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Zoom: Managing Sudden Public Scrutiny And Lessons Learned For Future Zooms Findings: 020 may very well be With a great rise comes • With its unprecedented the year of . The the attention, scrutiny, and and fast-paced rise, 2 COVID-19 pandemic problems often reserved for Zoom is experiencing and resulting shutdown forced only the largest firms. Microsoft, challenges familiar to businesses online, many for , and have large tech companies the first time, and Zoom was had decades of experience but doing so over ready to capitalize. The video handling privacy, harassment, the course of months rather than years. conferencing service has and censorship issues with Rapid growth invites become so ubiquitous its name social and geopolitical dynamics. scrutiny, putting is now a genericization for online Zoom, on the other hand, is a reputational and meetings, just as Kleenex, Q-Tip, experiencing these challenges regulatory target on and Google went from upstarts over the course of weeks and the video conferencing to synonyms for tissues, cotton months rather than years. This company. swabs, and search engines. rapid growth invites considerable • Zoom has encountered scrutiny, putting a reputational issues like privacy and Some may think of tech target on the company. security, harassment, companies as growth machines, and relations with doubling values year-over-year China. Zoom will need Zoom's Rapid Rise to navigate these as they move fast and break Into Big Tech issues, and others, things. But even the fastest successfully or it growing startups take years, and The rise of Zoom is will face more pointed often decades, to rise to the top. criticism. unprecedented. When Zoom • For future startups, Zoom's Unprecedented Stock Growth including the "next" Apple 13,300 days Zoom, using the roadmap Zoom stock growth has vastly outpaced other tech peers of other tech firms can inform strategy, drive Microsoft 12,297 days growth, and ensure long-term success. Zoom has the potential to become the next great Amazon 4,558 days tech example.

Google 3,466 days Tucker Warren Lloyd Miller Zoom 436 days Matisse Rogers 0 5,000 10,000 15,000 DAYS FROM IPO TO 7X SHARE GROWTH The views expressed in this document Source: Yahoo Finance represent those of the authors alone. Note: There is evidence Zoom may have underpriced its stock, which traded as high as $66 the day after its IPO. IPO'd in 2019, few could have example, in 2006, Microsoft was predicted experts would be floating "Among remote pushed to amend its privacy policy the idea of a $59 billion market employees, Zoom for shutting down blogs, largely cap a year later. Putting its growth users are most likely due to censorship demands into context, Zoom priced its to report liking or stemming from the Chinese IPO at $36 per share on April 17, government. In 2009, Google fell 2019, and has grown more than loving their video under widespread net privacy 7x since, to $264.88 as of August conferencing software." scrutiny after releasing "broadly — Owl Labs State of Video 4, 2020. No other major tech firm phrased" guidelines. And "Facebook accomplished that feat in under Conferencing 2019 stalking," the newfound and ten years, and Facebook has branded version of cyberstalking, never seen that level of growth. became a buzzword in 2012.

Zoom is now experiencing many of the same Zoom Has Made The Most Of The Moment kinds of controversies and regulatory scrutiny Zoom was founded by a former Cisco Webex as established tech companies. This enhanced engineer who believed he could build a better video scrutiny is in part because of its accelerated growth conferencing product—and by most accounts, he over the last year. With growth comes attention did. An Owl Labs report from last October on the and scrutiny, and soon, regulatory curiosity. "State of Video Conferencing" found Zoom to have Not long after Zoom went public in 2019, the one of the fastest setup times and user satisfaction Electronic Privacy Information Center (EPIC) rates of any video conferencing software, perfectly asked the FTC to look into Zoom over security and positioning it to capitalize on the moment. privacy concerns. However, there is no evidence In the age of remote work, lockdowns, that regulators took any action last year. A year and social distancing, Zoom has become later, as Zoom rocketed into the consciousness an indispensable tool for everything from of every remote worker, legislators and regulators government hearings to weddings. started paying more attention to Zoom. Following a series of reports over Zoom's privacy Media Scrutiny Leads To Washington Curiosity and security shortcomings—issues that may have been ignored if not for Zoom's growth during When tech firms blossom into established the shutdown—several state Attorneys General players, they often have to deal with three core began investigating Zoom. Senator Sherrod issues: privacy, harassment, and China. For

Popularity Of Zoom Versus Established Video Conferencing Apps A March 2020 survey found Zoom was one of the most popular video conferencing services used by adults in the United States to chat with family and friends during the coronavirus pandemic

Facetime 48%

Facebook Messenger 44%

Zoom 32%

Skype 23%

WhatsApp 18%

Google Duo 14%

Google Hangouts 9%

Microsoft Teams 6%

0 10 20 30 40 50

PERCENT OF U.S. ADULTS WHO USE AS THEIR VIDEOCONFERENCING APP OF CHOICE

Source: Statista published survey of adults in March 2020

Hamilton Place Strategies 2 Media Scrutiny Over Time Media scrutiny of Zoom has rapidly increased in 2020, putting it in the same realm as other major tech firms 600 Facebook 500

400

300

200 Google

Zoom 100 Microsoft

0 1995 2000 2005 2010 2015 2020

Source: LexisNexis. Note: Top-Tier outlets include: New York Times, Wall Street Journal, Washington Post, ,

