Zoom Goes From Conferencing App to the Pandemic’s Social Network
SOURCE: BLOOMBERG BUSINESSWEEK
Eric Yuan built a tech unicorn in the unflashy business of enterprise communications. Then, suddenly, the world needed it to be something else.
Like the rest of us, Eric Yuan is taking things day by day right now. The founder and chief executive officer of teleconferencing software company Zoom gets up each morning, after three or four hours’ sleep, and nervously checks the previous day’s capacity numbers to make sure the servers aren’t overwhelmed by traffic. Then he begins the long slog of videoconference calls from his Bay Area home. “It’s too many Zoom meetings,” he says, via Zoom. “I hate that.”
Along with the crush of new users and the challenge of running a business during a pandemic, there’s the deluge of negative news stories, the letter from the New York state attorney general, complaints from Democratic senators, and class actions filed on behalf of consumers and shareholders—all accusing Zoom of mishandling or abusing user data while allowing hackers to run amok. It’s not helping that, with school and college canceled, Yuan’s three kids are at home clogging up the Wi-Fi. The other night he got an email from a mother about a troll who invaded her kid’s Zoom virtual classroom and showed inappropriate content. Afterward, he couldn’t fall asleep.
The only thing keeping Yuan sane is his mom, who’s been living with the family. Each day for lunch she brings him a noodle or rice dish she’s made, upbraiding him when he forgets to eat it. And if Yuan has time after dinner, mother and son take a walk in his backyard. “I tell myself, every morning when I wake up, two things,” Yuan says. “Don’t let the world down. Don’t let our users down.”
A month ago his company was merely a fast-growing success story in the somewhat boring universe of enterprise communications. Today, suddenly, Zoom is critical infrastructure. As billions of people around the world socially distance to blunt the toll of the coronavirus, those lucky enough to still have jobs are trying to work them from home. To do so, they’re turning to remote collaboration tools; messaging platforms such as Slack and videoconferencing software like Cisco Webex, Microsoft Teams, and, especially, Zoom, have seen explosions in traffic. “Every day is a record,” Yuan says. Zoom’s daily users, 10 million in December, now number 200 million. The company’s share price has climbed 72% in the same period—doubling from early February to late March before dropping off—even as markets and the global economy have been pummeled.
Zoom’s new traffic isn’t just from workplace conference calls. Its simple interface—users enter a meeting with one click—has made it perfect for millions of people who want to maintain at least a diluted form of human contact. Schools and colleges are teaching classes on Zoom; Alcoholics Anonymous groups are using it to hold meetings; people are going to Zoom family reunions and happy hours and trivia nights. They’re dating, talking to therapists, and having birthdays. In photos his sister posted on Twitter, Hunter Lee, a Walmart food sales associate in Greensburg, Pa., celebrated turning 21 with family and friends looking out from the corner of the room, their webcam images tiled on the screen. A few days earlier, British psychiatrist Rob Baskind Zoomed into the funeral of his mother, who had succumbed to the virus. For many, Zoom has become not just a way to socialize, but the social fabric itself.
Yuan is as surprised as anyone else at this turn of events. He didn’t set out to create a business that would be a household name, in these circumstances or any others. And while it’s a testament to the technology that it has mostly handled a twentyfold surge in usage, in other ways the company, like many others, was blindsided by the past few weeks. “I never thought that overnight the whole world would be using Zoom,” he says. “Unfortunately, we did not prepare well, mentally and strategy-wise.” Historically, giant communications networks—Facebook, Twitter, AT&T—have all had their growing pains, but none had to go through them in just weeks. In times as vertiginous as these, even success can be brutal.
Yuan has always been frustrated by the inconvenient fact of distance. The younger son of husband-and-wife mining engineers, he grew up in China’s Shandong province, a peninsula extending into the Yellow Sea. Studying math and computer science at Shandong University, he had to take a 10-hour train ride to see his girlfriend, a problem he solved by marrying her at 22. Yuan, now 50, idolized Bill Gates and was determined to work in Silicon Valley. His visa application, though, was denied on his first try, and on the next seven, after a bureaucratic mix-up. It took nearly two years of persistence, but on the ninth attempt, he got into the U.S.
