How Zoom adapted as the world rushed online

Michael Chetner is the head of Australia and Asia Pacific for Zoom Video Communications.

Earlier this year when COVID lockdowns first hit, Zoom was faced with a tsunami of new users almost overnight as businesses and social interactions were forced online. Michael gives me an insight into how Zoom had to adapt to these societal changes and the unprecedented volume of new users.

Zoom has also recently faced scrutiny regarding security and privacy and in response, it introduced a 90-day security plan back in April, which is just finished, so Michael updates me on that. He also provides an interesting outlook on what society will look like post-COVID in terms of disruption to offices and remote working.

So here's Michael Chetner, Head of Australia and Asia Pacific for Zoom Video Communications.

Table of contents:
Onset of COVID and surge in users
How COVID has accelerated digital transformation
90-day security plan 
Role of digital infrastructure in Zoom operations
How Zoom differentiates itself from competitors
Societal disruption and changes post-COVID
Australia's uptake of Zoom compared to the world 
Zoom financials
Short-term plan

Michael, thanks for joining us. There's plenty to discuss, but I wanted to start off with COVID. Pretty much overnight you had business offices in Australia, Asia and around the world moving to remote work and virtual meetings. Were you prepared for the massive surge in Zoom users?

Yeah, it was nothing short of an interesting time for us. I think we never envisaged the uptake in the usage that we saw with coronavirus. I mean, Zoom was servicing an enterprise market, many big banks, large global organisations. And so as the pandemic struck and we went into lockdown, we saw this uptick in usage which also extended out, not only in terms of keeping businesses operating, but also in terms of the social use and keeping everyone connected because it was really around how do you keep people connected when they can't physically see each other? And so it went from a very focused enterprise application mission we had at Zoom to pretty much keeping the world you know, running and operating and having business continue to operate and having everyone be able to use it to keep connected.

I think the beauty of Zoom is that we were able to handle that increase for a number of reasons. The first one is a cloud platform, and the ability to scale that very quickly was something that we did with not only our own datacentre network, but also with the likes of partners, such as AWS and Oracle, which allowed us to go, you know, and handle that jumped from 10 million daily active participants that we had before corona hit to 300 million daily meeting participants then, in April. Yeah, so I guess as much as we didn't expect some of these use cases to come up, we were able to pivot really quickly with the help of some of those fundamentals around cloud to be able to deliver those services to so many people.

You just mentioned that jump in users, did you have any other figures in terms of what's happened since April? Has that continued to grow on that sort of trajectory or has it slowed down a bit since April in terms of new users or daily participants?

Yeah, for daily participants in March, you know, as I said once we saw that first movement, we went from that 10 to 200 million daily meeting participants and then in April we moved to 300 million. I think in the Australian market, what we saw was a 54 times increase in our people signing up to the service as well, which sort of indicates the level of use of the app locally as well. Those numbers as we continue lockdown and the variability and flexibility and the resilience that we need to provide the service as you know, those at that level that we're able to support going forward.

There are obviously different Zoom plans. You've got your free version and then the Pro, Business and Enterprise, has the increase of users been dramatic across all of these? Or was there a particular increase just on the free version and then more people were converting? How has that played out?

We saw multiples increase in terms of paid customers and I think as I said to the start, we didn't really service that social market. The trial version of Zoom really was for companies to trial the service, that had an ability to check out all of the features without having to commit, so it was a fully featured trial service. What happened when the pandemic hit is that social users increased proportionately higher just because we weren't really servicing that market. But I think what it does show us is the fact that the product was, you know, we have our customers say the product just works. And the fact that we had an ability to have customers, not only new customers, but also new users, be able to use the service in a really frictionless way that you don't have to sign up for an account to join a meeting. That just saw that new opportunity with social users increased significantly.

Prior to COVID, I assume there was already a growing trend of people using Zoom as remote work started to get more popular, but has that just been accelerated? We've seen that across a number of industries, has that just been accelerated a number of years in terms of how quickly people and businesses are just jumping on board this?

