Zoom's massive 'overnight success' actually took nine years

(CNN Business) When you think of a social network, you probably imagine news feeds, birthday reminders and baby photos. But the social network of the moment -- the one that's currently getting more app downloads than either Snapchat or TikTok -- looks a little different: It's a videoconferencing service called Zoom (ZM), where many peoples' work and social lives now unfold.

As the coronavirus pandemic has forced millions around the world to stay in their homes, the 9-year-old platform has emerged as the go-to service for not only virtual meetings and classroom lessons but happy hours, costume parties, church services, brunches, book clubs and romantic dates. Like Facebook (FB) and Twitter (TWTR), it's also become a key part of internet culture: The Facebook Group "Zoom Memes for Self Quarantines," with nearly 395,000 members, offers a steady stream of jokes, ranging from a video of a student pretending Zoom is glitchy to get out of a homework assignment to a professor starting a lesson with cameos from stuffed animals.

From the start, Zoom aspired to stand out in a market of products that were probably more hated than loved. In a letter to shareholders included with its paperwork for going public a year ago, founder and CEO Eric Yuan talked about "how unhappy" people were with the videoconference tools on the market.

But that was before the pandemic. Now video conferencing tools have gone from the punchline of a dry office joke to a vital social lifeline -- and perhaps none more so than Zoom.

Zoom's free version can host up 100 video participants at once -- Microsoft (MSFT)-owned Skype's free model allows for 50 -- and features personalized tools, including the ability to pick from different backgrounds (whether it be the Golden Gate Bridge option or a picture you upload), change the camera angles, hold encrypted private calls, send direct messages and record sessions. If calls run over 40 minutes, users can pay $14.99 monthly for unlimited minutes; enterprise users are charged $19.99.

In recent weeks, Zoom has emerged as the most downloaded app on the Apple App Store, repeatedly breaking its download records. On Monday March 23, Zoom was downloaded 2.13 million times worldwide, up from 2.04 million the day before, according to app tracking firm Apptopia. Two months prior, the app had just under 56,000 global downloads in a day.

The company launched in 2011 when Yuan left Cisco as a founding engineer on its WebEx video platform, one of Zoom's rivals. In April 2019, Zoom went public and fared better than splashier tech companies such as Lyft and Uber, which held their IPOs around the same time. Zoom shares surged 72% on its first day of trading, giving it a market valuation of $16 billion. As of Friday, Zoom was valued at more than $40 billion, or roughly as much as Uber (UBER). (Unlike Uber, Zoom is actually profitable.)

From the start of its life as a publicly traded company, investors seemed to buy into Yuan's vision, as laid out his letter to shareholders: "video is the future of communications." But it looks like that future came much faster and more abruptly than anyone could have expected.

"This is a very critical moment," Yuan said on a conference call with analysts earlier this month. "Overnight almost everybody read and understood they needed a tool like this."

There are downsides, however, to such rapid growth and the added attention that comes with it. Like more traditional social networks, Zoom now faces concerns about privacy and online harassment. Already, the phrase "Zoombombing" has emerged for when bored, quarantined trolls and hackers overtake public video chats by displaying graphic content or racist comments to cause a stir. Chipotle, for example, confirmed to CNN Business that during its new public video chat series, Chiptole Together, a Zoom participant broadcasted pornography to all attendees. The company has since switched platforms. The incident was first reported by the New York Times.

At the same time, Zoom must work to keep its service up and running amid surging demand for online communication tools and social networks that has strained far bigger platforms, including Facebook (FB) and its corporate sibling Instagram.

To handle this surge, Zoom spokesperson Farshad Hashmatulla told CNN Business it relies on its data centers in 17 global locations, routing both audio and video traffic to these sites. He said the company's policy long before the health crisis has been to make sure it can support double its average daily peak of usage and have the ability to deploy tens of thousands of additional servers within hours if needed.

"We remain confident that our architecture is built to handle these growing levels of activity," Hashmatulla added.

'A moment of truth for the company'

When Yuan, a son of mining engineers in China, left Cisco to launch a product that was easier to use and more customizable than competitors, another one of his key focuses was building a company culture around promoting "happiness. "Very early on, we spoke about customer experience and culture; two things he really cared about," said Quinn Li, senior vice president of Qualcomm Ventures, an early Zoom investor. "He would write back to any customer that would write to him, which is very rare for a company CEO to do."

Li was impressed with Yuan's vision to build a product around technical precision from the ground up. "Because of Eric's experience at WebEx, he knew the video communication space super well," Li said. "He left to start Zoom because he wanted to launch the best user experience, so he architected the product early on to just do that."

Zoom now appears to be expanding its footing across industries quickly as the coronavirus pandemic continues. For example, the company is offering its services to K-12 schools for no charge in various countries. It also waived its monthly charge to all users in China.

"Zoom realizes it can accelerate their growth by several years right now," said Wayne Kurtzman, who tracks teleconferencing platforms for market research firm IDC. "This is a moment of truth for the company by stepping up in a way to allow people to be productive and be human -- and right now, it is."

Zoom is far from the only video chat app experiencing rapid growth. On Monday, Skype for iPhone had more than 500,000 downloads in one day; WebEx for iPhone had 89,000, according to Apptopia data. "Companies including Cisco, Microsoft and Slack have also been prepared for the days something like this could happen, where they would see exponential sales and growth," Kurtzman said.

Despite some technical bumps -- for example, Microsoft's chat and communications platform Teams experienced a major outage in Europe last week -- these key players have managed the growth remarkably well. But it is Zoom's ability to meet the needs of people working remotely and serve as a fun tool for socializing that has heightened it to rockstar status.

"Zoom is seeing the biggest increase because its product is easier and more robust than others and it's at right time when people really need it," Kurtzman said. "When it comes to work, people want the same ease of collaboration they get in the office or in person -- and [in many ways], Zoom delivers this."

Eventually, analysts say it will need to add new features to encourage people to pay for the service. For now, companies are largely cautious to roll out new tools as their remote teams get comfortable at home and remain focused on making sure everything works.

"Zoom is an overnight success nine years in the making ... but has, in my view, prepared for the long [haul] to support users both now and with future growth," Kurtzman said.