Brown (D-OH) asked the FTC to investigate across services, including third-party websites. Zoom, and while the FTC did not confirm any The policy was met with additional backlash. such investigation, they acknowledged that media scrutiny leads to investigations. Following Zoom's quick rise to prominence this spring, privacy advocates' complaints were given more attention, many of which Addressing Regulatory Scrutiny claimed that "Zoom's default settings It's fair to say the enhanced scrutiny of Zoom aren't secure enough. Zoom now risks is connected to its rapid growth and consumer becoming a victim of its own success." demand for the product. Zoom responded to However, we must note the "Any time you see a press report complaints by offering a company has made missteps of a significant privacy issue, a premium service (end-to-end it has had to acknowledge encryption) to all users, and correct to reassure potential privacy violation of our authority, it is safe to assume rewriting portions of its its users of the platform's privacy policy to limit what security and reliability. These that we either are investigating it content could be used for missteps and others have led already or shortly after that media advertising, and launching the FBI and the UK Ministry release, we will investigate it." a 90-day plan to bolster key of Defense to issue public — FTC spokesperson when asked if the privacy and security initiatives warnings concerning Zoom. regulators were looking into Zoom on April 8, with a regular cadence of updates on the Privacy Concerns Zoom blog. Upon conclusion Require More Than A Policy Change of the 90-day plan, Zoom outlined the progress it had made on key "trust, safety, and privacy issues," Privacy concerns are nothing new for tech firms, describing the plans' successes and the company's and a traditional response includes announcing a privacy-related endeavors moving forward. change in the privacy policy itself. After declaring in 2009 that "if you have something that you don't Stopping Harassment Is A Multifront Battle want anyone to know, maybe you shouldn't be doing it in the first place," Eric Schmidt predicted in A problem common to platforms that allow people 2010 that the internet needs to take a path of "true to virtually connect is platform abusers seeking transparency and no anonymity." Google revised its to harass other users. When Facebook realized privacy policy in 2012, enabling data to be shared its platform could be used to harass users, it

Hamilton Place Strategies 3 instituted user controls and then launched a a much more robust and detailed policy in its Facebook Help center to address issues of transparency report, to be released later this year. user bullying, harassment, or attacks, ensuring that anyone who searches for help can get it. What's Next For Zoom Not long after the lockdowns began, a new Tech firms facing intense scrutiny while providing phrase in video conference harassment was born: a medium for communication often face many "Zoombombing." This was made possible in part more controversies than Zoom has encountered. by Zoom's default settings, which now drive people We could expect Zoom to have to deal with issues toward passwords and other security measures, like servicing disfavored government agencies, but initially did not encourage a password to be set controversial individuals using or even promoting and allowed any participant to share their screen. their platform, questions over diversity and Zoom first published a guide on their blog inclusion both in their products and business, addressing the issue, "How to Keep Uninvited employee and labor strife, or other problems Guests Out of Your Zoom Event." It then adjusted well known amongst big tech. With great power settings for accounts used by schools and comes great responsibility—and accountability. universities to be made "more private by default," Zoom will almost certainly be called to testify and froze all work on new features in April to before Congress at some point in the next year. prioritize privacy improvements, like making Congressional testimony by executives can passwords for meetings enabled by default. lead to deepening, rather than remediated, reputational concerns. The difference between Acquiescing To China Is A Domestic Political Issue the two outcomes is usually found in preparation. Executives must understand the uniqueness It's not easy to balance the freedom of speech of the environment that is Washington, take it enjoyed in the U.S. with the demands of an seriously, appreciate the level of media attention authoritarian regime like China. In 2006, these moments can generate, and use hearings Microsoft found itself in this situation when it shut as opportunities to tell the company's story. down a blog run by a popular Beijing blogger. Microsoft chose transparency, implementing Zoom can become a shining example of a a user notification system for blogs that were business that seized the moment during a global shut down, and committed to only blocking pandemic by offering just what people needed, content when served with "legally binding when they needed it. Or it can let its competitors, notice from the government indicating that the media reports, and lawmakers control the narrative, material violates local laws" or if the content leading to massive and costly investigations. violates its terms of service. When Facebook We're betting on the former—but Zoom doesn't encountered a similar controversy a decade have the luxury of time that Microsoft, Google, and later, Mark Zuckerberg explained the platform's Facebook had, placing it in the unprecedented involvement by asserting that "it's better for position in which it finds itself today. Facebook to be a part of enabling conversation, even if it's not yet the full conversation." What About The Next Zoom? Facebook is still banned in mainland China. It's impossible to foresee all of the dynamics In early June, Zoom suspended one account a future tech startup will deal with, especially in Hong Kong and two in the United States given all that's changing in the world around after they tried to hold events related to the us. But we can glean the following things anniversary of China's Tiananmen Square based on the rise and fall of others. crackdown. This action drew immediate attention from U.S. lawmakers demanding Zoom • Given the U.S. relationship with China explain itself and its relationship with China. and its trajectory, figure out how you're going to engage in China—and if and Zoom chose to clearly state its policy, even if it when you are—be prepared for major did not satisfy everyone, that it would not allow scrutiny about how you're doing it. requests from China to impact anyone outside "mainland" China. Zoom also said it would outline

Hamilton Place Strategies 4 • The demand for protecting consumer's privacy is high and growing. Place a premium on consumer privacy right from the start.

• There are people out there who spend 24 hours a day, 7 days a week trying to hack your program. Invest in good, thoughtful security protocols early. You can always relax them later if that creates a more favorable consumer experience but it's harder to build in additional layers of security in the midst of criticism and breaches.

• Technology is a gateway to accessibility. Zoom makes employment and education attainable in unprecedented ways. Diversity and inclusion are intertwined with innovation — keep this top-of-mind as your company and products grow and consider jobs that can be done somewhere other than at headquarters.

• As with your predecessors, mistakes will be made. What's critical is how you handle them. If you're quick to acknowledge, transparent in what you know, and genuine in your commitment to resolve it, that will go a long way in securing your business' future.

• Assume future success and engage with policymakers, regulators, consumer groups, and others who can cripple your business as if its future depends on it. If you haven't done the work to establish those relationships, hear their feedback, and heed their counsel and you quickly find yourself the new kid on the block, you will have a lot of catching up to do in a very short amount of time.

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