With over 300 million active participants daily on their platform (Reuters 4/30/20)₁, Zoom has emerged as a story of huge disruptive innovation across the globe. It has gained worldwide adoption from companies (big and small), to remote learning (elementary through university), to entertainment (e.g., Tonight Show and Conan Zoombombing Tibco)₂, and to personal gatherings (e.g., grandparents calls, virtual happy hours, etc) . Zoom is even now a verb (Philadephia Inquirer 4/29/20)₃. For those not familiar with Zoom, it is a San Jose based publicly traded video conferencing company founded in 2011 by Eric Yuan. They launched their software in 2013, first became profitable in 2019, and joined the Nasdaq-100 in April 2020 (Zoom Wikipedia)₄. Zoom is a story of disruptive innovation. While the word “disruptive” is often used in Silicon Valley and the startup community, this paper will use the “disruptive innovation” definition and frameworks as defined by Clay Christensen, the late author of “The Innovator’s Dilemma” and professor at Harvard Business School₁₀.
Jobs To Be Done
Technology by itself is not disruptive. Rather, disruptive innovation occurs when a technology or capability does a JOB for a consumer better than all other products. While products come and go, the Job To Be Done (JTBD) does not change often. Various solutions can be “hired” or “fired” to meet the need. For example, the need to meet with people has existed for thousands of years. While in-person meetings are a great fit to meet this need, remote populations require travel and geographic nearness to complete this task. Video Conferencing products simulate the in-person meetings to be “hired” to get the Job To Be Done for those separated by distance. The pandemic created a seismic impact to connect 100s of millions of remote people. This opened huge opportunities for the tech giants in the crowded video conferencing industry to be “hired” to meet the need. With the plethora of solutions available from leading companies, why was Zoom “hired” as the first choice? The concept of disruptive innovation highlights that successful newcomers understand the job to be done, recognize the incumbent gaps, and deliver a product to be “hired” for the job better than anyone else. Zoom delivered a product as a perfect match for the JTBD.
I have used and implemented many video collaboration solutions throughout my career. In 1999, I remember experiencing the ground-breaking PictureTel solution at UCLA Telemedicine while presenting to Goldman Sachs investors. In 2006, I had a PolyCom video conference unit in my office to stay in sync with our Disney bi-coastal teams. Moreover, WebEx provided a wonderful combination of desktop sharing, chat, and video during my years at Disney and Kaiser Permanente. The most impressive solution was at Kaiser where they had high-end beautiful Cisco Webex conference rooms. My first exposure to Zoom occurred in 2017 as a CIO when I deployed Zoom to every desktop and conference room across the globe. I did it again as CIO at another company in 2019. I selected Zoom because they delivered on all four aspects of the Job To Be Done better than all others: Job To Be Done, Experience, Integration, and Purpose.
Figure 1 - Jobs To Be Done Framework ₁₀
Jobs To Be Done - This describes what consumers need to get done. When Eric Yuan started Zoom in 2011, many advisors suggested that the market was too overloaded and that competing in the market was risky. Eric engaged consumers and discovered early on that many small to medium company users were dissatisfied with the existing video collaboration products (StartupGrind 2019 interview)₅. They complained of choppiness of video, cost of high-end video conferencing, issues with the product user interfaces, and features they did not need. Despite incumbent dominance in the marketplace (e.g., Microsoft and Cisco), Eric recognized an opportunity for these users.
Experiences - This describes the experiences that consumers want in getting their job done. I still remember one remote user who told me how she shifted from a 2nd class to a 1st class citizen because Zoom helped her fully participate in large collaboration meetings. It’s no surprise that Eric’s LinkedIn motto is “Delivering Happiness to Our Users.” Eric elaborated on these consumer experiences in his Startup Grind 2019 interview ₅:
Ease of use - The DNA of Zoom focuses on making their product user friendly with a spirit of iterative enhancements. While Zoom’s original customer target was companies, he described how he wanted to make Zoom as easy to use as Facebook, a consumer driven platform. Moreover, they constantly listened to user feedback and enhanced the products all the time.
Smooth Video - Having been a WebEx engineering leader in a prior life, Eric was well-versed in the technical challenges to get smooth video on typical desktops. For example, he described how his company used assembly language in various cases to ensure high quality video ₅. In contrast, the incumbents invested heavily into upmarket companies who could afford their heavyweight solutions which generated higher margins per customer.
Cost effective - Zoom provided a cost model that was palatable for both individuals and small/medium sized businesses.
Integration - These are pieces that need to be connected to make purchasing easy and to enable the desired consumer experiences. I’ve listed a few examples below:
Straight-forward Purchasing - In addition to providing a compelling user experience, Zoom offered a simple monthly or annual model for users to purchase their product for both enterprise and individuals directly from their website. In contrast, incumbents often required packaging with other products to use effectively (e.g., Microsoft Skype with their E3 package).
