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Speaker 1: slash the number five stocks. Hi. I'm Carol Masser and
Speaker 1: I'm Jason Kelly. The cover story for this week's issue
Speaker 1: of Bloomberg Business Week is about Zoom, a company that
Speaker 1: brought simplicity to video conferencing and then it became the
Speaker 1: Pandemics social network. Well, Carol, it's so fascinating because before
Speaker 1: the coronavirus, this was a company that had just gone
Speaker 1: public with a business model catering really to businesses. Now
Speaker 1: it's become critical infrastructure for millions of the rest of
Speaker 1: us as we connect with our friends, family, colleagues, classmates,
Speaker 1: and customers during this unprecedented moment. That's so true, Jason,
Speaker 1: And if you haven't tried Zoom, I gotta say you
Speaker 1: may just be one of the few out there, because
Speaker 1: just about everybody is talking about it and they have
Speaker 1: used it A part of the charm Jason is really
Speaker 1: how easy it is to use it, and it has
Speaker 1: some fun features, like the ability to change your backdrop
Speaker 1: to say, a tropical beach. I gotta say I played
Speaker 1: with that. I know that that checks out? Do we
Speaker 1: mention how many people are now using Zoom. Instead of
Speaker 1: the ten million daily users that Zoom was seeing in December,
Speaker 1: now wait for it, two hundred million users are using
Speaker 1: the service every day. The CEO, eric Uan, told the
Speaker 1: magazine that even he's in too many Zooms, he has
Speaker 1: indeed well. The company's share price has obviously surged this year,
Speaker 1: but because it's popularity has spread at the speed of
Speaker 1: the pandemic, Zoom has also had an equally fast zoom lash. Yep,
Speaker 1: you heard it right, zoom lash over things like privacy
Speaker 1: mishandling of user data and also a few other concerns.
Speaker 1: It's a must read story. Here's Drake Bennett and Nico
Speaker 1: Grant story. It's called the Accidental Social Network. Eric Uan
Speaker 1: built Zoom into a tech unicorn in the unflashy business
Speaker 1: of enterprise communication, then suddenly the world needed it to
Speaker 1: be something else. By Drake Bennett and Nico Grant like
Speaker 1: the rest of us. Eric Uan is taking things day
Speaker 1: by day right now, the founder and chief executive officer
Speaker 1: of teleconferencing software company Zoom, gets up each morning after
Speaker 1: three or four hours sleep and nervously checks the previous
Speaker 1: day's capacity numbers to make sure the servers aren't overwhelmed
Speaker 1: by traffic. Then he begins the long slog of video
Speaker 1: conference calls from his Bay Area home. It's too many
Speaker 1: Zoom meetings, he says via Zoom. I hate that. Along
Speaker 1: with the crush of new users and the challenge of
Speaker 1: running a business during a pandemic, there's the deluge of
Speaker 1: negative news stories, the letter from the New York State
Speaker 1: Attorney General and the complaint from Connecticut Senator Richard Blumenthal,
Speaker 1: all accusing Zoom of mishandling or abusing user data while
Speaker 1: allowing hackers to run him up. It's not helping that
Speaker 1: with school and college canceled, you three kids are at
Speaker 1: home clogging up the WiFi. The other night he got
Speaker 1: an email from a mother about a troll who used
Speaker 1: Zoom to invade her kids virtual classroom and show inappropriate content. Afterward,
Speaker 1: he couldn't fall asleep. The only thing keeping you on,
Speaker 1: saying is his mom, who's been living with the family.
Speaker 1: Each day for lunch, she brings him a noodle or
Speaker 1: rice dish she's made upbraiding him when he forgets to
Speaker 1: eat it, And if Juan has time after dinner, mother
Speaker 1: and son take a walk in his backyard. I tell
Speaker 1: myself every morning when I wake up two things, Yuan says,
Speaker 1: don't let the world down. Don't let our users down.
