Good morning,

I am pleased to welcome Zoom founder and CEO Eric Yuan for a Stratechery Interview. Yuan was an early employee at WebEx, which was acquired by Cisco in 2007, where he became Vice President of Engineering. After failing to convince Cisco to rebuild WebEx around a better video experience Yuan left the company to do just that: Zoom Video Communications was founded in 2011, and IPO’d in 2019.

However, the truly formative experience for Zoom — the time it reached that most aspirational of goals, which is becoming a verb — was the COVID lockdowns. Suddenly every company, school, and family needed a video conferencing solution, and Zoom was, by a significant margin, the best product on the market.

We talk about all of these topics in this interview: Yuan’s background growing up in China, starting Zoom, and whether or not COVID was good or bad for the company. We also talk about how Zoom is expanding beyond video calls, including chat, its contact center service, and why Yuan thinks AI makes Zoom’s product that much more defensible in the enterprise.

As a reminder, all Stratechery content, including interviews, is available as a podcast; click the link at the top of this email to add Stratechery to your podcast player.

On to the Update:

An Interview with Zoom CEO Eric Yuan About Surviving COVID and Building Moats

This interview is lightly edited for clarity.

Background

Eric Yuan, welcome to Stratechery.

EY: Thank you, my pleasure.

So with these interviews, particularly the first time I talk to someone, I always like to ask about their background and how they got where they are, and I’m particularly excited to do that for you; it’s just such a fascinating story. Something that strikes me, growing up in the 70s and 80s in China, because of all the upheaval, you really got that aspect of there being diamonds in the rough, people that just seemed to come out of nowhere or a place you wouldn’t expect to be a great entrepreneur or CEO. That certainly seems to be the case for you. Is that a fair characterization?

EY: Yeah, thank you, Ben. I think it’s fair because I was so lucky because when the first wave of the Internet Revolution was born and I decided to move to Silicon Valley in 1997 to embrace the first wave of the Internet Revolution. That’s why I joined WebEx as one of the first in several —

Right. But before then — there’s a lot of stories of entrepreneurs at that time, “Oh, they got a computer when they were young,” and all these sorts of things. When was the first time you even used a computer?

EY: When I was in my sophomore year in college. 1989, I think.

Yeah and you were studying math just because that’s what you were good at and it crossed over seamlessly?

EY: That’s right. My major was applied mathematics, my minor was computer applications.

Interesting, that’s what I’m getting at. You could go and minor in computer applications having never seen a computer before because that was just the state of affairs then.

EY: It was very expensive to have a computer at that time.

Yup. One of the bits of lore in your story is that video conferencing came from your desire to see your girlfriend who was a ten-hour train ride away. Was that actually part of the story or is that sort of a nice retconning? “I’m in charge of a video conferencing software now, I actually always wanted to do this.”

EY: Yeah, so Ben, you are so right on. There were so many stories about that, it’s just to make it very accurate, actually, when I started Zoom, it was nothing related to that. However, when I have a team, suddenly I could connect the dots, meaning when I was in college back in 1987 and my girlfriend lived in a different city, it is really hard to see her, probably only twice a year, more like a daydream, “Imagine you have a small device where you can just one click and talk with her, see her”, that’s more like a daydream. But afterwards, I never thought about that of how to build a product. When the end product was ready, I realized, “Ah, that’s something I thought about it before,” so that’s the story.

Yeah, it’s like the Steve Jobs quote, you see the dots very clearly when you look backwards even if you didn’t see them at the time.

EY: Very true.

So you work for two years to get a visa, you come to Silicon Valley, you join this startup called WebEx. Again, was that just a lucky circumstance that you happened to join a company that was doing video conferencing? Were you taking any job you could get or was that something you were seeking out?

EY: It’s a good question. By the way, WebEx was not a video conferencing company, more like a web-conferencing company. Essentially, it was designed for facilitating screen sharing, back to early 2000.

Yeah. I guess it wasn’t really possible to do video sharing then.

EY: You are so right as there’s no video camera at that time, bandwidth also was limited. So yeah, so I was very lucky. I knew one of the co-founders of WebEx and they gave me an offer of an H-1 working visa. Finally, I got here, and just started writing code, so I guess probably whatever the product they wanted to build at that time, I would write code so I could survive.

