Disrupting Zoom: Startup Opportunities

Introduction

Zoom grew from 10 million daily active participants to more than 300 million daily active participants between Dec 2019 and Apr 2020. In the same period, Google Meet scaled up to more than 100 million daily active participants while Microsoft Teams scaled up to more than 75 million daily active users. (The difference between “users” and “participants” is that users are unique while participants are not.) [link]

Research has shown that it takes a minimum of 21 days for a new habit to take root. Moreover, when we look across a large category of habits, its takes approximately 66 days to build a new habit. When done repeatedly, an activity gets ingrained in the brain (and new neural pathways get formed) in approximately two months. [link] Given this, we can expect heavy video usage over the last few months to have a lasting impact. Analogous to how mobile-first perspective changed the world of products and services, video-first perspective is likely to have similar impact on products and services.

As an entrepreneur, if you want to jump on the video-first products/services bandwagon (referred to as video-first products going forward), what should be your strategy? How can you identify opportunities that will allow you to side-step not only Zoom but also other powerful incumbents such as Google Meet and Microsoft Teams (plus Adobe Connect, Cisco WebEx, LogMeIn Go To Meeting, Microsoft Skype, etc.)? Combined with their strong distribution networks and pricing power (Google Meet is available for free till Sep 2020), it does not make sense to compete head-on with these incumbents.

Given this, what are the best ways for startup founders explore the video-first product space?

Value Graph

Everything we do in life has a combination of “needs” and “wants”. This is true not only for the personal activities (think about the needs and wants one balances while purchasing a car) but also for the business or work context. Let’s look at a work-related example for this. Let’s say a SaaS company is looking for a solution for managing subscriptions — sending invoices, collecting recurring revenues, and so on. How would the company choose the product? This is an important decision because it not only pertains the revenue flowing into the company but also to managing an important touch point with the customers. So, the SaaS company would likely want to use a trustworthy product that has proven itself in the market. Now, let’s say the business grows and the need arises to manage emails and other forms of communication with customers. For this, the company will look for a platform that not only meets its needs efficiently but also one that doesn’t cost too much (from the total cost of ownership point-of-view).

In order to enable startups to systematic leverage“needs” and “wants” to make decisions, we need to convert them from qualitative attributes to quantitative measures. We can quantify them by looking at the “frequency of activity” and “important of activity” for the “needs” and “wants”, respectively.

Let’s start by defining the scale for “frequency of activity”. Activities that correspond to daily (or a few times a week) use-cases are considered to have “high” frequency of activity; weekly (or a few times a month) use-cases have “medium” frequency of activity; all other use-cases have “low” frequency of activity. The scale for “importance of activity” can be defined likewise. Activities that have large implication and, therefore, require consultation with other stakeholders (such as family members or corporate committees) can be classified to have “high” importance of activity; tasks that trigger users to diligently evaluate pros/cons amongst alternatives as “medium” importance; utility-like tasks that can be performed without much thought are “low” importance tasks.

The following Value Graph shows various work-related activities along the “needs” and “wants” dimensions (from top-left to bottom-right). Sales tools, taking loans, billing and collections, and vendor payments have high importance but lower (once-a-month) frequency. (In some cases, this would be higher; if so, the activities should be mapped accordingly.) On the other end of the spectrum are high frequency and low importance activities such as customer support management, customer engagement management, and video conferencing. Other activities such as ERP for resource planning (across purchasing, manufacturing, distribution, etc.), MRO (Maintenance, Repair, and Operations) purchases, CRM for managing customer interactions, and marketing automation have medium (weekly) frequency and medium importance. In addition, the Value Graph shows talent management and intra-company communications on top-right (high frequency and high importance) and travel expense management and conference participation on bottom-left (low frequency and low importance).

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Based on the Value Graph, we can see that video conferencing (and video-first products) provided by Zoom, Google Meet, and Microsoft Teams has high “need” and low to medium “want”.

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Value Creation: Three Strategies

How can we use the Value Graph to identify opportunities to enter the market and successfully compete with the incumbents? We can do so by identifying the target personas being addressed by Zoom and by understanding the “frequency of activity” and “importance of activity” for each of these personas. Based on this analysis, the startup will be able to explore three options:

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Strategy 1: Needs-led Innovation

One of the best ways to innovate is to identify a more frequent problem to solve. A more frequent problem demands a simpler solution — a lower-effort product that users can start using quickly and derive value almost instantaneously.

For video-first products, this could be variants of products provided by startups such as Loom and Vidyard. In the post-Covid19 world, where some team members will always work remotely, it is possible to visualize “always on” video product that help cater to needs such as daily stand-up meetings, informal and serendipitous coffee room conversations, free-flowing white-board brainstorming sessions, and so on. Also, as video becomes the primary mode of communication (synchronous and asynchronous), one can visualize services such as video-first “Slack” in the future.