Speaker 1: A month ago, his company was merely a fast growing
Speaker 1: success story in the somewhat boring universe of enterprise communications. Today,
Speaker 1: suddenly Zoom is critical infrastructure. As billions of people around
Speaker 1: the world socially distanced. To blunt the toll of the coronavirus,
Speaker 1: those lucky enough to still have jobs are trying to
Speaker 1: work them from home. To do so, they're turning to
Speaker 1: remote collaboration tools. Messaging platforms such as Slack and video
Speaker 1: conferencing software like Cisco WebEx, Microsoft Teams, and especially Zoom
Speaker 1: have seen explosions in traffic. Every day is a record,
Speaker 1: Yuan says. Zoom's daily users ten million in December now
Speaker 1: number two hundred million. The company's share prices climbed seventy
Speaker 1: in the same period, doubling from early February to late
Speaker 1: March before dropping off even as markets and the global
Speaker 1: economy have been pummeled. Zoom's new traffic isn't just from
Speaker 1: workplace conference calls. It's simple interface users enter a meeting
Speaker 1: with one click has made it perfect for millions of
Speaker 1: people who want to maintain at least a diluted form
Speaker 1: of human contact. Schools and colleges are teaching classes on Zoom.
Speaker 1: Alcoholics anonymous groups are using it to hold meetings. People
Speaker 1: are going to Zoom family reunions and happy hours and
Speaker 1: trivia nights. They're dating, talking to therapists, and having birthdays
Speaker 1: in photos his sister posted on Twitter. Hunter Lee, a
Speaker 1: Walmart food sales associate in Greensburg, Pennsylvania, celebrated turning twenty
Speaker 1: one with family and friends looking out from the corner
Speaker 1: of the room, their webcam images tiled on the screen.
Speaker 1: A few days earlier, British psychiatrist Rob Baskin zoomed into
Speaker 1: the funeral of his mother, who had succumbed to the virus.
Speaker 1: For many, Zoom has become not just a way to socialize,
Speaker 1: but the social fabric itself. Yuan is as surprised as
Speaker 1: anyone else at this turn of events. He didn't set
Speaker 1: out to create a business that would be a household
Speaker 1: name in these circumstances or any others. And while it's
Speaker 1: a testament to the technology that it has mostly handled
Speaker 1: a twentyfold surge in usage in other ways, the company,
Speaker 1: like many others, was blindsided by the past few weeks.
Speaker 1: I never thought that overnight the whole world would be
Speaker 1: using Zoom, he says. Unfortunately, we did not prepare well
Speaker 1: mentally and strategy wise. Historically, giant communications networks Facebook, Twitter, A,
Speaker 1: T and T have all had their growing pains, but
Speaker 1: none had to go through them in just weeks. In
Speaker 1: times as vertiginous as these, even success can be brutal.
Speaker 1: Yuan has always been frustrated by the inconvenient fact of distance.
Speaker 1: The younger son of husband and wife mining engineers, he
Speaker 1: grew up in China's Shandong Province, a peninsula extending into
Speaker 1: the Yellow Sea. Studying math and computer science at Shandong University,
Speaker 1: he had to take a ten hour train ride to
Speaker 1: see his girlfriend, a problem he solved by marrying her.