You mentioned you didn’t even really get to a computer until your sophomore year in college. Coding, was that just something that you just picked up right away, just came naturally to you?

EY: Prior to moving here in the Valley, I already spent a few years on coding, because back then, for me to make a living, I had to write code, I had coding skills. However, I probably stopped for a while because I also built software and also sold software, not 100% of the time focusing on the coding. But after I moved here, I had to, so I worked very hard to write code.

Founding Zoom

So Webex gets acquired by Cisco. At this point, you are quite senior at WebEx and then you become quite senior at Cisco and as lore has it, you wanted to rebuild the whole thing and I think you actually dropped an important point here, WebEx started just screen sharing in a super low-bandwidth environment, you couldn’t even do video conferencing, video conferencing gets tacked on, was that the primary catalyst? It’s like, “Look, we can do video now, we should restart from there,” or what was your thinking around that?

EY: That’s exactly right. So back then, I never thought about leaving WebEx because I was a part of the early founding team. I wrote a lot of code, I was a Vice President of Engineering. You feel like, “That’s my baby.” So every day I spent a lot of time on talking with customers, trying to solicit their feedback.

Back then, every morning when I woke up, I really did not want to go to the office because I did not see a single happy WebEx customer. I felt the pain, so I wanted to fix it. However, they all told me that, “Eric, you are wrong, the future is reading about it, the new architecture, video is about something else.” So it took me one year, I failed to convince others, so finally I decided to leave.

Having grown up from China, coming from a much poorer background and then coming to Silicon Valley, suddenly you’re massively successful. Did you feel more of a cultural challenge in doing the startup thing? You mentioned your wife was opposed to it, whereas you have a lot of Americans, they went there, “Yeah, I’m going to do a startup, I’m going to do five startups, I’m going to do a gazillion things.” Was it almost like you were dragged kicking and screaming to, “I have to do this because Cisco won’t”?

EY: So if you live outside of Silicon Valley, it’s hard, right? However, if you live in Silicon Valley, I feel like I do not think that’s the case. The reason why, in Silicon Valley, the culture is extremely inclusive. As long as you work hard, you have ideas, a lot of people around you, they would like to proactively support you. That’s my experience. I feel very lucky, after a few months, I lived in the Silicon Valley since 1997, I feel already very familiar, a lot of friends. So that’s why I never feel like, “Ah, this is a culture gap, you need to learn this, learn that.” I think naturally, I feel like I’m part of this startup entrepreneurial ecosystem.

For sure, you are a part of the startup scene. However, The reason I resonated with that story is, my wife, I was married here in Taiwan, and she did not like the idea of me going off on my own and doing my thing at all. I had a nice job with a Silicon Valley company making good money. It’s like, “Why on earth would you do that?”, and so I was reading a Forbes profile of you, and they mentioned that bit about your wife was pretty nervous about you doing a startup. and I was like, “Oh, I can relate to that. I know what you’re talking about.”

EY: Yeah, my wife was nervous, but she was neutral, meaning she did not say no, so that’s very lucky.

So when you started Zoom, was the thesis just about video, what was the balance with the cloud, smartphones, that sort of thing? I think you’ve mentioned just building something like a platform to start. What was your approach from day one when you’re leaving Cisco, Cisco won’t do it, what is the core thesis behind Zoom?

EY: I think it’s a great question. I thought about three things back then. First of all, you have to have the best video quality, that’s number one. Number two, in terms of usability, it has to have an extreme ease of use. Make sure anywhere, without any learning curve, you know how to use it. Because otherwise, look at other products, take WebEx for example. It’s a very clunky experience, shame on us, I was part of that, the product is so hard to use, that’s the second thing. The third thing, you’re so right on. It’s more like a mobile experience, how to support an iPhone, iPad, Android phone, you have to rebuild the product. Make sure in terms of supporting all kinds of form factors, that user experience, I think those three are probably the top reasons I felt like I can build a better solution.