Integrating Forward - With Zoom’s laser focus on consumers, they recognized that their product needed to integrate with other platforms for the JTBD. Based on consumer demands, this resulted in a slew of strategic integrations including Slack (which goes head-to-head with Microsoft Teams), Youtube Live Integration for webinars, and optional dictation with Otter.ai. Moreover, their entire organizational processes and structure are geared to deliver customer happiness from top to bottom (touched on later in this paper).
Purpose (Brand) - One needs to create a brand that people immediately think of when they need to “hire” a product for the JTBD. Just like Xerox is synonymous with photo copying, Zoom has become synonymous with video conferencing. Many users who did not even know Zoom prior to the pandemic, now use Zoom as a verb for video conferencing ₃ . A big part of this brand connection is the result of Eric’s laser focus on user happiness ₅. Zoom listens intensely to customers and evolves their product to be the best “hire” for the JTBD.
Low-End Disruption Beats Sustaining Innovation
Now that it is clear why Zoom was “hired” by so many consumers for their JTBD, let’s look at why the incumbents with deep pockets did not respond sooner to the incursion into their markets. Prior to the pandemic, I led two enterprise-wide Zoom roll-outs at two companies including Zoom Room-enabling every conference room across the globe. Zoom’s competitors included Cisco Webex, Facebook Messenger, Google Meet, Microsoft Skype, and GoToMeeting. I always wondered why the tech giants were not competing in the small to medium company markets. Certainly Cisco and Microsoft had the enormous cash stores to quickly enhance their product to compete with Zoom. Yet, it seemed like there was little investment and interest to enhance their products for the small to medium companies. As I learned from Clay, low-end disruptive innovation often beats sustaining innovation.
Figure 2. Low-End Disruptive Innovation vs Sustaining Innovation ₁₀
Clay describes how “low-end disruptive innovations take advantage of markets in which existing products offer more performance than many customers want or need.” Incumbents drive their Sustaining Innovation where the pace of technology progress eventually overshoots what a consumer really needs (i.e., performance surplus). As the incumbents progress, they continue to focus on the highest revenue customers (in this case, bigger companies) who are willing to pay a premium for their products. I still remember the amazing high-end Cisco WebEx conference rooms at Kaiser where I experienced the closest simulated in-person video conferencing ever (the conference rooms simulated sitting across the table from others with eye to eye contact). Clearly, the incumbents with these cutting-edge products could sell to bigger companies with bigger margins. In contrast, smaller companies weren’t willing to pay the premiums for the extra features for the premium products. Meanwhile, Zoom recognized the right experiences and integrations that smaller companies were looking for (e.g., getting rid of choppy video on desktops, user-friendliness, easy purchasing, etc). Zoom met the user needs so well that even some companies that had incumbent licenses still chose to purchase Zoom. I met numerous technology leaders who had full Skype licenses through Microsoft enterprise packages, but still chose to purchase Zoom. The story of low-end disruption beating sustaining innovation has played itself out again and again in history (e.g., Netflix beating Blockbuster). Of course, incumbents that recognized the threat of the low-end disruption often fared better (e.g., Intel with their Celeron chip for the low-end market) ₁₀.
If the pandemic had not occurred, I believe Zoom would continue displacing the major incumbents and the incumbents would continue to move up-market until they were pushed out (or acquired Zoom at high cost). Alas, the pandemic triggered a new market disruption for Zoom which enabled them to tap into a massive new consumer-base across the globe who never used video conferencing before (i.e., non-consumers). The ingredients that made Zoom so good at getting the JTBD for small to medium companies was a perfect match for many others in all walks of life (e.g., remote-learning, family gatherings, happy hour, entertainment, etc). No surprise, this massive new market growth caught the attention of the incumbents and tech giants of the world (e.g., Facebook, Google, Microsoft, and Cisco) and they are accelerating to enhance their products today to compete with Zoom ₈.
Good Money vs Bad Money
Startups focus heavily on how much money they can receive while also minimizing loss of control. Another critical dimension is differentiating between Good Money and Bad Money. For companies in the Market Creation Phase, Clay describes how Good Money “must be patient for growth but impatient for profits.” Emergent ideas are being nurtured during nascent years and the focus should be on the product with a business model that can make profit without the pressures of growth. In contrast, for these companies Bad Money occurs when the investment is inpatient for growth, and patient for profit. In this case, it’s better that a company has no money than Bad Money. In Zoom’s early years, they clearly had Good Money to develop their product and business model. Zoom spent two years to build their product from 2011 to 2013 with investors that did not pressure for growth. Then, once their winning strategies became clear with their product and business model, they quickly shifted their investment from 2013 to 2019 to focus on growth with a winning strategy (i.e., inpatient for growth and patient for profits). Getting the right investors with Good Money propelled them to turning a profit in 2019 and entering the Nasdaq 100 in April 2020 ₄.
