Zoom picked Oracle as a new cloud provider. This news caught some people by surprise. In hindsight, there are signs that this agreement was in the works, aggressively pushed forward by Oracle, and punctuated by its founder Larry Ellison’s uncharacteristic Youtube video 15 days before the deal announcement that was basically a Zoom infomercial.
Why Oracle would bend over backward to pursue Zoom as a customer is obvious.
But why Zoom would want Oracle is not.
I think there are three rationales behind this Zoom-Oracle alliance: a good long-term deal, government business expansion, and de-risking telemetry access.
A Good Long-Term Deal
Zoom likely locked-in a hefty discount in a long-term deal with Oracle Cloud that will keep Zoom’s cloud infrastructure cost predictable and under-control for years to come. Although there were no deal details disclosed in the announcement press release, long-term deals in the cloud industry -- any agreement longer than three years -- could result in 70%-80% in discounts, especially when the buyer is in a strong negotiating position.
Zoom is most certainly in a strong negotiating position. Its user base jumped from 10 million in December, to 200 million on April 1, to more than 300 million on April 22. (Update: since this post's initial publication, Zoom clarified that its 300+ million number reflects "daily meeting participants", not "daily users.") Meanwhile, Oracle Cloud has been a sideshow at best in the cloud industry, badly in need of a marquee customer to boost its growth and image. It also has the capacity to absorb a big user like Zoom, with its aggressive investment in data centers and technology R&D over the last few years. On the other hand, AWS is in a stronger position than Oracle to negotiate. Although AWS has been generous with Zoom with discounts during Zoom’s current growth spike, it has not been that way with other customers. AWS has been holding up well during COVID-19 compared to its closest competitor, Microsoft Azure (a topic I explored a few weeks ago in “Azure Cracks, AWS Strong: COVID-19 Stress Tests the Cloud”). Thus, its services and reliability are more in demand than perhaps ever before,
Zoom can get whatever deal it wants with Oracle. It cannot with AWS.
Just how good could this deal be? Snap’s long-term agreements with AWS and GCP can be a reference. Snap negotiated both deals during the year before it went public in March 2017 -- when its negotiating position was strongest. With AWS, Snap locked in a five-year deal worth $1.1 billion USD between 2017 and 2022. With GCP, Snap secured a five-year deal worth $2.0 billion USD over the same time span. (For more on this topic, see my earlier post: “AWS and GCP Are the Real Winners in Snapchat’s Growth”.)
Before you jump on me about how different Snap is to Zoom, yes, their business models and markets are completely different, but their workloads and product characteristics are quite similar. Both are visual-first communication tools with many end-to-end connections. Both enhance that experience with some levels of augmented reality, e.g. doggie-ear filters and virtual backgrounds. (Zoom even used to support Snap Camera, but recently paused it to focus on more pressing privacy and security issues, to the chagrin of one Kim Kardashian.)
In short, both produce similar types of demand on compute, storage, and network transfer. And technical workloads dictate how a company consumes cloud, not business models.
Government Business Expansion
This alliance could help Zoom do more business with governments, both in the U.S. and other regions. Government contracts are highly sought-after deals in the B2B enterprise business. Even though they are extremely difficult to procure, full of red tape, and political in nature, it’s ultimately worth the trouble, because they become large, steady revenue streams that are hard to replace by competitors.
Oracle is known for its aggressive lobbying practices in Washington, D.C. Perhaps its most aggressive, high-profiled lobbyist is Larry Ellison himself, who is now squarely in Zoom’s corner.
Ellison is also known for having a close relationship with President Trump, from hosting fundraisers to discussing coronavirus treatments. Trump himself has never been shy about abusing his power to enrich himself, his family, or hurt political enemies. The most relevant example in the cloud context is the pending lawsuit Amazon has filed against the Department of Defense for awarding the lucrative JEDI cloud contract, worth at least $10 billion USD, to Microsoft. The lawsuit alleges that Trump used his power to influence the procurement process to hurt Amazon, because Jeff Bezos owns the Washington Post, a media outlet that has been critical of Trump. (Ironically, Oracle Cloud was nowhere near scoring that deal.)
If Trump wins a second term, which is entirely possible, his current tendencies will only grow and amplify unfettered. In that scenario, Ellison may become a more influential voice during Trump’s second term and use that influence to expand Oracle’s business with the Federal government, bringing along its own customers and friends as well.
This thought may not sit well with you from a business ethics and morality perspective, but it’s not baseless speculation. It’s an educated guess based on Trump’s track record on ethics during his first term and how government contracting works in general.
Ellison has shown his willingness to go to bat for Zoom. Lest you think I’m making too big a deal out of his 51-second video, Ellison has never made a Youtube video like this before. It's hosted on Oracle's official channel, not a personal one. What's more, Ellison has probably never publicly mentioned another non-Oracle product positively without also touting an Oracle product. But in this video, he begins and ends with Zoom becoming an “essential service” with no mention of an Oracle product.
For Zoom, having Ellison as a willing lobbyist by its side possibly whispering into Trumps’ receptive ears for four more years, makes a lot of strategic sense. Although Zoom already counts the Departments of Homeland Security and Energy as customers, more business with the U.S. government is the best “disinfectant” to the FUD around its connection with China. During the recent set of bad headlines surrounding Zoom’s poor security implementations and privacy practices, many discussions gravitated toward Zoom’s sizable engineering team in China, its China-based servers, and even Eric Yuan’s own ethnicity.