With regards to ease of use, I think what’s remarkable about this point of view is number one, it’s obviously right, but also number two, I think this is a part where Silicon Valley can sometimes get it wrong, because everyone there is nerdy and can use computers and it’s very easy to skip over the “normal person” problem. Was this basically the pain of having to go to work and hear your customers unhappy? Where did that obsession with making it trivial to join a call come from?

EY: Normally you’re joining a business call like this, it’s extremely important, you schedule the call, you only have one hour. You may want to make sure for the first few seconds, just one click, you can talk to someone. Otherwise, you waste the first few minutes, and guess what? You lost your productivity. The product has got to be extremely easy. One click join, talk with someone, crisp, clear audio and video quality. I think that is very important because I started working on in this industry since 1997, so I understood the customer’s expectation.

This is how you pitched it to VCs, right? You’re just like, “Hey, just click on, we’ll join a call.”

EY: It failed. I pitched very hard, but nobody thought I was right.

But wasn’t that part of the bit, you walk into a meeting, say, “We’re going to join a Zoom call right now,” they had never installed it, they’d never been a part of it, and it was suddenly working with no blockers. You don’t have to install software, you don’t have to do X, Y, Z.

EY: To be fair, most of those VC’s, they understood the importance of ease of use. However, back then, their thought was, you really do not need to have a new solution. Given that there were so many solutions already there, very collaborative, free product, paid product, big names, they did not think I can pull it off.

Why were you convinced? And I will say, as a Zoom user, even today in 2024, Zoom quality is still the best. I do a lot of simultaneous video and screen sharing and things like that. Even today, every other product spins up my fans, it gets glitchy. Zoom is still flawless, the resource usage is way lower. Why did you know or why did you have confidence that you could actually do it, make a better product? That’s the other cliche of Silicon Valley, everyone’s like, “I’ll just make a better product”, and usually, number one, that’s not enough, and number two, it’s trivially caught up with. What did you know that made Zoom better?

EY: Thank you Ben. Love what you said, Zoom product needed to be the best. So the reason was that, again, I’m still humble, but I do think I spend way more time than anybody else on talking with the customers. I really spend a lot of time trying to understand why they like this feature, why they don’t like that feature, what’s a pain point? I did not talk one or two, I talked to many, many customers and realized even if there were so many products out there, no one liked those products in the market. Then I realized if I can build a product can truly deliver happiness to those users, I think I might have a chance.

I guess you’re not going to give away the secret sauce, but when you got started, was there any thought to having — you were setting up engineering abroad, was there an aspect of that this is going to be a cost advantage in the long run or was just that, “I know a good team that’s going to do it for me”? That was pretty innovative at the time, leaving aside the product, just the general structure of Zoom.

EY: It happened naturally because when I was at Cisco, I was a corporate vice president, I managed over 1,000 engineers and when I decided to leave, many engineers they wanted to quit their jobs to join me and it happened to be some of the good engineers, they had many years experience to build Webex, and they are part of the original Zoom team.

It just happened that you happen to have your big R&D in China? Was there anything about China that was better at video conferencing, or that’s just an accident of history?

EY: It’s just by accident, because Webex hired a lot of engineers prior to the Webex going public, which was the year 2000. They hired a lot of people, a lot of engineers lived there, they work hard and I happened to know them. When I started, it just happened naturally.

COVID Challenges

One of the things that I think people forget, obviously one of the seminal moments for Zoom is COVID and what happened then, but Zoom was a rocket ship before then. You had already IPO’d, you were profitable when you IPO’d, you were growing very well, the stock was up and to the right. Is there a part of you that wishes COVID never happened and you had been able to continue on that path?

EY: If you ask me the question even two-and-a-half years ago, I also give you the same answer. Yes, I really wish there was no COVID. Zoom would be a much better company today and COVID, I did not think really helped us that much except for the brand recognition. For everything else, I feel like there was a negative impact to our business in terms of culture and growth and the internal challenge, or the competitive landscape. Everything else, I feel like it’s not good for us.

If you look at the financials, your stock is barely up from pre-COVID levels, which seems again, very unfair relative to your growth since then, if you just erase those two periods. But then also you mentioned the culture aspect, was it just you had to hire so many people so quickly just to handle the amount of people that were using the product?

