The situation is great, but Zoom is making a "great retreat" in China?
Three days later, starting on August 8, Zoom will retain only one sales model in mainland China: sales through partners, namely Bizconf, Suiyueme, and Shangyang Umeet. The previous direct sales, online subscriptions, etc. All methods will be cancelled. After the news was announced, it was regarded as a major retreat for Zoom in the Chinese market.
Repeatedly accused by the US due to China relations
During the epidemic, there were two major apps that rose rapidly overseas: TikTok and Zoom. In May of this year, Douyin and its overseas version of TikTok ranked first in the global mobile application (non-game) download list with nearly 5 million downloads. And Zoom ranked second with 1.12 million downloads, 9460 times the same period last year.
Global mobile application (non-game) download ranking in May, source: SensorTower
Zoom was founded by Chinese immigrant Yuan Zheng and is headquartered in California, USA. It is an American company. According to the financial report, Zoom’s total revenue for the first quarter of 2020 was US$3.28 million, an increase of 1.22% compared with US$169 million in the same period last year; the net profit attributable to the company’s common shareholders was US$2700 million, compared with 20% in the same period last year. This is an increase of 134 times compared to US$XNUMX. During the epidemic, Zoom's revenue mainly came from the United States and Canada.
While ushering in unprecedented traffic and new users, Zoom also focused on a wave of security issues. Among them, in April, it was revealed that Zoom was sending call signals through a server located in China. Researchers from the University of Toronto said that even if the caller is not in China, the key used for Zoom encryption is still sent through a Chinese server.
Considering that Zoom may be legally obliged to disclose these keys to the Chinese authorities, this company that primarily serves North American customers may cause concern. The researchers said.
Zoom subsequently updated its version so that users can know which regional servers their meeting data passed. Free users cannot choose a region, and will be assigned to their region by default. Paying users can choose to enter or exit areas outside the default area.
Zoom's data centers are grouped into the following regions: United States, Canada, Europe, India, Australia, China, Latin America, and Japan/Hong Kong. Zoom guarantees: Data for free users outside of China will never be transmitted through China.
But in June, Zoom was criticized again by the outside world for following the request of the Chinese government to close an account involving political activities.
Combining the current strained bilateral relations between China and the United States and a series of measures taken by the US government against China, even if Yuan Zheng has repeatedly emphasized that Zoom is an American company, perhaps due to its Chinese identity, Zoom will be the focus of US regulatory agencies.
Demarcation with China: easy business, difficult R&D
It is undeniable that Zoom does have a large number of R&D personnel in China, and Zoom also expressed this in a document submitted to the regulator earlier this year. At that time, Zoom believed that this was a strategic advantage for it, enabling Zoom to make more investments and effectively improve product capabilities.
In the above-mentioned document, Zoom explains the dramatic increase in expenditure costs, the largest of which is bandwidth in data centers and hosting phones. Due to the increase in new users, Zoom is also using Amazon AWS and Microsoft cloud computing services in addition to operating its own data center, and listed Oracle as a service provider in April. These factors have caused Zoom's gross profit margin to narrow.
By hiring a Chinese R&D team, Zoom can significantly reduce operating costs.
According to the foreign recruitment website Glassdoor, the average annual salary of Chinese entry-level software engineers is about 34350 US dollars (about 24.4 yuan), which is one-third of the average annual income of engineers of the same level in the United States. In the San Jose area of California, where Zoom's US headquarters is located, the average pre-tax annual salary of a software engineer is US$135977 (approximately RMB 91). A Chinese engineer will save Zoom more than 60 yuan a year.
As of January 2020, Zoom’s employees in China are mostly concentrated in Hefei, Suzhou and other regions. There are about 1 R&D members, accounting for about 700% of its total employees. The cost of hiring a Chinese R&D team will save Zoom every year Costs in hundreds of millions of dollars.
Zoom R&D rate changes, data source: Zoom financial report
TikTok is similar to Zoom. However, the advantages brought by the use of China's low-cost R&D are no longer obvious, and instead have brought a series of troubles.