Yeah, you're right. And the whole aspect around not only digital transformation, but also around flexibility and work practises has always been there. What COVID has done is, I guess it's let that genie out of the bottle, is that if you didn't know what you didn't know, as I said before, in terms of what was possible, well, we've just gone through the biggest working from home experiment to prove out some of those theories that we had.

I guess at a general level, whether it's digital transformation and the risks that are associated in going down that path. Those risks have now been removed because we've gone and done this experiment and then seen what's possible. I think those trends around some of the organisations we worked with, National Australia Bank is a very large user of ours before the pandemic and they were relying on that to not only bring their teams together across the country, but across their multiple offices across the world.

And there's been flexible ways of working for many organisations. I think, as I said, what this has done is really just allowed everyone to see what's possible. Whereas, before you had some of those limiting beliefs, I guess, in terms of whether it was real or not. But I think we've proven out these last five, six months that we can be as productive and have that flexibility. And I guess the other thing is resilience to be able to shift between the uncertain environment that we have, I'd say in the next 12, 18 months where there'll be just flipping between working from home in an office, and what does an office look like as well.

Within that April to July period you've also completed this 90-day security plan, as security and privacy issues were a focus of the company. What caused this initiative to begin with? What were the issues that were initially being faced?

I think there's a couple, there was a few things. As I said before, we didn't envisage the use cases and the significant increase of people using the platform. What we had found is that the education of users is really important and how do you actually use the product safely ensuring privacy and security. I guess at the core of what we want to do is provide a safe, secure, private experience, which is what the features that we had in the platform before corona, they were always there. It was just around how do we make sure that we provide the right training to customers and also guide them through some of these features that are embedded in the platform.

That included some changes that we made around putting in and making more obvious things like a waiting room where it's like, literally a knock on the door, so if you have to admit guests to your meeting, one by one, mandating passwords. And also the ability then, as a host, to be able to report users that perhaps aren’t doing the right thing, or kick them out or even locking the meeting, so once all your attendees are there no one else can join. We just needed to make that more explicit. I think the other thing is as with all software, we really appreciated a lot of the, I guess, scrutiny. I mean, in hindsight, all this scrutiny and interrogating the platform in terms of where some of these risks are, I mean, all that software inherently has vulnerabilities, but what we characterised our response was in doing that quickly, acknowledging any issues, and then putting in this 90-day plan.

We finished that 90-day plan a couple of weeks ago. It was fairly comprehensive around not only putting some of the features I mentioned before that we upgraded our encryption to industry-leading AES 256. We mandated an upgrade for all users to this new version that had all of these updated features included. We published a full end to end encryption design, which we've put out for consultation, which we hope to put out to market very soon and then some other things. We have such passionate customers that wanted to contribute their Chief Information Security Officers to a Council that we've got with 35 customers. We have our CEO who's on a weekly webinar where you can ask him anything which has been extremely successful.

And then brought in the likes of some industry experts like Alex Stamos, who worked with NATO and was in the midst of a whole heap of activities at Facebook and other places as well, where he's been extremely important in terms of us being able to put together this response. I mean, the great news is that 90 days is over and we've been able to deliver all these things and then reinforce and actually make the platform even more secure than it was before.

There were reports saying that Zoom wasn't initially offering end to end encryption, was that the case prior to this 90-day program?

The platform has always been encrypted, I guess it's really around the nuances around the levels of encryption discussed. We had a misstep there in terms of committing a type of encryption, end to end encryption, which is what I mentioned before. We've now put out a design of which we're looking for consultation to get the most, highest level of encryption, which is used in a number of scenarios which are very specific use cases around secure environments. We upgraded our base encryption from AES 128 to 256. I think it is a very nuanced discussion around what encryption is, because there are different levels. But ultimately what is embedded in the product and has always been is encryption, we've increased that and then put out this end to end encryption paper as well.

The security plan included a feature freeze, is what Zoom called it, during those 90 days where it says Zoom actually shifted all its engineer resources to focus on these safety and privacy issues. Is that true? Were all engineers company-wide solely focused on these issues during those 90 days?

