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Zoom’s Fatal Flaw

In exchange for viral growth, the video conferencing startup left itself open to copycat competitors

Sameer Singh
Marker
Published in
8 min readApr 20, 2020

Photo: Allie/Unsplash

Over the past couple of months, the coronavirus pandemic has led to a dramatic increase in the demand for remote work tools. Zoom has been one of the biggest beneficiaries of this shift, with daily active users growing from 10 million in the last quarter of 2019 to a staggering 200 million in the first quarter of 2020. This has also led to a surge of investor and startup activity in the remote workspace.

As an investor and adviser, I’ve received numerous questions lately about Zoom from entrepreneurs and other investors. The main question I receive is how strong are Zoom’s network effects? A network effect describes the increasing value of a product as more users begin to use it. Network effects tend to be one of the strongest forms of defensibility for a product because the presence of more users on the network helps prevent churn. In the case of platforms like Airbnb, a strong network effect creates defensibility by forcing rivals to challenge them at a much larger scale (in the case of Airbnb, on a global scale).

In other words, people were asking me if the new surge in user adoption on Zoom made it more a valuable product, which in turn made it more difficult for competitors to copy or challenge. While this is an interesting topic to explore, it is the wrong question to ask about Zoom. The right question is this: Does Zoom even have network effects?” And if it doesn’t, then what makes it defensible from the competition?

Zoom isn’t the new Slack

Zoom’s business model is often conflated with Slack even though they are distinct products. Slack’s business model has a lot of similarities with Github in the way it combines SaaS (software as a service) and network effects. Slack also has two different forms of network effects that come into play at different stages of its customer adoption cycle.

Slack’s adoption cycle often begins with individuals within a team who use the free version of the software to collaborate with each other. If only one collaborator signs up for Slack, it has no value because they cannot use it to communicate with anyone else. If two collaborators sign up, they…

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Marker
Marker

Published in Marker

Marker was a publication from Medium about the intersection of business, economics, and culture. Currently inactive and not taking submissions.

Sameer Singh
Sameer Singh

Written by Sameer Singh

Network Effects Investor, Venture Partner @ Speedinvest, Instructor @ Reforge, Atomico Angel. Please direct all pitch decks to sameer@breadcrumb.vc.

Responses (3)

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I’m confused by your definition of network effects, especially compared to virality and lock-in.
As the resident nerd, I’m being asked left and right to help set up Zoom, because others are using it and setting up group calls. To me, that’s network…

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Zoom’s core value proposition is built on enabling frictionless communication with users who are not in its network. This means that the value of Zoom’s product is always the same, irre...

But couldn't zoom build features that make the product more rewarding for existing users? To add network effects?
For example, consider making th rigamarole of inviting people via email to a video chat and passing through a waiting room. Zoom could…

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