analysts, seems more likely to happen. Dropbox is currently valued at about $9.7 billion. And Smartsheet is at $8.4 billion. The two companies under Zoom’s umbrella would start to look like a formidable platform to help businesses manage workflows.
Merge with WhatsApp. True, WhatsApp now sits inside Facebook. But does anyone think Facebook won’t be forced to spin it off at some point? This combination could become a communications and collaboration (plus commerce) superpower that feels a lot more competitive with Microsoft or Salesforce + Slack.
What do you think Zoom should do?
Update (January 13): We read late yesterday that Zoom has raised $1.75 billion in a secondary stock offering. This will give it the communication it needs to pursue the acquisitions. We’ll be very interested to see which companies Zoom goes after.
