The Keybase to Success: Zoom Accelerates Encryption Plans with Keybase Acquisition

May 31, 2020

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3 min read

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What's going on here?

Wildly popular videoconferencing service Zoom acquires Keybase, a start-up with encryption expertise, following “Zoombombing” issues (uninvited members joining a meeting).

What does this mean?

Zoom, whose daily users have reached 300m during the pandemic, has received heavy criticism about its security measures and “debunked end-to-end encryption (E2E) claims”. Described as ‘misleading marketing’, a report (by Intercept) showed it in fact offers ‘‘transport encryption”, as the terms are commonly understood.  Zoom’s first-ever acquisition will accelerate the building of E2E on the scale Zoom requires.  Keybase, a secure messaging and file-sharing start-up, founded in 2014 by OKCupid co-founders Chris Coyne and Max Krohn, is a decentralised, digital identity and encrypted chat platform which eschews the popular 2FA (Two-factor Authentication) for its own alternative authentication scheme.

What's the big picture effect?

With cybersecurity gaining increased scrutiny as entire economies move online, Zoom’s successful acquisition could not have come at a better time for the firm.  One reporters’ suspension for listening to private Zoom meetings added to growing concerns about the security of Zooms (read our article here).  As part of Zoom’s ‘90-day plan’ to improve defences, including bringing in high-profile security advisers, the E2E encrypted meeting mode will generate “cryptographic identities”.  It will however only be available to paid accounts.  The acquisition has likely provided a quick solution to scrutiny of Zoom’s data privacy practices from both US authorities and the Colombian watchdog.  

Keybase’s user base, typically security-savvy, will likely feel aggrieved – as their information is now owned by Zoom, as is standard with company acquisitions and as outlined  in Keybase’s own privacy policy.  The future of Keybase’s core product is also still to be determined.  Other data privacy concerns lying with Zoom include its theoretical ability to hand over recordings of meetings to government or law enforcement agencies.  Unlike Google, Facebook and Microsoft, who publish transparency reports detailing volume and compliance with government requests for data, Zoom does not publish a report.

Details of the deal remain undisclosed, including purchase price.  Keybase will become a subsidiary of Zoom, and is expected to retain all 25 employees, mostly security engineers, with Max Krohn expected to lead the security engineering team at Zoom.  Keybase was advised by Latham & Watkins. Big tech companies that facilitate remote working will be buyers in the coming M&A post-pandemic resurgence: seeking start-ups that can help them improve their services, taking advantage of lowered valuations to provide fast expansion over organic growth. In this new COVID-19 era, digitalisation and new technology will be the industry drivers.

Tech stocks seem to be immune to this particular virus:  if anything, we are more reliant on tech than ever before.  Companies entering into deals need to ensure they are investing in the right ‘themes’.  Telecoms and cloud services, with key players such as Slack, should see a rise in demand as work from home (WFH) culture continues.  Whilst a financial downturn typically heralds a decline in M&A activity (which has already seen a global decline of 39% between 1Q2019 and 1Q2020 – a reduction from $956bn to $618bn in M&A value), big tech is well positioned to dominate M&A deals during this time.  As such, law firms would be well advised to continue investing in their tech capabilities to accommodate this development. 

Report written by Sophie Belcher

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