EY: Yeah, that’s right. Prior to the COVID-19 crisis we had a little bit over 2,000 employees. We truly focused on the quality rather than quantity in terms of hiring Zoomies and the company culture just delivered happiness, values of care. I knew a lot of employees, they all trusted each other, great culture. That’s the dream company I wanted to build. But during COVID, within a short period of time, you had to hire a lot of people to scale up your business. But again, that’s not sustainable. Looking back, we also made a mistake, we should not have hired so many employees because that’s more short-term planning, and our solution was not sustainable, it did cause a cultural issue.

And you had to fast-forward and some of those people had to be let go, which none of that is very fun and I’m sure you would’ve liked to avoid.

EY: From the very beginning, every time during our e-staff meeting, I always said, “Let’s not grow our business too quickly”, focus on the culture, quality, and hopefully in the company history never lay off employees, I talked with our e-staff executives many, many times and we managed relatively well until COVID-19 crisis.

You mentioned the competitive aspects. Is this just a bit where you feel like your competition reacted much stronger and more quickly than they would have otherwise if it hadn’t been the case that suddenly everyone needed video conferencing?

EY: Absolutely right. All of a sudden, competitors realized, “Wow, this is very important”, how to support remote work, embrace hybrid work and they put more resources into it. I’m not saying they are focused on innovation, it’s just more like copy whatever we have, essentially more like a standard, look at the product experience or feature set. Essentially it’s just following what we did before. For sure, that’s from a competitive landscape perspective, there’s a little bit more pressure than before.

Did the work-from-home part of your thesis exist before COVID, that more and more people are going to work this way and they need a good video conferencing software, or was it just really like no, we just need good video conferencing software and that happened to explode with COVID?

EY: I think it’s both. On one hand, we knew video conferencing will play a big role no matter what you do, whether work, learn, or play. However, just during COVID more and more people started to work remotely and now now hybrid work is becoming mainstream. Tools like this, like video conferencing will stay, and more and more people, they are going to count on Zoom to improve their remote work productivity.

Building a Moat

You said something on your recent earnings call, that, “Your platform moat is deeper.” This obviously matters, you’re competing with companies that are number one, very aware that they need good video conferencing solutions, and then number two are “free”. You take something like Microsoft Teams as an obvious example: you probably already have Office 365, so what is that moat? You called it a platform moat. What does a moat mean for Zoom above and beyond, “We’re just a better product”? From my perspective, I use Zoom because it’s a better product, but I’m also a very small business so I can afford to spend extra on seats, so I’m not buying 10,000 seats of Zoom, I’m buying two or three. What does that moat mean for you today?

EY: So the moat, I think ultimately a few things. Number one, it’s not only just meeting but also we have a full collaboration communication platform. We have phone, we have a team chat solution also is free, and also there’s white-board and note-taking and also have email and calendar and we’re going to introduce new collaboration tools as well. Ultimately any user can live within a Zoom platform can get most of the work done, this is the entire collaboration suite.

Second, AI is going to play a big role. You look at the total cost of ownership, I think the other competitors are not free for AI. When it comes to AI like Bing and you use Zoom, you can take all those AI features at no additional cost. You look at other competitors, $30 per user per month. Essentially you get a free product, after you’re stuck with that product, guess what? They are going to charge you more. That’s not our practice.

Because you’re in a different place. That’s an interesting flip on the head, you’re the one providing free features, not them. I mean, you talk about in startups, particularly enterprise startups, they’ll have a land-and-expand strategy. You need to get a foothold in a company, and then you’ll expand within the company and you’ll add on features. Because of COVID, you’re everywhere. Everyone already has Zoom and so it kind of feels like it’s like a dig-and-expand strategy. We need to dig in so we don’t get kicked out and then we have to also add on new features and plans and things along those lines.

EY: Yes, that’s right. Unfortunately during COVID, for sure, many businesses also oversubscribed because when they sent all the employee including the front desk staff member back to home, they all needed to have Zoom license. Now I do not think they need all those licenses anymore so that’s the reason why a little bit of down-sell and a challenge we were facing over the past 18 months.

