The Unbundling of Zoom

Video conferencing and “unified communications” products improved progressively over the last decade, benefiting from the steady improvement in bandwidth and compute power. However, these products’ user experiences have barely changed: a video feed of all participants and the ability to share one participant’s screen at a time. And this limited functionality was good enough—most people used them only on occasion and there weren’t any strong catalysts on the horizon.

Of course, everything changed in March 2020 when the Covid pandemic forced everyone, practically overnight, to adopt video conferencing services to communicate with co-workers, friends and relatives for 8+ hours each day. Furthermore, events and experiences that had previously not used video conferencing, like in-person events and conferences, were also forced to adopt the generic tools available on the market.

One result was that Zoom, the service that arguably provided the best product, skyrocketed to a $170B valuation by October 2020 (from ~$30B in early 2020). Their service, and the underlying Internet infrastructure held up remarkably well—we were all able to, for the most part, keep on working and communicating. But a second result is that we all started to notice how there was a real lack of innovation and specialization in these services. It doesn’t make much sense to use the same tool to chat with friends once a month, collaborate with coworkers on a specific document every day, or watch a panel discussion along with hundreds of other participants. In addition, people started suffering from “Zoom fatigue”, largely the result of using a sub-optimal tool all day, for all possible use cases.

Now that the big catalyst is (mostly) behind us, a strong wave of innovation lies ahead. The days of everyone using a general-purpose tool for all remote communication are numbered. And this shift will mean better experiences, higher productivity and less fatigue. We think of these changes as the “unbundling of Zoom”.

How can we envision what is coming? The following framework may help. It shows the three current approaches to the space:

1) Big Tech strategy - this is the “horizontal” approach that Zoom and other big providers (e.g., Google Meet, Microsoft Teams) are pursuing. Their services are fairly generic (by design) and address, somewhat imperfectly, many different use cases. They are trying to address a few more specialized use cases by adding new features to their platforms (sometimes via startup acquisitions) and fostering 3rd party app ecosystems. Zoom’s upcoming Zoom Events, a set of features for conferences, and Zoom Apps are examples of this approach.

In addition, wherever possible, the large providers are also weaving their communications services into their other tools, theoretically strengthening the value proposition of their productivity bundles, although not necessarily improving user experiences. For example, Google recently announced the ability to launch Meet sessions from within Workspace applications and Microsoft continues to tie together the different elements of Teams and open up APIs for third parties.

Ultimately, these tools are likely to remain relatively general and evolve slowly. By their nature, and that of their parent companies’, they are trying to address many different scenarios and cover as much surface area as possible. Consequently these tools will never be as specialized as those emerging in our next category.

2) Unbundling strategy - this is the strategy newcomers to the communications space are pursuing, and where we see the purest expression of the “unbundling of Zoom”. We can analyze this strategy by looking at the different use cases (or “layers” that form part of overall communications).

At the risk of being overly simplistic, one can enumerate the following use cases:

i) Few to many - this is your typical conference presentation or panel discussion scenario. Viewers are listening to a conversation and/or seeing a slide presentation. The core communication need is largely met with current tools, but there is a strong demand for additional tooling around the experience: ticketing, payments, multiple/breakout sessions, commenting, etc.

ii) Many to many - this is what generally happens outside conference sessions and at trade fairs: networking. In addition to addressing the resulting one-on-one interactions, this scenario also requires additional tooling, including mechanisms to both replicate and improve upon real-life networking, like allowing people to meet serendipitously, arrange meetings ahead of time, group people by areas of interest or expertise, etc.

iii) Few to few, in structured conversation - this is the use case best served by tools like Zoom and Meet today. It is the standard video conference, where people will simply talk and may occasionally share their screen. It replaces (and hopefully enhances) the standard 30 minute in-person meeting in a conference room. Today’s tools are generally “good enough”.

iv) Few to few, in collaboration - this is similar to (iii) but with the difference that participants will actually create content. For example, collaboratively writing a document, writing code, building a spreadsheet model, etc. While a tool like Zoom goes part of the way to serving this use case through screen sharing, it really lacks the “last foot” of collaboration - the feeling of sitting next to someone and being able to quickly and easily point things out, edit something yourself, step up to a whiteboard to sketch out an idea, etc.

v) Few to few, in incidental conversation - this is what used to happen at offices as people ran into each other as they walked around or approached someone at their desk for a quick question. And even though the interactions are usually short and lightweight, this may be the hardest interaction to replicate virtually because there is a lot of real-world context that is difficult to transmit and replicate remotely.

vi) Few to few, in asynchronous communication - while this may seem like a qualitatively different use case, we see it as increasingly adjacent to the other use cases and worth bringing up. As people get more comfortable with all these tools, the line between talking to someone live and sending short asynchronous messages back and forth (like we already do with text) becomes narrower.

vi) Few to few, at a specific site - this scenario is less about the human interactions and more about actually being at a physical site for a walkthrough or inspection. This scenario, by definition, almost always occurred in person but the pandemic has made people realize that there can be huge cost savings and efficiencies gained by being able to do these remotely. Standard tools like Zoom are usable, but very ill-suited for this scenario.

Again, all these areas are where the true “unbundling” is taking place. While some scenarios require relatively simple add-ons to the standard video conferencing experience, others may require new hardware, and yet others require actually re-thinking what it means to interact remotely with others and how it can be made better. It’s exciting to see many startups addressing one or more of these scenarios. Examples include Avatour, CoScreen, Filo, Hopin, Loom, Socio, Tandem and many more.

3) Vertical bundling strategy - this is what a few vertical applications, most often in a productivity vertical, are doing. They are adding audio and video interactions directly, making it possible to quickly launch conversations with co-workers within the app. In this way, they are unbundling the communication functionality from Zoom and rebundling it into their apps, optimized for their specific use case and vertical. Examples are Figma, Pitch, and, in fact, also Google and Microsoft. This strategy makes sense for tools that are used heavily (i.e., multiple hours per day) and collaboratively, and have enough resources to allocate beyond their core functionality.

In addition to all of the above, there are three dynamics that will affect most scenarios over the medium and long term:

These categories present us with three interesting views of the world. Should remote communication happen in the context of the large, general platforms? Will use case-specific tools emerge as big winners, unbundling communications as we know it today? Or should apps bundle communications into their core functionality?

Of course, there is no simple answer and all of these things will happen to different degrees. However, we believe that the Unbundling strategy will be dominant, at least in terms of overall value creation, over the next decade. Why is that? Because the pandemic unlocked a long term need for innovation in remote communications, across all use cases. We now realize that we need/want to work remotely and that our experiences in doing so can be much, much better. In fact, we believe that all of these use cases can, and should, be better online than in person. Taking it a step further, we should have products that entirely blur the lines between in-person and remote experiences, adjusting automatically based on where (and when) participants happen to be and allowing all of them to be equally engaged and productive. Executing on all these opportunities will take time and startups will have their hands full just pursuing their chosen use cases. Will products eventually re-bundle? It’s likely—after all, business is just one long, ongoing cycle of bundling and unbundling. And the big platforms will be ongoing, active contributors to re-bundling via M&A. But for now, the opportunity is in the unbundling.

Ultimately, we believe that this will result in not just a few hundred billion dollars in market cap (roughly what the space is worth today), but trillions of dollars in aggregate value created.

If you are building something interesting in any of these areas, please reach out. We’d love to talk to you about it!

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