While I don’t agree with all the China FUD, the stench of FUD is hard to shake off in enterprise and government sales. Oracle is no stranger to dishing out its own FUD; perhaps it can help Zoom get rid of some.
Besides the U.S., Zoom has many opportunities to expand business into other countries’ governments as well. This is an area that Oracle Cloud is somewhat uniquely situated to help with, especially in Europe. If you take a look at Oracle’s global data center coverage, it’s one of the few cloud platforms with a designated government region in Europe with plans to build more.
Parts of the French government are already Oracle Cloud customers, while Zoom’s organic growth has led to at least one Prime Minister in Europe hosting a Cabinet meeting with Zoom and tweeting out an ill-advised screenshot of it. Zoom could grow its government business in Europe on top of Oracle’s existing infrastructure and business relationships in significant ways.
De-Risk Telemetry Access
Before using Oracle, Zoom has been running a multi-cloud infrastructure set up with AWS, Azure, and its own data centers. Thus, “multi-cloud’ in and of itself is not enough to explain why Zoom chose Oracle.
The deeper strategic consideration, I think, is Zoom’s concern with AWS and Azure accessing its telemetry. In plain terms, the “telemetry” of a tech product is all the operational information related to running that product: traffic amount, usage pattern, data created, everything. If you deliver a product on top of a third party cloud platform, that cloud can see all the telemetry data. Such access becomes problematic when that same cloud platform offers a competing product, which is why no big retailer would ever run their e-commerce operation on AWS.
Zoom is rightfully concerned about increasing its reliance on AWS and Azure, both of which provide similar videoconferencing products, Chime and Teams, respectively. GCP probably fell out of consideration as well, because of its own videoconferencing product, Google Meet. Zoom’s concern only became real in the last couple of years if we look at the timeline of these products’ birth:
- Zoom launched its first product in Q1 2013
- Amazon Chime launched in Q1 2017
- Microsoft Teams launched in Q1 2017
- Google Hangouts becomes Meet and Chat in Q1 2017
In particular, Teams has been aggressively making noise in the market, openly competing with Slack and also positioning itself as a Zoom alternative.
Oracle Cloud does not have a competing product. Based on Ellison’s video endorsement of Zoom, Oracle the company appears to be using Zoom wall-to-wall, instead of dog-fooding any internal product under development. To keep Zoom onboard for the long-term, it may never develop a competing product and thus has no incentive to snoop around Zoom’s telemetry.
To be clear, there is no indication yet that Zoom is reducing its usage of AWS or Azure. To handle its current phase of hypergrowth, it could use all the cloud capacity it can get right now. Keeping all its users happy, secure, and trusting of the product is the most immediate task; telemetry access by competitors is a medium-term concern. But if you can de-risk it now, while getting a great discount and an effective lobbyist by your side, why not?
Zoom无疑处在一个强有力的谈判地位。其用户基数从去年12月的1000万，跃升至4月1日的2亿，再跃升至4月22日3亿以上。（更新：在本文出版以后，Zoom官方澄清这个“3亿以上”的数字是指“每天视频会议参与人数”，而不是“每日用户”。）Oracle Cloud还只是云计算市场里的一个小玩家，急需一个大客户来推动自己的增长和形象。从技术资源角度来看，它也有能力吸收像Zoom这样的大用户。在过去几年里，Oracle Cloud还是在积极投资于数据中心的建设和技术研发。另一方面，AWS在谈判地位方面要比Oracle优越些。尽管AWS在Zoom当前的增长高峰期间也提供了折扣，但在对他客户上总体却不是这样。在疫情期间，AWS与它最接近的竞争对手，微软的Azure相比，一直表现得更好。（我几周前在 “Azure有裂痕，AWS很靠谱：COVID-19对云的压力测试” 这篇文章中探讨过这个话题。）因此，各大公司对AWS的服务和可靠性的需求可能比以往都要大。
在大家批评我怎么能把Snap和Zoom做对比之前，请先听我解释：的确，两公司的商业模式和市场完全不同，但是它们在技术上的工作负载和产品特性非常相似。两者都是用户对用户之间的视觉优先通信工具。两者也都有很多AR/VR的功能和体验，例如狗狗耳朵过滤器和虚拟背景。（Zoom甚至曾经支持过Snap Camera，但最近因为要解决更紧迫的隐私和安全问题而暂停了对这个功能的支持，而且让社会名流Kim Kardashian感到懊恼。）
Ellison和Trump总统的关系也很密切，从帮他的大选连任筹款，到对新冠疫情的治疗出点子，Ellison无处不在。Trump本人从不羞于滥用职权来帮自己、帮家人或伤害政敌。在云计算领域，最相关的例子就是Amazon向国防部提起的未决诉讼。Amazon指控国防部把价值至少100亿美元的云计算项目（JEDI）授予微软，是因为Trump在背后利用职权影响了采购过程，从而来伤害Amazon创始人Jeff Bezos。Bezos也是《华盛顿邮报》的老板；《华盛顿邮报》经常批评Trump。（有点讽刺的是，Oracle Cloud在这个招标过程中差的很远。）
- Amazon Chime于2017年第一季度推出
- Google Hangouts在2017年第一季度分成Meet和Chat两个产品