Speaker 1: At twenty two. Yuan, now fifty, idolized Bill Gates and
Speaker 1: was determined to work in Silicon Valley. His visa application, though,
Speaker 1: was denied on his first try and on the next
Speaker 1: seven after a bureaucratic mix up. It took nearly two
Speaker 1: years of persistence, but on the ninth attempt he got
Speaker 1: into the US. Yuan found a job in California at WebEx,
Speaker 1: then a start up. By the late ninety nineties, technology
Speaker 1: had made real time video chat long a sci Fi staple,
Speaker 1: a reality, and web X was among the first companies
Speaker 1: to make a working product. Yuan was one of ten
Speaker 1: engineers when he joined web X, and by the time
Speaker 1: Cisco Systems acquired it a decade later, he was vice
Speaker 1: president for engineering, managing eight hundred workers. Seeing the rise
Speaker 1: of the iPhone and its imitators, he became convinced the
Speaker 1: company needed a product that worked on mobile phones, not
Speaker 1: just PCs. Cisco's leadership didn't agree, and Yuan left in
Speaker 1: twenty eleven to found Zoom Video Communications, Inc. Taking a
Speaker 1: contingent of engineers with him. Headquartered in San Jose, Zoom
Speaker 1: built a research and development team in China, where engineers
Speaker 1: would work for far less than their American counterparts. Yuan
Speaker 1: personally contacted every company that considered Zoom, but went with
Speaker 1: a competitor, something he still does. Zoom was appealing in
Speaker 1: part because it was a neutral platform. It wasn't tethered
Speaker 1: to Apple like face Time or Google or Microsoft like
Speaker 1: hangouts in Skype. Anyone, even someone without an account, could
Speaker 1: join a meeting from any device just by clicking a
Speaker 1: link in a text or email. Hosts could record video
Speaker 1: and audio and generate transcripts, and it was easy for
Speaker 1: people to screen share. If you can keep your meetings
Speaker 1: under forty minutes and one participants, and honestly, please do,
Speaker 1: you can use Zoom for free. Clients who pay a
Speaker 1: monthly fee of nineteen dollars per meeting host can gather
Speaker 1: as many as a thousand people on a single video call.
Speaker 1: In addition, the technology offers users a flattering soft focus
Speaker 1: mode and the menu of digital backdrops the Northern Lights,
Speaker 1: the Golden gate Bridge of Pristine Beach. These panoramas free
Speaker 1: home users from worrying about whether they're half dressed, spouse
Speaker 1: and children are in the webcam siteline. Customized Zoom backdrops
Speaker 1: are canvases for self expression, and the art form has
Speaker 1: already grown baroque. A video producer named Dan Crowd created
Speaker 1: one recently that looks like a normal office, but as
Speaker 1: a Trump Loy animation, in which the door opens and
Speaker 1: crowd himself walks in obliviously interrupting his own meeting in
Speaker 1: a world of philosopher CEOs promising to transform the human
Speaker 1: condition through ride hailing or renting shared workspaces. Yuan is
Speaker 1: passionate about video conferencing software and uninterested in declaiming on
Speaker 1: other topics. After Zoom's valuation surpassed one billion dollars in seventeen,
Speaker 1: he publicly scoffed at the unicorn label, saying it didn't
Speaker 1: mean anything unless the business continued to grow. When Zoom
Speaker 1: went public in April nineteen, shares jumped se on the
Speaker 1: first day of trading, giving it a value of sixteen
Speaker 1: billion dollars and you on a net worth of three billion.
Speaker 1: He went on Bloomberg Television complaining that the price is
Speaker 1: too high and implored employees to get back to work. Today,
Speaker 1: the company's market capitalization is about thirty two billion dollars.
Speaker 1: Zoom had an early glimpse of the coronavirus at work
Speaker 1: the company. These Chinese offices and R and D facilities
Speaker 1: closed in late January they've since reopened. We were thoughtful
Speaker 1: and a little bit paranoid about what was to come,
Speaker 1: which has turned out to be a good thing. Kelly Steckelberg,
Speaker 1: the company's chief financial officer, says by Zoom from her home.
Speaker 1: Zoom was quick to shutter its San Jose headquarters, sending
Speaker 1: employees home two weeks before Santa Clara County issued its
Speaker 1: shelter in place order, a decision that was admittedly easier
Speaker 1: for a video conferencing technology company. After Japan and Italy
Speaker 1: closed schools in late February and early March, Zoom removed
Speaker 1: the time limits on its free products for educational institutions
Speaker 1: in those countries. It continued to do so as school
Speaker 1: shut down spread globally. Still, Yuan thought the disruption would
Speaker 1: be brief. Then in mid March, his kids schools closed.
Speaker 1: When Zoom's daily users passed one million, he began to
Speaker 1: realize what the crisis would mean for his company. Since then,
Speaker 1: it's been a dead sprint to cope with the ballooning demand.