Zoom’s Core Competencies and Next Steps
Companies that are effective at delivering products that get the JTBD best for consumers have the perfect set of core competencies in three dimensions: Resources (e.g., people, brand, and money), Processes (not just documented processes, but all successful tasks that people do automatically from top to bottom; includes culture), and Profit Formula (e.g., not just how their product makes money, but also how every employee prioritizes their work day to day). From Zoom’s inception, Eric Yuan has been fearless with his entire company focusing on making his customers and employees happy (Motley Fool, 10/24/2019)₆. At Startup Grind 2019 ₅, Eric described how he spoke personally in the early years to every customer who canceled their contract to find out how they could do better. Many of these companies are still customers today. From a CIO perspective, I personally experienced excellent customer support on my two global Zoom deployments and they expressed a deep interest to make my companies happy. Zoom established the right resources, processes, and profit formula to dominate the market-place.
Clay describes how the strategy development process can be applied through the lens of three phases: Market Creating Phase (determining product for the job to be done; requires an emergent strategy) , Sustaining Phase (their product is deployed and proven model focusing on beating competition; requires a deliberate strategy), and Efficiency Phase (mature products with focus on lower prices and increasing volume of sales). With Zoom in the Sustaining Phase, they are executing their successful proven strategy with a deliberate strategy. They have the product, core competencies, and business model to scale based on their winning formula. However, as they accelerate their well-oiled machine with this proven recipe, they need to juggle that deliberate approach with an emergent strategy to handle unexpected factors. In March 2020, The Intercept highlighted that Zoom’s end-to-end encryption claim was misleading which created a firestorm in the media ₁₁. While this would be a serious concern for highly regulated industries that required the most secure form of internet communication (e.g., healthcare), most Zoom consumers didn’t require this security level. Nevertheless, the end-to-end security claims sprinkled throughout Zoom’s marketing materials created a huge problem (especially for their new consumers). Zoom quickly froze their deliberate strategy for new product features and focused all product development on this emergent security/privacy issue. They initiated a 90 day plan focused on Security/Privacy, marshaled Alex Stamos in April 2020 (former Facebook security leader), and acquired Keybase in May 2020 (a leading security company) ₇. I believe that Zoom’s rapid response will not only address their immediate consumer security concerns, but also will open new market opportunities in highly regulated industries such as healthcare.
Zoom's response to the emergent security issues demonstrates that they have strategic development processes to juggle both their deliberate strategy and emergent strategy which directs and prioritizes their resources to focus on the right priorities at the right time. As they continue to grow and enter new markets, many more emergent issues will arise which requires rapid shifts between their deliberate and emergent strategies. Strengthening and evolving Zoom's strategic development process will be critical.
Incumbents Core Competencies and Next-Steps
The massive success of Zoom has gotten the attention of all major incumbents and tech giants such as Microsoft, Google, Facebook, and Cisco. In April 2020, CNN₈ described how” Facebook and Google are gunning for Zoom.” Facebook launched Messenger Rooms to allow up to 50 people to video conference with no time limit. Google expanded Google Meet for free with up to 100 people with no time limit. While the tech giants have the deep pockets to quickly enhance their products, a critical question is whether they have the three core competencies of resources, processes, and profit formula to be hired for the JTBD. Clay asserts that large companies cannot disrupt themselves. Often the well-established core business of a company does not have the right core competencies to deliver a truly disruptive innovation. If the shoe doesn’t fit, any attempt to force a disruptive innovation into their core business greatly diminishes their ability to compete. History has a plethora of examples where incumbents failed despite having plenty of resources, but not the right core competencies (e.g., Blockbuster vs Netflix). Instead, these incumbents should consider creating a separate business unit that has the right resources, processes, and profit formula to win the market. The business unit can either be built or created through acquisition with a keen focus on getting the core competency foundation right.
The pandemic has accelerated Zoom to the forefront for global video collaboration in enterprises and households across the globe. The company has also established a great roadmap for how startups can successfully compete in both low-end and new marketplaces. Meanwhile, the major tech giants are leaning in to compete to meet the needs of the massive new remote workforce and to enable digital social nearness (“Social Distancing: A Catalyst for Digital Transformation”, 4/21/20) ₉. Clay describes how disruptive innovation is not an event, but a process. The story of Zoom’s disruptive innovation has been a process and continues to unfold. In the meantime, let’s keep Zooming!
Thank you Lorcan Hall. The concepts of Clay's disruptive innovation are truly eye-opening and immediately applicable across industries. I agree that the Zoom Video Communications analysis will be valuable to Eric S. Yuan as he continues his amazing job of juggling their deliberate and emergent strategies. It will also be interesting to see how the tech giants such as Facebook, Microsoft, Cisco, and Google respond to the massive new market disruption.