Zoom can avoid paying US wages when selling products to US customers, thereby increasing their profit margins. However, this arrangement may make Zoom have to respond to pressure from the Chinese authorities. Researchers from the University of Toronto said.
On July 7, Democratic Senator Blumenthal (Richard Blumenthal, D-CT) and Republican Senator Josh Hawley (R-MO) sent a letter to the Department of Justice, requesting that Zoom and TikTok violated the United States. An investigation into civil liberties and relations with the Chinese government.
Two lawmakers wrote in the letter: According to multiple reports, we are extremely worried that Zoom and TikTok have provided the Chinese government with information about American citizens and participated in online censorship on behalf of the Chinese government.
At present, Zoom's research and development focus has begun to turn to the United States to shrink. Zoom stated in May that it plans to recruit 5 software engineers for R&D centers in Phoenix and Pittsburgh in the next two years, which means that the local R&D team will expand by 500%.
But for Zoom, the establishment of a completely de-Chinese R&D team is an extremely time-consuming and financial affair, and how to weigh it requires serious consideration by Zoom.
Will things get better when you move to India?
Like every company that wants to become bigger and stronger, Zoom has a global heart.
During the epidemic, 25 K-10 schools in 12 countries and regions were using Zoom. Data shows that Zoom's overseas expansion rate has exceeded that of the United States. Its overseas revenue increased by 246% year-on-year, while the growth rate in the United States was 150%. Zoom's revenue in the Asia Pacific, Europe, Middle East, and Africa regions accounted for 19%, 18%, and 17% of its total revenue, respectively.
Indian users use Zoom, source: Zoom
Zoom CFO Steckelberg said that global expansion is an important action for Zoom. On August 8, Zoom announced the establishment of a data center in Singapore, which is its first facility in Southeast Asia. At this point, Zoom has 19 data centers worldwide.
India has become the primary choice for technology companies from all over the world. According to IWS data, as of March this year, India has 3 million mobile Internet users, with an Internet penetration rate of 5.6%.
It is reported that Zoom provided services to more than 2300 educational institutions in India during the epidemic. From January to April this year, Zoom’s free user registrations in India increased by 1%. In May of this year, the United States and India each contributed 4% of downloads to Zoom, making them the largest market for the app.
In late July, Yuan Zheng stated that India is an important strategic country for Zoom and promised to continue growth and investment in India in the next five years.
Zoom has set up offices in Mumbai and data centers in Mumbai and Hyderabad. Recently, Velchamy Sankarlingam, vice president of Zoom Products and Engineering, said that he plans to open a Zoom Technology Center in Bangalore. At the same time, Zoom is recruiting DevOps engineers and IT, security and business operations personnel on a large scale. It is reported that Zoom plans to triple the number of employees in Mumbai.
However, it is not only Zoom that is eyeing the Indian video conferencing market.
According to foreign media statistics, as of now, US giants have invested more than US$170 billion in India this year. Among them, Amazon promised to invest US$10 billion in January, Facebook invested nearly US$60 billion in late April, and Google committed US$7 billion in investment in July. Most of the investment went to the holding company of Indian billionaire Mukesh Ambani.
Microsoft CEO Satya Nadella (Satya Nadella) and Mukesh Ambani (Mukesh Ambani), source: CCN
Ambani's company Reliance has huge influence in India and is not subject to many regulations regarding data storage and e-commerce. Reliance Jio is India's largest telecom operator with 4 million users. Since late April, Indian telecommunications platform Jio Platforms has raised more than 4 billion U.S. dollars, a considerable part of which is from Silicon Valley.
In early July, Reliance Jio officially launched JioMeet, a video conferencing platform similar to Zoom. According to analysis, infiltrating more users through office application scenarios is one of Jio's primary goals.
The Chamber of Indian Trade (CAIT) initially used Zoom to communicate with state trade leaders, but it has now turned to India's local video conferencing service platform JioMeet.
Due to privacy and data security issues, Zoom has frequently been banned in India. Even Indian government officials have been ordered to ban the use of Zoom services.
In the face of India's rival and stricter policies, it is still unclear whether Zoom will continue its advantages in the future.