Power

How Zoom won 2020 — and how 2020 changed Zoom forever

Zoom never imagined being the company the pandemic forced it to become. Now it has to grapple with what's next.

Zoom app on Facebook's Portal smart display

Zoom got so big in 2020 that even competitors like Facebook have embraced it.

Photo: Facebook

Zoom never wanted any of this. Coming into 2020, the company was in great shape: It was growing quickly, making money and becoming an essential tool for tech-forward businesses everywhere. It's not that nobody at Zoom had ever imagined being a home for happy hours, book clubs, yoga classes, elementary schools and doctor visits. It's just that Zoom had decided, fairly definitively, it never really wanted to be any of those things.

At the beginning of 2020, just before the pandemic upended the world and the rest of the year, Zoom Chief Product Officer Oded Gal told me that Zoom had no plans to become a consumer application. "We are still a business application," he said, "and we don't see ourselves moving away from that." There were some prosumers using Zoom outside of the 9-to-5, he said, and he certainly understood that there were compelling uses for consumer videochat. But he and Zoom were happy to leave those uses to FaceTime and Skype. "We don't want to be a consumer product," he said.

Trying to be both a consumer and business tool, CEO Eric Yuan told me around the same time, would actually be a mistake. One that he learned the hard way. "We were too ambitious" in the early days of Zoom, he said, "with business and consumer. We realized that's not realistic, because there's feature conflict." A consumer app would build fun filters and lenses; those features would just be in the way for business users. So Yuan and Zoom decided, firmly, to stay focused on businesses.

And yet here we are. 2020 was a banner year for videochat no matter who it came from, and it seemed like every app and device on the planet now has its own way to video chat. But the company clearly saw both an opportunity to grow during trying times, and an obligation to try and help where it could. "The pandemic expanded Zoom's reach from a business platform to a central part of daily life as people worldwide transitioned to working remotely, distance learning, and virtual gatherings," Zoom CMO Janine Pelosi said. And that changed the way Zoom thinks about practically everything.

Few companies have benefited more from the pandemic than Zoom. Its stock is up roughly 6x since the beginning of the year. Its revenue was up 367% in the most recent quarter, compared to the same quarter in 2019. It's an even more essential tool to even more businesses, with 485% more customers with more than 10 employees than it had a year ago. Maybe most impressively, Zoom continues to sit at the top of app store charts everywhere. Zoom has entered the rarified territory of Google and Band-Aid and Kleenex: It has become so mainstream that it now essentially defines the category. Videochats are Zooms, Zooms are videochats.

The Zoom Effect is permeating through the tech industry and through culture. Webcams were the year's hottest gadgets, and even camera manufacturers like Canon and GoPro rushed to build software to turn their products into top-notch models. Lots of people got plastic surgery just to look a little better on their Zoom calls. (Zoom's "touch up appearance" setting evidently doesn't go far enough for some people.) Devices like the Facebook Portal and the Google Home added support for Zoom, even though it competes with those companies' own products, because if you don't have Zoom you don't have anything. Zoom became an ongoing SNL punchline … and for a while, the only way the show got made at all.

Zoom is now officially and forever both a business and a consumer product. Which feels appropriate, really, given the way the pandemic has blurred the lines between work and life for everyone. "Nine months ago, if Zoom wasn't working, that was IT's problem," said Phil Libin, the CEO of video app Mmhmm. "And now it's not. It's your problem. That's a big change." That change forced Zoom to rethink the way its product worked: It stopped developing new features for months, opting instead to focus on increasing its security. "We now have a much broader set of users who are utilizing our product in a myriad of unexpected ways, presenting us with challenges we did not anticipate when the platform was conceived," Yuan wrote in a post announcing the 90-day security sprint. Even now, Yuan told CNN that his workdays are dedicated entirely to security and privacy.

Zoombombing, for instance, hadn't been an issue when Zoom was just for internal meetings, but suddenly Zoom's ease of use was a liability. The company also had to rethink the way it collected and stored user data, and even how it taught users to use the product. It's one thing to sell to IT departments, and quite another to get an influx of users who just found you on the App Store. That has changed Zoom in lots of little ways, too; it's now making a habit of lifting the 40-minute limit for free users around major holidays, and offering decidedly sillier virtual backgrounds than you might find in your average business meeting.

The pandemic didn't catch Zoom totally off-guard, though. The company had been betting for years that remote work would become more the norm, and was already thinking about deeper ways to help people interact from afar. The team has been investigating features like real-time translation and automatic note-taking for a while. Yuan thinks a lot about augmented reality: how to make a virtual handshake feel like a real one, how to make it easier for people to make eye contact through a webcam, how to make it so that everyone on your call can smell the coffee you're drinking. (Seriously.)

Zoom's big plan, at least before the pandemic, was to take over other parts of business communication. Zoom Phone was a growing project, replacing one desk phone at a time. And Zoom was working on things like text chat, too. "We think about the ability to upgrade the modalities," Gal said. "It's kind of a food chain: You can start with chat, then you can upgrade to voice calls and then you can upgrade to a video."

Zoom's still working on all that, but its ambitions have also gotten decidedly bigger. Now, rather than taking on Slack and Teams, Zoom is working on becoming the internet's next great platform. Zoom Apps let developers build their own Zoom integrations, and On Zoom turns Zoom into a full-fledged events platform. Zoom has features designed specifically for health care, others specifically for education. It is reportedly building email and calendar services, to more completely compete with Microsoft and Google, according to The Information. If video is indeed becoming more like an operating system than an app, Zoom might be Windows.

Being the center of modern life has its downsides, though. Zoom's connections to China, both within the company and inside the product, have raised concerns as high as Congress. Its security issues sparked an FTC investigation. And, of course, the video boom is turning into a crowded industry full of deep-pocketed players happy to give their stuff away for free just to take a bite out of Zoom.