More frequent products inevitably disrupt less frequent products in the same category. In fact, tackling a more frequent problem allows companies to even overcome strong network effects established by incumbents. For example, WhatsApp started its operations in Feb 2009 and released WhatsApp 2.0 to iPhone App Store in Aug 2009. For the sake of reference, during the same time (i.e., from February 2009 to November 2009), Facebook grew from 175 million active users to 300 million active users. [link]

Unlike Facebook, WhatsApp focused on a more frequent problem: short messages amongst a network of closely connected people. This resulted in WhatsApp being used more frequently than any other social networking or social communications app. By focusing on a more frequent problem, WhatsApp was able to beat Facebook at its own game: building a stronger social network while competing with a behemoth with incredibly strong network effects! This helped WhatsApp to grow faster than every social networking and messaging apps (such as Facebook, Gmail, Twitter, and Skype). [link]

Strategy 2: Wants-led Innovation

In a fast-growing segment such as video-first products, another great way to innovate is to identify and build a better solution for a specific problem. To identify opportunities, we can look at two possibilities: (1) current products don’t fully or satisfactorily cater to the functional needs of customers or (2) current products don’t fully or satisfactorily cater to the non-functional wants of the customers. A startup can innovate by improving the products along either (or both) of these dimensions.

For video-first product segment, Airmeet and Hopin can be considered as good examples of this kind of innovation. Due to the absence of offline events, online events and conferences have become the de facto mechanism for companies to stay engaged with their customers and to connect with prospects / potential customers as well as the wider public. Both the companies have grown dramatically since the start of the Covid19 crisis and are how hosting thousands of events on a monthly basis. (Full disclosure: Accel India and Accel UK are investors in Airmeet and Hopin, respectively.)

Likewise, we can expect sector-specific use-cases (with sector-specific workflows) and other higher importance usage scenarios to get built over the next 12–18 months period. For example, video-first education platform requires a specific workflow that combines classroom material (used by the teacher), homework assignments (done individually or in groups of students), assessments, etc. — along with the video requirements. Likewise, there are specific usage patterns (or workflows) that other personal and work-related use-cases have; we can expect sector-specific solutions for these. For example, we can expect variants of Houseparty (which acquired more than 50 million users globally between Mar 2020 and Apr 2020; link), video-based Clubhouse, etc. over the next couple of years.

In general, startups can create value by providing a better solution to a specific use-case/problem. Better quality of product/service provided by these companies helps to match (increasing) customer expectation in terms of functional needs as well as non-functional wants.

Strategy 3: Disruption-led Innovation

Typically, “disruptive innovation” (as defined by Clayton Christensen) is applicable to more mature categories wherein customers clearly understand their needs. As a result of the mature category (and stable products), customers develop the ability to discern their specific needs and are able to quantify the value provided by various features / capabilities of competing products.

In such a scenario, startups are able to disrupt the incumbents from “below” because they can build simpler products for a specific need. Customer maturity also allows such startups to leverage self-serve and other lower-cost channels to acquire customers. Easier-to-use products and more efficient acquisition channels help startups to offer lower and simpler (typically, usage-based) pricing to customers.

The combination of simpler products, more efficient customer acquisition and lower pricing helps startups to offer solutions to un-served customers (to begin with). Over time (and with more complete product offerings), it enables startups to wean away incumbent’s over-served customers.

This strategy might not be useful for fast-growing categories such as video-first products. Over time, however, we can expect startups to take a closer look at the cost and benefits of synchronous video products. We can expect products that explore asynchronous video and other mechanisms (video-first email, for example) to reduce the cost and overhead of using videos.

Conclusion

To summarize, Strategy 1 (needs-led innovation) and Strategy 2 (wants-led innovation) are more likely to be leveraged by startups to create value in the fast-growing space of video services. These innovation-led strategies are geared towards personas that are under-served by the current solutions. Strategy 3 (disruption-led innovation) caters to personas that are un-served or over-served by the current solutions; this is typically not as applicable in nascent and growing categories.

For the sake of illustration, these three strategies are shown below:

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Needs-led startups focus on reducing “effort”. Such startups create value by providing an easier and more convenient solution to a more frequent activity.

Wants-led startups focus on improving “quality”. Such startups create value by providing a better solution to a problem and, thereby, increase the reliability and trust in the offerings. Better quality of product/service provided by these companies helps to match customer expectation in terms of functional needs as well as non-functional goals.

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Also Read:

Scaling a Consumer Tech Startup in its First 500 Days

Why you Need the Right Metrics for your Startup

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