Yeah, absolutely. We characterised our response to this in a really swift way and the level of focus that we needed to put on addressing these real or perceived issues, it didn't matter. It was around making sure that we provided confidence, not only to our users, but I guess everyone that wanted to use the platform for all these new use cases and to be sure that it was something that they want to use in a safe and secure way. We did stop some of those features, and some of those features are around different products on our platform, whether it be Zoom Meeting and Zoom Phone, and others, to be able to focus on this. But, you know, safety, security, privacy is at the core of what we do and this was one way that we could just have this singular mission to be able to deliver that. As I said, what we've ended up is some of those issues have been addressed and then we've also put in additional features on top of the platform before COVID even started.

I just wanted to get an understanding. A lot of people, obviously, use Zoom and they know how to work it just on their computer, but what happens behind the scenes in terms of the mechanics and the digital supply chain? Given it's a cloud-based platform, how crucial is the digital infrastructure like data centres in making Zoom run efficiently?

Yeah, absolutely. I mean, I said before that one of the differentiators of why Zoom works extremely well is the fact that we do have this Zoom managed global network, which is distributed over around 17 datacentres across the world. We have two of them in Australia, in Sydney and in Melbourne. What we do is we optimise the traffic such that you're directed to your local datacentre and are able to have the best quality experience in a meeting, which may include people that are in different parts of the world and using different datacentres. I think one of the features that we put in, in that 90 day plan that we just talked about was the ability also to select what datacentres that you want to use and those perhaps that you don't. You may want to localise all your activity in Australia, if you're an Australian customer. It gives you that choice and that's something that is, I guess, an industry-first to be able to do that as well.

But at its core, the ability to distribute that traffic in a network across the world is extremely powerful. One of the really interesting things in Australia, as well, as we see this massive increase in the usage of Zoom is the ability to conduct an extremely high quality call despite the fact that we have very different qualities of connection. We have this debate in Australia for many years around the NBN. These are debates across the world and everyone has a level of connection speed, which is variable, but we're able to manage that. And with some proprietary features that we have, we're able to run the same level of high quality meeting for all participants, regardless of how they connect and what quality they connect with as well.

The resilience of that as well as is built-in, and I think this is something that becomes quite interesting as we talk about the cloud and the power of the cloud for any application. Video is extremely real-time media-rich and it's a good bellwether of how a cloud strategy will work for any other application.

You've spoken a lot about the ease of use, and obviously there's quite a bit of competition in the video conferencing space. Skype has traditionally been popular, Google Hangouts, Microsoft Teams. How has Zoom been able to effectively differentiate itself from these competitors?

Video conferencing, I guess the traditional term, video collaboration, has been around for a long time and I think the bar has been set pretty low in the past of well if you manage to have an okay call that was fine, because you didn't really pay for it. What we've been able to do is provide that service in a very reliable and high quality way in the reasons I mentioned before such that your ability to join a meeting, it's very simple to join a meeting. And as I said, it's very simply, it just works. As a user, I'm not thinking about what's my connection speed, have I got the right settings in place? Ultimately you're trying to reduce as much friction as you can to join a meeting and you are literally straight into the meeting. So not only from a time perspective in the time that it takes to join a meeting, which plagues a lot of traditional meeting settings, but also in terms of being able to see someone in high definition at the other end as well.

The ethos of the company has always been around delivering happiness to the user and I think once we provide that experience and you enjoy that experience, you tend to rely on it, see value in it and use it more.

I just wanted to get back to sort of the themes of how Zoom has kind of disrupted society. How much of this disruption to business operations in terms of moving online and working remotely, do you think is permanent and ongoing post COVID?

Well, I think the statement around we're not going to go back to the way it was, I think is entirely true and we hear a lot of that at the moment. The future of work involves, I guess, multiple settings and the aspect around mobility, not in the sense of, the devices that we use, but also around the fact that I can do work from anywhere. A couple of things, I think in terms of what the office looks like, that's an open question. I think for me if I look at our own office in terms of how we bring teams together, will that be the same in terms of us all going into the office at the same time as we did before? I don't think so.