Yuan found a job in California at Webex, then a startup. By the late 1990s, technology had made real-time video chat—long a sci-fi staple—a reality, and Webex was among the first companies to make a working product. Yuan was one of 10 engineers when he joined Webex in 1997, and by the time Cisco Systems Inc. acquired it a decade later, he was vice president for engineering, managing 800 workers. Seeing the rise of the iPhone and its imitators, he became convinced the company needed a product that worked on mobile phones, not just PCs. Cisco’s leadership didn’t agree, and Yuan left in 2011 to found Zoom Video Communications Inc., taking a contingent of engineers with him.
Headquartered in San Jose, Zoom built a research and development team in China, where engineers would work for far less than their American counterparts. Yuan personally contacted every company that considered Zoom but went with a competitor, something he still does. Zoom was appealing, in part, because it was a neutral platform. It wasn’t tethered to Apple, like FaceTime, or Google or Microsoft, like Hangouts and Skype. Anyone, even someone without an account, could join a meeting, from any device, just by clicking a link in a text or email. Hosts could record video and audio and generate transcripts, and it was easy for people to screen-share.
If you can keep your meetings under 40 minutes and 100 participants—and, honestly, please do—you can use Zoom for free; clients who pay a monthly fee of $19.99 per meeting host can gather as many as 1,000 people on a single video call. In addition, the technology offers users a flattering soft-focus mode and a menu of digital backdrops: the northern lights, the Golden Gate Bridge, a pristine beach. These panoramas free home users from worrying about whether their half-dressed spouse and children are in the webcam’s sightline. Customized Zoom backdrops are canvases for self-expression, and the art form has already grown baroque. A video producer named Dan Crowd created one recently that looks like a normal office but is a trompe l’oeil animation in which the door opens and Crowd himself walks in, obliviously interrupting his own meeting.
In a world of philosopher-CEOs promising to transform the human condition through ride-hailing or renting shared workspaces, Yuan is passionate about videoconferencing software and uninterested in declaiming on other topics. After Zoom’s valuation surpassed $1 billion in 2017, he publicly scoffed at the unicorn label, saying it didn’t mean anything unless the business continued to grow. When Zoom went public in April 2019, shares jumped 72% on the first day of trading, giving it a value of $16 billion and Yuan a net worth of $3 billion. He went on Bloomberg Television complaining that “the price is too high” and implored employees to get back to work. Today the company’s market capitalization is about $32 billion.
Zoom had an early glimpse of the coronavirus at work. The company’s Chinese offices and R&D facilities closed in late January (they’ve since reopened). “We were thoughtful and a little bit paranoid about what was to come, which has turned out to be a good thing,” Kelly Steckelberg, the company’s chief financial officer, says by Zoom from her home. Zoom was quick to shutter its San Jose headquarters, sending employees home two weeks before Santa Clara County issued its shelter-in-place order—a decision that was admittedly easier for a videoconferencing technology company.
After Japan and Italy closed schools in late February and early March, Zoom removed the time limits on its free product for educational institutions in those countries. It continued to do so as school shutdowns spread globally. Still, Yuan thought the disruption would be brief. Then, in mid-March, his kids’ schools closed. When Zoom’s daily users passed 100 million, he began to realize what the crisis would mean for his company.
Since then, it’s been a dead sprint to cope with the ballooning demand. When you’re on a Zoom meeting, the app adjusts bandwidth so that one participant’s poor signal doesn’t degrade another user’s experience. Zoom does this by linking each participant to the closest of 17 data centers it rents worldwide; if one center is overloaded, it sends traffic to the next closest. To keep up with its new audience, the company has added two data centers, and it’s been buying more of the cloud storage capacity it uses for surge protection. Zoom relies heavily on Amazon Web Services Inc., as well as on Oracle Corp., for cloud computing. So far, these efforts have paid off: There have been complaints of poor call quality, and Zoom’s website was briefly down for maintenance, but the platform has bent, not broken, under the new demands.