Speaker 1: When you're on a Zoom meeting, the app adjusts bandwidth
Speaker 1: so that one participant's poor signal doesn't degrade another user's experience.
Speaker 1: Zoom does this by linking each participant to the closest
Speaker 1: of seventeen data centers it rents worldwide. If one center
Speaker 1: is overloaded, it sends traffic to the next closest. To
Speaker 1: keep up with its new audience, the company has added
Speaker 1: two data centers, and it's been buying more of the
Speaker 1: cloud storage capacity it uses for surge protection. Zoom relies
Speaker 1: heavily on Amazon Web Services, as well as on Oracle
Speaker 1: for cloud computing. So far, these efforts have paid off.
Speaker 1: There have been complaints of poor call quality, and Zoom's
Speaker 1: website was briefly down for maintenance, but the platform has bent,
Speaker 1: not broken under the new demands. On other fronts, Zoom
Speaker 1: has looked less deft. Its sudden prominence has brought at
Speaker 1: the attention of security researchers and privacy advocates, and the
Speaker 1: last week of March saw a steady stream of damaging revelations.
Speaker 1: On March twenty fourth, Consumer Reports detailed how z Whom's
Speaker 1: privacy policy let it share the content of video chats
Speaker 1: with ad tracking companies. The piece highlighted how hosts don't
Speaker 1: need participants permission to record videos or make and share
Speaker 1: transcripts hosts can read texts that participants exchange on the
Speaker 1: apps chat function to The publication also noted Zoom's Panopticon
Speaker 1: like attendee attention tracking tool, which alerted a host if
Speaker 1: people clicked over to a different window on their computers
Speaker 1: for more than thirty seconds, suggesting they were otherwise occupied.
Speaker 1: Two days later, tech site Motherboard revealed that Zoom's iPhone app,
Speaker 1: which was built using Facebook software, was sending user data
Speaker 1: to the social network giant without alerting users. On March thirty,
Speaker 1: former National Security Agency hacker Patrick Wardle blogged about flaws
Speaker 1: that would let attackers put malware on a computer or
Speaker 1: hijacked the webcam and microphone. The next day, the website
Speaker 1: The Intercept reported that while Zoom claimed to guard user
Speaker 1: data using end to end encryption, the strongest available privacy
Speaker 1: per section, that wasn't true, and on April third, University
Speaker 1: of Toronto researchers published a paper revealing that the company
Speaker 1: sometimes routed meetings through servers in China even when all
Speaker 1: the participants were outside the country, raising the possibility that
Speaker 1: Chinese authorities might try to listen in. Zoom was also
Speaker 1: attracting the interest of trolls elementary school teachers getting their
Speaker 1: classrooms up and running found their sessions disrupted by zoom bombers,
Speaker 1: with malicious interlopers joining to shout racist epithets or screenshare pornography.
Speaker 1: New York City's school system, the largest in the country,
Speaker 1: has banned the service, shifting to Microsoft teams and Google hangouts.
Speaker 1: Meet White supremacists started zoom bombing virtual Torah sessions and
Speaker 1: webinars on anti Semitism with images of swastikas. The company
Speaker 1: has since amended its privacy policy to make clear that
Speaker 1: video and chats would not be shared, updated its iPhone
Speaker 1: app to stop sending data to Facebook, and patched the
Speaker 1: vulnerabilities that Wardle found. On April one, Chief product officer
Speaker 1: oded Gal addressed the encryption issue in a repentant, if
Speaker 1: euphemism plagued post on the company blog. While we never
Speaker 1: intended to deceive any of our customers, he wrote, we
Speaker 1: recognize that there is a discrepancy between the commonly accepted
Speaker 1: definition of end to end in encryption and how we
Speaker 1: were using it. Later that day, Yuan posted his own
Speaker 1: apology and said that Zoom would probe for further security weaknesses.
Speaker 1: Remove the attention tracker, offer training against Zoom bombing attacks,
Speaker 1: changed the default screen sharing settings to make things harder
Speaker 1: for trolls, and issue a transparency report detailing government data requests.
