No. of Recommendations: 67
I agree a thousand percent with Denny's post. Also, keep in mind, that Facebook has a market cap of $542,000,000,000.

When they go into a new business, it's because they think the revenue potential is massive.

That should tell you all you need to know about Zoom's potential. Microsoft Teams, Google Hangouts, Cisco's "WebEx" (worst name ever) - three titans are all going after this space. And there's of course many others.

I think that a major problem many Fools have is a kind of magical thinking. They want a company that has massive TAM and no major competition. Remember when Homer Simpson learned that ham, bacon and pork chops all come from the same animal? And he said "Ohhhh right, Lisa, a wonderful, 'magggggical' animal." It's sort of like that. But whereas a pig that makes those three meats is a real thing, a company that can earns tens of billions without attracting MAJOR competition IS a "maaaaaagical" animal. It doesn't exist. (Here's the clip - https://www.youtube.com/watch?v=7BZDZyRaGa8)

Netflix competes for attention vs. all major league sports, video games, Blockbuster, HBO, YouTube, NBC, CBS, countless other websites and now Disney - the biggest behemoth in the history of human entertainment. And despite countless claims of "Netflix killers" being invented, Netflix, so far has won every battle. That's what our companies have to do - win. Against the very best.

So the way I see it Facebook's Rooms (Yawn) is great news. It's a necessary step on the journey. And it reminds me of the UFC Fighter Conor McGregor, who, when at the height of his game bragged about chopping off heads and putting them on his mantle. This is what will happen to Facebook Rooms as far as Zoom is concerned. Its head will wind up on Zoom's mantle.

Investors need to welcome competition confident we have bet on the winner. Or take up another interest, like knitting. You can knit a great big wooly sweater without competition.

And lastly because so many investors don't understand the concept of a moat, here's an interview with Pat Dorsey, who is essentially the Godfather of moats.

https://dorseyasset.com/wp-content/uploads/2016/08/Manual_Id...

This is his answer to the question of which kind of moat offers the most sustainable competitive advantage, and in his answer he defines the concept ...

Dorsey: I’m not sure one is better than another. I get this question a lot, and I thought about it quite a bit. I would say that there are weak and strong brands. There are weak and strong switching costs. There are cost advantages that are very durable and some that are a little bit more ephemeral. I’m not sure that I would regard one type of moat as stronger than another, with the possible exception of a network effect, which you see in financial exchanges, credit card processors like Visa [V] and MasterCard [MA], and businesses that tend to get more powerful the more users they have because the way a potential competitor would need to try to articulate their economic profits is essentially by creating a similarly sized network, and that can be a very difficult thing to do. Generally speaking, if you can identify a true network effect and it’s a business that is reasonably priced and has a lot of room for reinvestment of capital at high marginal returns on capital, you’ve probably found a business that’s going to have high returns for some time to come. But that would be the exception more so than anything else.

Obviously there's room for debate on the strength of Zoom's moat - but when a company has hundreds, even 1000s of workers using Zoom, and they are happy with the product, and they have used it in their personal lives and know it and trust that it will work without being buggy it's very hard to get them to switch. And the more people that use it, that invite others to use it, the more data this gives CEO Eric Yuan and his engineers to work with to make it better. This means they will repair things quicker and add the features that people want most, fastest. And let's face it, Zoom is a fun name. People love the brand. And it's gotten more media attention - as a connector during a very stressful time - which is worth billions upon billions in advertising. Even Facebook can't just simply a) tell 100s of millions about Rooms b) get them to try it and c) get people to switch from something they're happy using. Watch the Motley Fool analysts using Zoom daily these days. I have never been more excited about the Fool and their ability to share key info with multimedia. Good luck getting Tom and Dave to strip Zoom out when they have analysts and users all over it. Saturday Night Live recently did an all Zoom episode. Try to guess what a company would pay to have an entire SNL episode prominently featuring its product. The value of the name recognition alone for Zoom is incalculable. And it is for most people seen as a savior and trusted friend when we are feeling vulnerable. That is as powerful as branding gets.

For me, Zoom has a very strong moat. And it's likely to get exponentially stronger as more and more and more people use it. Moats are NOT about how physically easy it might be to switch. Netflix has entertained my family for 20 years. It's a psychological habit. There's a deep-seated tie. Cancelling would, physically, take tapping a button. But the emotional journey to actually doing that and starting up with another company is a whole different ball game. We are all creatures of habit.

Anyway...

I am long and strong, Zoom.

It's going to spank Room's bottom. Hard. Guaranteed.

BroadwayDan
Print the post  

Announcements

What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.