Team Chat

Do you feel like you were slow to really build out and expand on the chat functionality in particular? Messaging is an obvious counterpart to video conferencing, but the Zoom product was pretty basic for a long time. You’ve been focusing on that much more now, but was that just a COVID overhang thing? You didn’t have time to get to it?

EY: I think first of all, the product works extremely well, our Zoom Team Chat product. Whenever those customers realized Zoom has a free Zoom Team Chat, they tested it out, they found, “Wow, I did not know that it works so well.” After that they would like to deploy Zoom Team Chat and recently a big company, they deployed over 70,000 Zoom Team Chat licenses, they like that experience, and then shame on us because we did not do well on marketing front. Most of the Zoom customers did not realize Zoom has a great very competitive Team Chat product, so we’ve got to make sure the customer realize Zoom has a product like that.

If you compare it to Teams, the way I characterize Teams is it’s Microsoft’s attempt to have an operating system in the cloud. It’s this centerpiece and everything plugs into it and they have APIs for developers, build apps for it and all that sort of thing. Is that a direction Zoom wants to go or do you see value in not being that, taking the opposite approach?

EY: So I think we look at everything from a customer perspective, we give a customer choice. If a customer says, “I like the Zoom platform, I want to use everything from Zoom”, we give them everything and if a customer says, “I like a Zoom meeting and a Zoom phone or Zoom whiteboard, I might use another competitor chat solution,” that’s okay. We also integrate with other solutions as well. Again, we just look at it from an end user perspective, we’re all for the flexibility. Ultimately this is the open system, we do not want to focus on a closed system, you have to deploy everything for one company. That’s not healthy from any user perspective.

I like how you put that — look at it from the customer perspective, because what I just articulated with Teams is very much the Microsoft perspective. They want to regain their position as being the center of everything, and sometimes you just want to use chat, you don’t actually want all this stuff that goes with having hooks into everything and all these sorts of pieces. I would say that Slack’s gone in that direction as well and just having look, “No, it’s chat, it works really well. We don’t need to layer all this other stuff on” seems very compelling to me.

EY: Agree. That’s why I give a customer options. Use Slack and Zoom, it’s okay. Teams and Zoom are okay. Everything Zoom is okay too. However, we want to offer the flexibility to customer, and we do not like this kind of bundling strategy, it’s really not a flexible to customer.

AI and Contact Center

You mentioned the AI bit. AI is something that you were working on for a long time, including with your Contact Center product, before ChatGPT. Was there still a shift that happened, because after the ChatGPT moment, did that actually change your strategy or did that change customer receptiveness to what you were doing?

EY: I do not think that changed our strategy. However, we did double down on our efforts, and the adoption of AI from a customer perspective is much faster than before. Prior to the ChatGPT era, which started early last year, we already invested into gen AI, and we already have a team. And since last year, for sure, we hired more resources including our CTO, XD, from Microsoft.

30 years at Microsoft, you got him at Zoom!

EY: Yeah, because he loves the Zoom story and loves our vision, and also our AI story also is very clean as well and at no additional cost, which was a federated AI approach. The cost is much lower than any of our competitors, latency is also much lower. We can apply AI to almost every product line we’re working on, like Contact Center or meeting or phone. That’s the reason why I think AI is going to play a much bigger role because you look at it, total cost of ownership. Zoom is very competitive in terms of price.

Yeah. I think Contact Center is interesting. You launched it I believe in February 2022, which was nine months before the ChatGPT moment happened. Were the automated aspects of Contact Center, did that start out being really much more determinative in phone trees and things like that, and then you shifted to be more generative, or how has your view of that product changed over the last couple of years?

EY: I think when we started, we all realized we wanted to build a modern contact center solution and specifically to focus on two things. One is how to embed video into the contact center, at the same time, how to leverage AI as well, that is very important. So that’s from day one, we wanted to focus on those two things. That’s the reason why today when we look at the Zoom Contact Center in terms of key differentiations, it’s really about AI and the video.

When it came to launching Contact Center, what was the linkage to your core product? It’s a little different than video conferencing to an extent. Do you sell into companies because they already have Zoom, or is it more a matter of you have this phenomenal video conferencing platform to the point that works really well and you can build different applications on it? Was the go-to market just totally different?

