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Did Zoom Just Solve Its Security Problem?

By Danny Vena – May 7, 2020 at 7:13PM

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The videoconferencing specialist just made an acquisition it hopes will help it better secure its platform.

One of the biggest winners of the stay-at-home and remote work orders blanketing the world has been Zoom Video Communications (ZM -0.12%). The company's videoconferencing platform became the go-to for many schools and businesses working from home in order to replace face-to-face meetings.

That hasn't been without challenges. As the number of users soared, hackers and other bad actors sought to disrupt the proceedings by crashing unsecured classes and meetings with obscenities, racism, and pornography. Zoom rushed to reassure users and investors, redirecting its research and development efforts to focus on platform security.

Now, the company has taken a major step toward achieving its goals. Zoom announced on Thursday that it has acquired privately held secure messaging and file-sharing service Keybase.

A man participating in a Zoom videoconference meeting with a dozen other people.

Image source: Zoom.

Encryption expertise

In a statement, Zoom said, "the acquisition of this exceptional team of security and encryption engineers will accelerate Zoom's plan to build end-to-end encryption that can reach current Zoom scalability." The company didn't reveal the cost of the deal. 

Since it was founded in early 2014, Keybase has focused on developing encryption tools, including Keybase Teams -- a secure file-sharing and collaboration platform that rivals Slack

In a blog post to discuss the acquisition, CEO Eric Yuan called the purchase "[a]nother milestone in Zoom's 90-day plan to further strengthen the security of our video communications platform. ... This acquisition marks a key step for Zoom as we attempt to accomplish the creation of a truly private video communications platform that can scale to hundreds of millions of participants, while also having the flexibility to support Zoom's wide variety of uses." Yuan went on to say that in the near future Zoom would offer an end-to-end encrypted meeting mode to all paid accounts. 

Growing pains

The need for remote work, school, and meetings in general came at a time when Zoom was already experiencing rapid growth. In early March -- before the pandemic really took hold -- Zoom reported the results of its fiscal fourth quarter, which ended Jan. 31, 2020. Revenue grew 78% year over year, while delivering earnings per share of $0.05, up five-fold from the prior-year quarter.

When the pandemic struck, Zoom's user base skyrocketed. The company went from 10 million users to close out 2019, to more than 300 million by late April. The ballooning number of users resulted in a host of security issues, including hackers and others gaining unauthorized access and disrupting meetings in a practice the FBI labeled "Zoom-bombing." The security flaws that allowed this behavior caused a number of governments, schools, and large corporations to ban employees from using the platform.

Zoom responded by repurposing its research and development teams, putting a moratorium on new features in favor of locking down the platform and preventing unauthorized access. It also instituted a 90-day plan to bolster its security.

A group of people in a meeting using Facebook's Messenger Rooms.

Facebook wants to cash in on these group meetings. Image source: Facebook.

A lucrative opportunity means increasing competition

Tech giants far and wide saw the massive adoption of Zoom's platform and rushed to capture a piece of the pie.

Microsoft (MSFT -0.29%) was already a big player in the field and announced in late April that its Teams service boasted 75 million daily active users (DAUs), adding a whopping 31 million in just six weeks. 

Late last month, Facebook (META 0.04%) said it was releasing a new tool called Messenger Rooms, which would "soon" support up to 50 people at a time in a group video chat with no time limit. Just days later, Alphabet (GOOGL -0.69%) (GOOG -1.39%) announced that Google Meet would be free to anyone with a Google account and would permit meetings of up to 100 people, again without a time limit.

Everyone's gunning for the king of the hill

Zoom has become so popular that its name has become a verb -- "Let's Zoom tomorrow." That makes it the incumbent, with everyone else rushing to cash in on the action. The acquisition of Keybase is a big step toward locking down its platform, a step that Zoom will have to get right in order to keep a growing list of competitors at bay.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Danny Vena owns shares of Alphabet (A shares), Facebook, and Zoom Video Communications. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Facebook, Microsoft, Slack Technologies, and Zoom Video Communications and recommends the following options: long January 2021 $85 calls on Microsoft, short January 2021 $115 calls on Microsoft, and short May 2020 $120 calls on Zoom Video Communications. The Motley Fool has a disclosure policy.

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