I think it will lend itself more to team-oriented gatherings in an office. I don't necessarily need to go and do my email in an office. I can do that quite well at home. But then I have the flexibility to be able to shift back and forth. You know, we talk about, people do crave physical contact with each other, and I think there's a time and place for that. But I think as well, how we've proven to be able to work from home at the one extreme. But we certainly won't go to the other extreme it would be somewhere in the middle. But the underlying comment again is the flexibility and the resilience that we need to build in terms of some of these work practises. Whether it be around cloud applications, we use like Zoom and other things, whether it be around we can use a laptop in the office or at home, whether it be our connectivity as well and the reliability of connectivity.

Certainly, as I said before, that's not a barrier to Zoom because we can run that on limited bandwidth networks. But it also does move into equity of services or government services in education, health, and social services as well, is that once we start having this digital transformation occurring in the workplace, we should also expect that's happening across our whole public sphere. I think the usage of Zoom from an enterprise and also a social aspect is proving that out as well in the fact that you can start actually accessing services in a safe way, whether it be not having to go into a GP to have a diagnosis, because I don't want to be putting myself at risk of not only just the current situation with coronavirus, but with anything. If I can do that safely from home and access those tools, I'll do that from home and probably save a whole heap of time, as well as money to do that.

I think in some of these mandated lockdowns, as we've seen now learning from home for students is critical. I don't think that's sustainable long term so that we all learn from home. We do need to have that, again, an environment which involves digital tools to be able to improve and complement some of the learning that we have in person.

As you've spoken about, it's not just businesses who are using Zoom now, you just mentioned students being educated by Zoom, social interactions between friends. How has Zoom had to adapt its offering in order to accommodate for these changing needs of users?

Yeah, it's a good question. The thing that characterises school, state school departments or districts and so forth is the fact that there's a really high number of students using it. And for the reasons we talked about the Zoom platform is highly scalable and we can bring our whole heap of users. It's worked very well in those environments. The Department of Education, New South Wales offer Zoom now to all of their schools and students. And the fact that we have students coming in and out of lockdown schools opening up and then closing down as well, allows them to then to be able to continue their teaching and learning programs as well. I think what we found out early is that we needed to provide more education to teachers who are also going through their own digital transformation, again, for the same issues that we've seen in the business world, the reluctance to move, and that's because change is difficult.

But now that we're in that situation, we've used that as an opportunity to be able to get teachers to understand the power of the platform, how to actually change their teaching styles, and actually in some ways, make it actually an improved experience that the in-person and the remote aspect of it can actually work hand in hand. We did launch a very large webinar. It was last week primarily targeted at teachers and we'll see more of that as how we actually educate and how to integrate tools into learning programs.

The other thing I would say is that one of the first large use cases for Zoom was actually in the tertiary sector and here within Australia even before we had an office here, we had a very high usage of Zoom within the university space. The ability to do some of the things that we're doing now in terms of remote learning was already being done at that point. The tertiary sector, I guess, is characterised by leading and innovating and that's something that we saw very early on in this country with AARNet and the university space,

Obviously, you are focused on the Asia Pacific region, but I just wanted to get an idea of how Australia compares to other countries in the world, the uptake in Zoom, and moving online and compare that to how it's played out, globally?

Well, Australia, is one of the leading markets in Zoom in the sense that we started our first international office here in Sydney, along with our UK office and that was because we had a significant user base in the country before we had a presence here because the app was accessible online and be able to be used, I guess, anywhere in the world. We made that investment back in 2017 and across the enterprise sector, we've got customers such as NAB and Atlassian, and I mentioned DET before. But the interesting thing is that when we start seeing countries with a very vibrant SMB space, we've seen that tool also be used for many of the use cases within the SMB sector as well and actually with the pandemic, we've seen that even more micro SMB businesses.

The example of a fitness session over Zoom, which perhaps is mandated because you can't meet in a gym or their usual places where you'd run these things in person. But it's actually opened up opportunities to be able to run some of these services online as an extension of in person. I can have people attending, whether it be across Australia or even a global audience, if I have a compelling fitness program that people want to attend. I think it's created all these new use cases and the innovation that we see in Australia and also in the New Zealand sector where 97 per cent of the user base, not from a Zoom perspective, but 97 per cent of all businesses in New Zealand are SMB. You're seeing that innovation and how they are using the digital platforms to be able to improve how they do business and just staying connected as well.