EY: I think yes and no. First of all, the go-to market was a little bit different. However, the reason why we have confidence, first of all, the product is better. The second thing is the brand recognition, a lot of our customers trust the Zoom brand. They know actually when we build a new product, we work so hard, we do not let them down. However, the decision maker in terms of buying the contact center is different. It’s not a CIO, not a head of IT.

That’s right. It’s very different, you’re not bringing it in on a low level.

EY: Exactly. That’s the reason why, however, when we talk to the buyers, those buyers they also use Zoom, they trust the Zoom brand, they know the Zoom just works, so when it comes to Contact Center they will very likely to have a same feeling. Yeah, Zoom will make the Contact Center easy to use, for certain quality and so on and so forth. That will help us a lot.

COVID Benefits

I’m going to reassure you in that you mentioned before, “COVID, it’d be better if it didn’t happen”, I think all those arguments are valid. I look at your stock price, I feel bad for you. However, I feel like it was a good thing for you. I’ve long had the thesis that Silicon Valley enterprise startups in particular, they get a lot of traction amongst a certain type of company. They focus on building the best product and then they hit what I call the Microsoft Wall, where you’re getting into companies and they don’t even give you trial because they already have a solution that’s there. However, COVID forced a trial for Zoom for everyone. It forced you to massively beef up your infrastructure to be able to handle just the sheer amount of volume you did, and now to your point, yeah, the go-to-market for Contact Center is so different than Zoom, but you could pull it off because everyone’s tried Zoom. I feel like COVID was very, very painful for you, and again, you haven’t been rewarded for it from a stock price perspective, but from my perspective you feel like the last indie SaaS company that’s actually meaningfully penetrated tons of enterprises and hasn’t gotten squashed yet.

EY: Yeah, I think one thing I realized that’s a lesson learned, I always believed when you have a better product and a better price and a better customer experience, you probably will win. However I think I’m not sure that’s always right.

(laughing) That’s right. I don’t agree with that.

EY: From the very beginning that was my belief because I think employees they are going to make a decision. But given the economic climate, the looming economic problems for the last year, a lot of companies they thought of cost as number one, employee experience number two. For those companies for sure they try to consolidate the cost, however, in terms of the total cost of ownership realized, wow, in terms of support and AI other competitor products are even more expensive.

Well, it is not just that, it’s a lot harder to take Zoom away from all your employees than to even try it in the first place. But everyone’s tried it, so everyone already knows it’s a good product. A lot of startups don’t even get that trial.

EY: You are so right on. That’s the reason why if the CIO says, “We do not need the best product and the cost is important”. Guess what? Those employees or individual departments went online to buy Zoom as well.

Yeah, and they’re complaining, they always say, “This one stinks. Why can’t we go back to Zoom?”

EY: You are so right. I talk to many company employees, they all complain, “Oh my God, why did our company make a decision to use that product. I like Zoom, I used Zoom before.” Anyways, this is very, very common.

Yeah, that makes sense. The other thing that strikes me about generative AI is figuring out all the particular use cases for it. It seems to me that because Zoom has stayed relatively focused on communication, whether that be video conferencing, whether it be chat, the limitations of generative AI don’t seem to really exist for you. You’re not asking it to do logical thinking, you’re just asking it to summarize and pull out points in a meeting. Is this basically a perfect product for you as far as it comes along and fits what you’re doing perfectly?

EY: I think that again, we are going to have a whole platform not only for real-time communication collaboration, we also have a more and more async collaboration. We’ve generated more content. Like a whiteboard for example, how do we use gen AI to create something, like a mind map? Also we have other products in the pipeline as well and also the Contact Center and also the sales department Revenue Accelerator, more and more async collaboration, a lot more content, I think AI is going to play a much bigger role, not only making the product features better but also can completely change those services.

So you’ve talked about how you’re going to use a bunch of different models. You had something you were building yourself for Contact Center originally, then you partnered with OpenAI for some of your summarizations abilities. Number one, is that going to be the route in the long run or do you need to bring more of this internal? And number two, why do you feel you have a sustainable cost advantage, not just from what you’re offering to your customers but as far as your actual cost of goods sold?