Speaker 1: When the University of Toronto report was published on April third,
Speaker 1: Uan responded the same day, blaming the China server issue
Speaker 1: on zooms scramble for capacity and announcing that the company
Speaker 1: had corrected it. On April four, Zoom users got an
Speaker 1: email telling them that all meetings would now automatically have passwords.
Speaker 1: Yuan argues that Zoom's issues stem not just from its
Speaker 1: explosive grow oath, but also from the new types of
Speaker 1: users flocking to it. We built this as a platform
Speaker 1: for knowledge workers for businesses with I T departments, he says,
Speaker 1: sitting against a digital backdrop of the San Francisco Hills
Speaker 1: that he obscures as he leans into his webcam. For
Speaker 1: Zoom users in non pandemic times, he goes on, there
Speaker 1: would be a tech support person helping them set up
Speaker 1: their screen sharing settings and reminding them to have a
Speaker 1: password in a work setting, for better or worse. We're
Speaker 1: more resigned to the idea that our boss will snoop
Speaker 1: on us, so that we don't slack off. Unlike elementary
Speaker 1: schools and happy our organizers, Zooms corporate clients have their
Speaker 1: own data and privacy policies, and at the office even
Speaker 1: neo Nazis try to watch their language. Yuan's explanations are
Speaker 1: more convincing for some lapses than others. If anything, expectations
Speaker 1: should be higher for a collaboration app given that it
Speaker 1: engages with sensitive data. I'm granting access to a camera,
Speaker 1: a microphone, to the screen, everything that happens on the computer,
Speaker 1: says Ralph, a longtime chief information officer now at electronics
Speaker 1: manufacturer Lamentum. Zoom, in other words, should be the last
Speaker 1: company to be casual about security. It may be that
Speaker 1: the main trait that let Zoom succeed is now haunting it.
Speaker 1: Its focus on simplifying the arcane and buggy process of
Speaker 1: video conferencing has created a product that's also simpler for
Speaker 1: others to manipulate. Yuan concedes that there could be a
Speaker 1: tension between security and simplicity. It may be time to
Speaker 1: revisit that, he says, Although it's hard to imagine, at
Speaker 1: some point the pandemic will end, Will Zoom go back
Speaker 1: to being a corporate video conferencing company. I have no answer,
Speaker 1: Yuan says. His board asked him that a few days earlier,
Speaker 1: and he told them the same thing. Currently, while many
Speaker 1: new users aren't paying for the service, some have sprung
Speaker 1: for Zooms paid tiers, and some corporate clients upgraded when
Speaker 1: they sent their workforces home. On April one, Alliance Bernstein
Speaker 1: analyst Zane Crane said the pandemic could generate a few
Speaker 1: hundred million in additional revenue. That's on top of the
Speaker 1: more than five million dollars Zoom predicted for the coming
Speaker 1: fiscal year in its last earnings call, a Zoom webinar
Speaker 1: held on March fourth, just after it closed its headquarters.
Speaker 1: Given the choice, Uan makes clear this isn't the path
Speaker 1: he would have chosen for himself or for the company,
Speaker 1: But he says he no longer pretends he's in control.
Speaker 1: You can't go back. That would not be responsible for now.
Speaker 1: We have to embrace this new paradigm and figure out
Speaker 1: how to make it work. Zoom is now owned by
Speaker 1: the whole world, he adds. Then he has to go.
Speaker 1: It's lunchtime and his mother is patiently waiting, and that's
Speaker 1: the accidental social network it's this week's cover story, written
Speaker 1: by Drake Bennett and Nico Grant Jason. It's a must read.
Speaker 1: Check out that story and all of the stories that
Speaker 1: are in the magazine also at bloomberg dot com and
Speaker 1: on the Bloomberg Terminal, and be sure to check out
Speaker 1: our daily radio show that's two to six pm Wall
Speaker 1: Street Time on Bloomberg Radio.