“For now we have to embrace this new paradigm and figure out how to make it work”
Two days later, tech site Motherboard revealed that Zoom’s iPhone app, which was built using Facebook Inc. software, was sending user data to the social network giant without alerting users. On March 30, former National Security Agency hacker Patrick Wardle blogged about flaws that would let attackers put malware on a computer or hijack the webcam and microphone. The next day, the website the Intercept reported that while Zoom claimed to guard user data using end-to-end encryption—the strongest available privacy protection—that wasn’t true. And on April 3, University of Toronto researchers published a paper revealing that the company sometimes routed meetings through servers in China even when all the participants were outside the country, raising the possibility that Chinese authorities might try to listen in.
Zoom was also attracting the interest of trolls. Elementary school teachers getting their classrooms up and running found their sessions disrupted by “Zoombombers,” with malicious interlopers joining to shout racist epithets or screen-share pornography. (New York City’s school system, the largest in the country, has banned the service, shifting to Microsoft Teams and Google Hangouts Meet.) White supremacists started Zoombombing virtual Torah sessions and webinars on anti-Semitism with images of swastikas.
Later that day, Yuan posted his own apology and said that Zoom would probe for further security weaknesses; remove the attention tracker; offer training against Zoombombing attacks; change the default screen-sharing settings to make things harder for trolls; and issue a transparency report detailing government data requests. When the University of Toronto report was published on April 3, Yuan responded the same day, blaming the China server issue on Zoom’s scramble for capacity and announcing that the company had corrected it. On April 4, Zoom users got an email telling them that all meetings would now automatically have passwords.
Yuan argues that Zoom’s issues stem not just from its explosive growth but also from the new types of users flocking to it. “We built this as a platform for knowledge workers, for businesses with IT departments,” he says, sitting against a digital backdrop of the San Francisco hills that he obscures as he leans into his webcam. For Zoom users in nonpandemic times, he goes on, there would be a tech support person helping them set up their screen-sharing settings and reminding them to have a password. In a work setting, for better or worse, we’re more resigned to the idea that our boss will snoop on us so that we don’t slack off. Unlike elementary schools and happy hour organizers, Zoom’s corporate clients have their own data and privacy policies. And at the office, even neo-Nazis try to watch their language.
Yuan’s explanations are more convincing for some lapses than others. If anything, expectations should be higher for a collaboration app given that it engages with sensitive data. “I’m granting access to a camera, a microphone, to the screen, everything that happens on the computer,” says Ralph Loura, a longtime chief information officer now at electronics manufacturer Lumentum Holdings Inc. Zoom, in other words, should be the last company to be casual about security.
It may be that the main trait that let Zoom succeed is now haunting it. Its focus on simplifying the arcane and buggy process of videoconferencing has created a product that’s also simpler for others to manipulate. Yuan concedes that there could be a tension between security and simplicity. “It may be time to revisit that,” he says.
Although it’s hard to imagine, at some point the pandemic will end. Will Zoom go back to being a corporate videoconferencing company? “I have no answer,” Yuan says. His board asked him that a few days earlier, and he told them the same thing. Currently, while many new users aren’t paying for the service, some have sprung for Zoom’s paid tiers, and some corporate clients upgraded when they sent their workforces home. On April 1, AllianceBernstein analyst Zane Chrane said the pandemic could generate “a few hundred million” in additional revenue. That’s on top of the more than $905 million Zoom predicted for the coming fiscal year in its last earnings call, a Zoom webinar held on March 4, just after it closed its headquarters.
Given the choice, Yuan makes clear, this isn’t the path he would have chosen for himself or for the company. But he says he no longer pretends he’s in control: “You can’t go back, that would not be responsible. For now we have to embrace this new paradigm and figure out how to make it work.” Zoom is “now owned by the whole world,” he adds.
Then he has to go. It’s lunchtime, and his mother is patiently waiting.