EY: It’s a great question. First of all, our AI approach is a little bit different compared to our competitor, in that we have a federated AI approach. That means we have our own large language model which is open source, we’re also investors and philanthropic. We have a partnership with OpenAI as well. Essentially we put a lot of things together and also focus on the business use case, and also a lot of how to leverage the data we have. Again, we never use any customer data to train our AI. However, just to focus on the business use case, you do not have a huge large language model for a business use case. For business use case, I think how to pick up the right size of large language model, how to know which one to use at what time, what kind of use case. That’s the reason why our cost is much lower and also latency is much lower too.

Why is that the case? Are you running inference in your own data centers? How do you get better inference? How do you keep your costs under control?

EY: It’s just one word, optimization.

Optimization, I guess that could cover a whole bunch of stuff. Do you see a future where some stuff runs locally, you have applications delivered everywhere? I guess I’m just very interested that you keep pushing on we’re going to have a cost advantage, usually you get a cost advantage from huge investments upfront, I’m not sure that I’ve fully seen that on your balance sheet.

EY: In the future we look at the GPU in the client side on edge, for sure, but we’ve pretty a big role for now still in the cloud side. So when it comes differentiation, as I mentioned earlier, we have multiple models. We have an open source model and not huge large parameters, large language model.

Yeah, because you’re very focused they run more efficiently.

EY: Yeah, because large models are very slow and very expensive. So to deal with the brand new use case, you do not need it. You look at accuracy, the quality is good enough, and the process, we optimize the infrastructure layer, source code layer and a lot of layers to make sure — again, we have AI team to work on that. So not to just pick up off the shelf a large language model and use that to say, “You are better”, then everybody else will do something similar.

China and Security

China’s in the news again because of TikTok, that’s a thing happening on Capitol Hill. You’ve had issues in that regard, you obviously have a team there. In your annual report, in your 10-Ks, there are big sectionss that are highlighting the fact that this could be a challenge for you both on the PR side and on your employee side. How do you assure customers that number one, they shouldn’t be worried about it? And number two, how do you assure investors that, look, we have to put these risk factors in but everything’s going to be fine?

EY: If you asked me this question in year 2020, probably a lot of areas should have improved. Since 2021, I think we are in very, very good shape. That’s the reason why customers really trust us. We published the semi-annual transparency report. We put a lot of efforts on privacy, security, in terms of the focus here, and investment.

Ultimately, we’re focused on process, people and product, and we make sure that we’re very, very strict in following our process. Like let’s say take people outside of the country, we cannot access any data here, no matter what kind of purpose, logging, whatever, we cannot access, and we have an internal team focused on the security and code review and a lot of the procedures. Plus look at the product as well, we added a geofencing functionality, and if you do not want to use a data center outside of the country, you can pick the data center you want to use. Again, we heavily invest into this, that’s the reason why we feel very comfortable and we keep everything open and transparent.

Actually I’m going to say, I think this is an area where COVID helped you as well, because you got all this penetration when Zoom was definitely the best product and it gave you a grace period when these legitimate issues happened, whether it be meetings being canceled with Chinese dissidents or whoever it might be, or questions about data transfer, and you had time to fix it because, I’ll speak for myself, I didn’t want to use another product. It feels like that was where it was painful, but getting a ton of visibility at a time when you were still ahead might’ve been a good thing for you.

EY: You are so right on. Again, out of that Zoom became a much stronger company on many fronts, this is one of the areas. A lot of areas we improved, enhanced our internal process and the product, so on and so forth. But you can purely look at it from a security perspective, this is very secure from day one. Even in the start of 2020, 2021, look at all of the security companies, they all use Zoom, they have a lot of security researchers, they all test everything, they did not find anything that’s extremely vulnerable. That’s why we have confidence, Zoom is becoming better and better. Again, it’s very secure. Those security companies that use Zoom for many, many years, today they also use Zoom as well.

