Zoom just reported one of the best quarters in software history, perhaps one of the best earnings reports in the history of American business. The rapid adoption of videoconferencing has been one of the most dramatic technology changes caused by the pandemic, and it may persist as a lasting virtual shift for meetings, conferences, and events. Zoom is simple and reliable, which positioned it to grow explosively.
Obviously, videoconferencing is not the only technology that is being used more heavily because of the pandemic. Amazon struggled to keep up with the growth of online shopping; contactless payments are on the increase; Microsoft Teams and Slack are both dealing with increased demand for office collaboration from different locations; and there has been increased use of apps and services for online learning, telehealth, and streaming entertainment.
Still, Zoom is at the forefront of shifting technology trends, and became a household name in a few short weeks. The company experienced unprecedented growth in the first six months of this year by any measure. Sales revenue grew 169% year over year in the first quarter – and that doesn’t include the heart of the pandemic in April and May. Profits, number of users, number of paid users – all have skyrocketed. The stock price did not shoot upwards after the quarterly report, but that’s because the stock market is a mysterious place with a tenuous relationship to the real world.
Have you noticed what hasn’t happened? There have been almost no major outages in any of the major online services. Amazon had trouble with the logistics of handling physical shipping, but its website never faltered. Zoom, Microsoft Teams and Office 365, Google – there have been a few trivial outages but no major collapses.
A few years ago Zoom would not have been able to scale up rapidly enough to meet this year’s unexpected surge in demand. Imagine this increase, in the words of Zoom CEO Eric Yuan: “We had an approximately twentyfold increase in our metric of annualized meeting minutes run rate, which jumped from 100 billion at the end of January 2020 to over 2 trillion meeting minutes, based on April 2020’s run rate.”
A twentyfold increase in demand in three months – and Zoom sailed through it! They couldn’t have done that on their own. It’s expensive to buy tens of thousands of servers and find places to put them, and it takes time to arrange that.
Help came from an unexpected place: Amazon was responsible for keeping Zoom going.
Zoom CEO Eric Yuan described Amazon’s role during the quarterly earnings report:
“When the pandemic crisis started, our own data centers could not scale fast enough to handle the unprecedented traffic. Fortunately, some the top public cloud providers were there to help. Immediately during the crisis, our longtime partner Amazon Web Services (AWS) and its CEO Andy Jassy enabled us to meet this rapidly increasing demand. As our demand increased and we had limited visibility into the growth, AWS was able to respond quickly by provisioning the majority of the new servers we needed, sometimes adding several thousands a day for several days in a row.”
Amazon Web Services is less visible than Amazon’s shopping site, but it is an equal part of Amazon’s success story. Here’s how I described it two years ago:
“An extraordinary number of the world’s governments and large companies have outsourced their computing to Amazon. Amazon Web Services powers far more of the Internet, and the world, than you realize. AWS provides about ten percent of Amazon’s revenue but almost 75% of Amazon’s operating income in the most recent quarter. Microsoft is competing vigorously but Amazon has a strong lead in the market for cloud computing.”
Zoom paid dearly to offload its server load onto Amazon’s global servers, but the amazing thing is that it was possible to do that at all. Ben Thompson of Stratechery describes it this way:
“A company in Zoom’s position previously would not only have been incapable of building out so much capacity so quickly — actually building data centers and filling them with servers takes time! — but would not have done so even if they could have. After all, once you build it, you own it, and what happens if demand drops after the pandemic?
“Instead, though, Zoom could not only meet demand, but it could in fact generate even more demand (by offering Zoom for free to schools, for example) because its costs were marginal, not fixed. . . .
“The second remarkable fact is that AWS had the capacity to not only support Zoom in this way, but a whole host of other companies that saw usage explode as companies went remote.”
In the next few years, Zoom will begin to build out its own server capacity, and it signed a deal with Oracle that will reduce its reliance on AWS going forward.
But the point that Zoom’s story illustrates is how reliable the entire cloud infrastructure has become. A month ago, Reuters reported that Zoom was sending seven million gigabytes of data per day through Oracle’s servers, with virtually no outages. I used to report on Office 365 outages several times each year; now they are infrequent enough and short enough that they’re not worth mentioning. Occasionally the video streaming services hiccup and stop for a few hours, but not often, not any more.
It speaks volumes about the resilience and security of the cloud infrastructure that things have been so stable.