But there's no question that 2020 has put Zoom at the epicenter of the technology industry, whether you're a user or a cloud-services company competing for the hottest contract of them all. The pandemic was the story of 2020, and no company describes life in a pandemic better than Zoom. Same goes for life in 2021 and beyond: The new normal is going to be a little different, for everyone and for Zoom. And like the rest of us, it's still learning exactly how that's going to work.

Image: Yuanxin

Yuanxin Technology doesn't hide its ambition. In the first line of its prospectus, the company says its mission is to be the "first choice for patients' healthcare and medication needs in China." But the road to winning the crowded China health tech race is a long one for this Tencent- and Sequoia-backed startup, even with a recent valuation of $4 billion, according to Chinese publication Lieyunwang. Here's everything you need to know about Yuanxin Technology's forthcoming IPO on the Hong Kong Stock Exchange.

What does Yuanxin do?

There are many ways startups can crack open the health care market in China, and Yuanxin has focused on one: prescription drugs. According to its prospectus, sales of prescription drugs outside hospitals account for only 23% of the total healthcare market in China, whereas that number is 70.2% in the United States.

Yuanxin started with physical stores. Since 2015, it has opened 217 pharmacies immediately outside Chinese hospitals. "A pharmacy has to be on the main road where a patient exits the hospital. It needs to be highly accessible," Yuanxin founder He Tao told Chinese media in August. Then, patients are encouraged to refill their prescriptions on Yuanxin's online platforms and to follow up with telehealth services instead of returning to a hospital.

From there, Yuanxin has built a large product portfolio that offers online doctor visits, pharmacies and private insurance plans. It also works with enterprise clients, designing office automation and prescription management systems for hospitals and selling digital ads for big pharma.

Yuanxin's Financials

Yuanxin's annual revenues have been steadily growing from $127 million in 2018 to $365 million in 2019 and $561 million in 2020. In each of those three years, over 97% of revenue came from "out-of-hospital comprehensive patient services," which include the company's physical pharmacies and telehealth services. More specifically, approximately 83% of its retail sales derived from prescription drugs.

But the company hasn't made a profit. Yuanxin's annual losses grew from $17 million in 2018 to $26 million in 2019 and $48 million in 2020. The losses are moderate considering the ever-growing revenues, but cast doubt on whether the company can become profitable any time soon. Apart from the cost of drug supplies, the biggest spend is marketing and sales.

What's next for Yuanxin

There are still abundant opportunities in the prescription drug market. In 2020, China's National Medical Products Administration started to explore lifting the ban on selling prescription drugs online. Although it's unclear when the change will take place, it looks like more purely-online platforms will be able to write prescriptions in the future. With its established market presence, Yuanxin is likely one of the players that can benefit greatly from such a policy change.

The enterprise and health insurance businesses of Yuanxin are still fairly small (accounting for less than 3% of annual revenue), but this is where the company sees an opportunity for future growth. Yuanxin is particularly hoping to power its growth with data and artificial intelligence. It boasts a database of 14 million prescriptions accumulated over years, and the company says the data can be used in many ways: designing private insurance plans, training doctors and offering chronic disease management services. The company says it currently employs 509 people on its R&D team, including 437 software engineers and 22 data engineers and scientists.

What Could Go Wrong?

The COVID-19 pandemic has helped sell the story of digital health care, but Yuanxin isn't the only company benefiting from this opportunity. 2020 has seen a slew of Chinese health tech companies rise. They either completed their IPO process before Yuanxin (like JD, Alibaba and Ping An's healthcare subsidiaries) or are close to it (WeDoctor and DXY). In this crowded sector, Yuanxin faces competition from both companies with Big Tech parent companies behind them and startups that have their own specialized advantages.

Like each of its competitors, Yuanxin needs to be careful with how it processes patient data — some of the most sensitive personal data online. Recent Chinese legislation around personal data has made it clear that it will be increasingly difficult to monetize user data. In the prospectus, Yuanxin elaborately explained how it anonymizes data and prevents data from being leaked or hacked, but it also admitted that it cannot foresee what future policies will be introduced.

Who Gets Rich

  • Yuanxin's founder and CEO He Tao and SVP He Weizhuang own 29.82% of the company's shares through a jointly controlled company. (It's unclear whether He Tao and He Weizhuang are related.)
  • Tencent owns 19.55% of the shares.
  • Sequoia owns 16.21% of the shares.
  • Other major investors include Qiming, Starquest Capital and Kunling, which respectively own 7.12%, 6.51% and 5.32% of the shares.

What People Are Saying

  • "The demands of patients, hospitals, insurance companies, pharmacies and pharmaceutical companies are all different. How to meet each individual demand and find a core profit model is the key to Yuanxin Technology's future growth." — Xu Yuchen, insurance industry analyst and member of China Association of Actuaries, in Chinese publication Lanjinger.
  • "The window of opportunity caused by the pandemic, as well as the high valuations of those companies that have gone public, brings hope to other medical services companies…[But] the window of opportunity is closing and the potential of Internet healthcare is yet to be explored with new ideas. Therefore, traditional, asset-heavy healthcare companies need to take this opportunity and go public as soon as possible." —Wang Hang, founder and CEO of online healthcare platform Haodf, in state media China.com.

Zeyi Yang
Zeyi Yang is a reporter with Protocol | China. Previously, he worked as a reporting fellow for the digital magazine Rest of World, covering the intersection of technology and culture in China and neighboring countries. He has also contributed to the South China Morning Post, Nikkei Asia, Columbia Journalism Review, among other publications. In his spare time, Zeyi co-founded a Mandarin podcast that tells LGBTQ stories in China. He has been playing Pokemon for 14 years and has a weird favorite pick.

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