Has this been a learning process for you? Because I think about your obsession with ease of use and getting it started super quickly, and this entailed doing some things that people didn’t like. For example, there was a scandal on macOS a few years ago, about how Zoom was taking advantage of certain system vulnerabilities to install itself and do different things, and I was actually pretty sympathetic to your position in that case. It was like, “The whole idea is someone should be able to join a meeting seamlessly”, but did you have to sort of — we started out absolutely optimizing for ease of use and having a good product, but there’s questions about security, questions about user expectations, that means we have to diminish that to a degree. Has that been a challenge to work through?

EY: Ben, you are so right on. From the very beginning, our philosophy is do everything we can. Sometimes, to probably try to hack the system, just to see with just a one-click to make the product extremely easy to use. However, when more and more enterprise customers deploy Zoom, we had to change our principle, you have to balance. Sometimes, yeah, to see one-click is important, however you need to make sure there’s not any potential issue, any potential violation to the operating system. Sometimes we have to sacrifice usability for privacy or security, that’s exactly what we did, and we now think security or privacy even more important than that. So, again, we spend a lot of time sometimes introducing new feature. Internally, we build a lot, in a mixture to have a balanced approach.

Consumers and VR

You became a verb, one of the most aspirational goals for a company. You’ve penetrated not just enterprise but the consumer space. Is that an area where you’re like, “Okay, that was a fun little game, we became a consumer brand.” Do you have any aspirations in the consumer space long-term, or is it, “No, we’re an enterprise company. That was fun, but never again”.

EY: Ben, that’s a great question. Prior to COVID, I never thought about K-to-12 schools, like my daughter’s school, they are going to use Zoom, I never thought about that. However, during the COVID-19 crisis, given the K-to-12 students and also the grandparents, they all use Zoom. I realize it’s also very important, like a family reunion sometimes on the weekend and it’s very important.

Again, our focus and bread and butter still on the enterprise business customers. However, the consumers, prosumers are also very important for us because our common value is care. We build a product for what? We really care about the society, care about the community, make sure any event can leverage Zoom either for learn or play and work.

Yeah, I guess, Eric on the train, that was a consumer use case. That wasn’t necessarily an enterprise use case.

EY: That’s probably the most important use case.

Yeah, that’s right. One more question — I think one of the potential theses for VR in the future for enterprise is it gives a sense of presence, it’s better than just looking at you, we can actually feel like we’re in the same room. You’ve been very aggressive in launching an app on the Quest, launching an app on Apple Vision Pro, no problem for Apple getting you on board there. Is there an aspect of this where VR is maybe a long-term threat so you need to get on there quickly or do you think it’s fully compatible with you in the long run?

EY: I’m very excited about that. I talk about that vision a few years back, imagine a world where we live in the future, just literally one click, Ben, you and I, we can join a Zoom call. I shake your hands, give you a hug, you feel my intimacy and all those features and will be available in the future with VR and AR, and like a Vision Pro or Quest 3, just the beginning now. For the VR and AR era, it’s just the beginning point. In the next few years, I think there will be a lot of different worlds of VR and AR devices down the road and VR will be a huge part of the overall communication and collaboration experience.

Is Zoom going to keep being the independent underdog that can sell a Microsoft feature? Like I said, Slack got acquired, lots of other companies get to about your size and then they hit that wall. What’s the long term for Zoom? Are you confident you’re going to keep making it as you are?

EY: Ben, I truly enjoy talking with you, I still have a lot of energy, I want to build the best product for any user for the world. Either focus on the collaboration communication platform or focus on the business applications. Again, we look at everything from the customer perspective. How do you build a better product to make sure users are happy? In terms of a competitive landscape, we just focus on one thing, innovation. We want to spend more time talking to customers, users, we want to be the first vendor to come up with something very innovative. If we keep doing that, we’ll be okay.

I mean, I think so. I think it comes through in this call and I think it comes through in the product. Like I said, I’m a happy user. We’re doing this interview on Zoom, it’s worked well, my fans aren’t spun up, so everything’s good on my side.

EY: Ben, thank you. I’m a huge fan of your podcast, I listen to almost every podcast, really appreciate for your great job. Thank you so much, Ben.

Thank you for coming on. It was great to talk to you.

EY: Appreciate it. Thank you.

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