You look at Google and it's now used as a verb, almost, people say “Google it”. Is the goal for Zoom to eventually get to that stage of dominance in the video conferencing market where its use is ubiquitous throughout society?

Yeah, I mean, I think we're seeing some of that at the moment, because we have this really wide usage from this social use that's more recent to having a really robust application that we've sort of built over the last seven, eight years. We are able to service those multiple segments of the market quite seamlessly, which is unique. Usually, there is either enterprise applications targeted at companies or it's social. We're transcending some of that, so that's interesting how that works out in the future, we'll see.

I think interesting for the future, not only for Zoom, but for the cloud application space, is the aspect of the ecosystem. We have a marketplace where organisations are creating integrations to Zoom. We had 200 at the start of the pandemic, and now that's increased to 600. Actually we had an Australian company announce last week, Lingmo, who do language translation through AI, and they've integrated, so you can have a chat session on Zoom, which automatically translates that into another language in real-time. And video being the engine for an application, so Zoom is part of an application that another organisation puts to market whether it be around medical diagnosis or education, or what have you. But I think that's where it becomes interesting where the power of APIs that are inherent in cloud platforms now are able to stitch up workflows and different use cases together.

Just finally, I wanted to kind of get a bit of an understanding of how the surge in users has impacted the company financially. How has that translated into revenue for Zoom? Could you give us an idea of the increase in revenue since the beginning of COVID?

Well Q1, which is from 1st of February to the end of April, we did see a significant increase in revenue year on year. I think that was 192 per cent. We've seen the revenue and certainly other aspects of our financial indicators increase. I think, as I said, that just reflects that increase of usage where I've mentioned around from 10 million to 300 million daily meeting participants both on that free and a paid basis.

You've also had an increase in high budget customers, so that refers to those who have spent more than $100,000 on the platform. Are those the massive companies that you've previously talked about, NAB and things like that, companies that are paying quite a lot of money to implement Zoom company-wide?

Yeah, I think there's a couple of statistics there that the number of customers with more than 10 employees was up 354 per cent year on year in Q1. And then the number of customers contributing more than $100,000 in revenue was up 90 per cent year on year. As I said, we’re seeing growth across the different segments. As I said, we had an existing enterprise business, before the pandemic, which was quite successful, with the likes of customers, like a NAB or an HSBC, for example. So we have characterised our business on that. But the SMB mid-market segments have also been part of a core of our offering for a long time as well.

Just finally, I just wanted to get an idea of where Zoom goes from here? What's the plan for the rest of the year and in the short term?

Yeah, well, as I mentioned before, Zoom’s usage in the ecosystem of embedding it as an application, I think, is something that will grow through some of these unique use cases that are now coming up. Whether that be social, whether it be around new businesses that are offering Zoom as part of an offering to deliver their service remotely. But one of the other things is that Zoom is a platform. And so on a platform, we are able to provide new features and functions to grow the business. We launched just over a year ago, Zoom Phone, which is a cloud PBX product, which allows you to put all your telephony services onto Zoom through not only PSTN services, but also IP telephony.

That addressable market, that's an increase in our addressable market that we have, and so what we can do is, as customers are using video now to communicate and shifting to that they can also move all their communication services on to Zoom as well. Some of the other services that we have is our Webinar Service, and that's something that, again, we offered pre-pandemic, but with events and in-person gatherings at a large scale now moving online, the webinar service that we provide allows us to run events up to 40,000 people on an event that we had with Oprah a few months ago. I think Tony Robbins is running his motivational sessions now on Zoom webinars as well.

You can start seeing that as a platform play. You know, not only do we have the core Zoom meetings product, but Zoom Phones, Zoom Webinars. And then ultimately when we go back into a more stable office environment Zoom Rooms is our meeting rooms product as well. Those are the types of things that we're focusing on at the moment in terms of how we can provide a complete unified community communication stack to our customers.

Great to chat, Michael, thanks very much for your time.

Great. Thank you.

That was Michael Chetner, Head of Australia and Asia Pacific for Zoom Video Communications.