Zoom vs. Microsoft – Priced to go.

Microsoft pulls out the big guns.

• Microsoft is going after Zoom using its balance sheet, but it will need to further improve its user experience if it wants to knock Zoom out of the top slot.
• In its latest release of Teams, Microsoft has added a series or personal features that are aimed at family and friends calls which will be offered for no charge.
• These features include:
  • First, video calling: Video and audio calls will have a maximum of 300 participants and will run for a maximum of 24 hours before being disconnected.
  • This is in contrast to Zoom where the maximum call time for free users is 40 minutes.
  • Zoom has made it 40 minutes as most business meetings conducted on Zoom last longer than this thereby encouraging those that use it for work to get the upgrade.
  • I suspect that Zoom’s response to this will be to increase the time for free users to 60 minutes or so but what impact this will have on migration of users from free to paid remains to be seen.
  • Second, Text-based chat: Microsoft is upping the text-based element of Teams by making it more accessible and also allowing full synchronisation between different devices.
  • It has also added support for users who don’t have Teams on their phones by enabling them to participate via SMS.
  • This is one area where Zoom is weak, and its text-based chat is pretty poor when compared to more popular instant messaging offerings.
  • Both players need to really improve this part of their offering if they want to appeal directly to the non-business use case.
  • Third, personal account: Microsoft is enabling the use of two accounts at once on Teams, one personal and one for business.
  • Many users already have a personal account with Microsoft which is typically used as the login account for Windows and this can now be added to Teams.
  • These accounts can be open simultaneously in different windows or tabs so that managing them separately becomes simple.
  • Fourth, location alerts: This is a new feature that allows a degree of access to location in a manner similar to Google Maps location sharing.
  • This feature sends alerts to designated users when the user arrives or leaves from a designated location such as home.
  • This only works with location sharing enabled on the device meaning that there is no real privacy concern here as this is merely a subset of what is already being shared.
• Microsoft has been extremely lucky in its timing as Teams was released to replace the awful Skype for Business only a few months before the Pandemic started.
• Its user experience is a huge improvement on Skype for Business but it remains behind Zoom in terms of simplicity, stability and reliability.
• However, Microsoft has vast resources at its disposal and this makes it easy for it to make offers to users that Zoom will find it very difficult to do.
• This compounds the existing problem for Zoom where Microsoft bundled Teams with Office 365 which many professional users of Zoom already have a license for.
• This means that many Zoom subscribers are paying extra for a service that they already have.
• So far, Microsoft has not made much (if any) of a dent in Zoom’s trajectory meaning that users continue to value Zoom’s best in class user experience.
• This means that Microsoft still has a lot of work to do if it wants to migrate users over to Zoom and it remains to be seen how popular the new text and location features are as Zoom does not currently support these.
• Despite its small share price correction, Zoom is still incredibly expensive with a 2020 PER of 513x and a 2020 EV/Sales of 169x.
• This looks increasingly unsustainable as the risks to revenue will continue to rise as Microsoft increasingly improves Teams and charges nothing for it.