The Zoom Business Model – How does Zoom make money? [2020 Best Companies]

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The Zoom Business Model

How does Zoom make money? Read on to know more about this and learn about the Company Background, Funding, Valuation, Revenue, Users, Employees and the Revenue Model of Zoom.

Company Profile

What is Zoom?

Zoom Video Communications, Inc. is a communications technology company, which provides a cloud-based video and audio conferencing as well as chat services. Zoom’s mission is to make video communications frictionless.  It is suitable for small, medium and large enterprises as well as for personal use for individuals.

The business model of Zoom is making money primarily through the sales of subscriptions on its products, while giving away its basic subscription for free.

  • Founded – 2011
  • Founder(s) – Eric Yuan
  • CEO – Eric Yuan
  • Headquarters – San Jose, California
  • Type – Public
  • Industry – Telecom Services
  • Competitors – BlueJeans | UberConference | Microsoft Teams | Cisco Webex Teams | Google Hangouts

The workplace demographics is changing. Millennials make up 35% of the U.S. workforce. This demographic highly values flexibility and agility in their work environment, and expect technology to meet their needs and work seamlessly. Moreover, organizations are becoming increasingly distributed, partly because of the advancement in Mobile and cloud technologies and ubiquitous network connectivity and for the most part because of COVID-19.

In these times of remote working and social distancing due to COVID-19, the way people work is rapidly changing. Videoconferencing apps have become the go to apps for us to communicate with our coworkers, family and friends and for us to have some semblance of a social life.

Organizations must evolve their approach to communication and collaboration in response to the changing trends.  Zoom is one such communication and collaboration solution which has proved to be reliable without compromising quality, easy to use, easy to deploy, scalable, easily integrated, flexible and provides an attractive return on investment.

How does Zoom work?

You can use Zoom to make video calls on your smartphone, desktop or tablet. Zoom is available as a desktop app for Windows and macOS and there are apps for Zoom available on the App Store as well as in the Google Play Store. It is also available as Chrome and Firefox browser extensions and as an Outlook plugin, which makes it completely hassle free to join video meetings through Zoom.

With Zoom Meetings you can easily schedule a meeting, join a meeting or host a meeting. You can have one-on-one meetings or group meetings. Zoom allows you to share your screen, mute/unmute your mic, start/stop video,  invite others to the meeting, record your meeting, live chat during the meeting and change your screen name as well. In addition, you can create polls, broadcast Facebook live and much more. 

How was Zoom started?

The Zoom Business Model - How does Zoom make money?
Eric Yuan, the founder and CEO of Zoom

Eric Yuan, the founder of Zoom started the company in 2011. He was born and raised in China’s Shandong province and his parents were geology engineers. After completing his undergraduate and graduate degrees, Yuan lived in Bejing. He met his girlfriend, now wife, while he was a master’s student  at China University of Mining and Technology in Beijing.

Working in video technology appealed to him since since he took 10 hour train rides to visit his girlfriend and he wanted to make those visits easier. While visiting Japan for a training program, he was inspired by Bill Gates who spoke in Japan. This motivated him to come to the United States. However, his English was not so great at that time and his visa was rejected eight times before he finally came to the US in 1997.  

Yuan joined WebEx, a web conferencing startup, as one of its first 20 engineers. WebEx was later acquired by Cisco in 2007 and Yuan became the VP of Engineering at Cisco. During his interaction with customers of WebEx, he found that customers were not happy with the product and it did not meet their expectations. Each time users logged into a WebEx conference, the system would have to identify the version of the product (Android, iPhone, Mac or PC). Too many users logging in to the conference led to a decline in the audio and video quality. 

Yuan stayed for more than four years with Cisco after the acquisition, during which he wanted to fix these problems with the WebEx product and develop a smartphone friendly video conferencing system. He pitched his idea to his management at Cisco. However, after he was turned down, he grew increasingly frustrated and unhappy and left Cisco to found Saasbee followed by 40 engineers from Cisco (truly, Cisco’s loss).

When Yuan left Cisco, he initially struggled to convince Venture Capital firms to invest in Saasbee.  At that time several VCs refused to back his company because established players such as Skype (acquired by Microsoft in 2011), Google and Cisco already had a strong foothold in this space.  Another startup, BlueJeans had already raised tens of millions of dollars. VCs were naturally skeptical. Eventually, it was his friends and angel investors who provided the $3 million in seed funding and invested in Saasbee. A year later, Saasbee was renamed as Zoom Video Communications, Inc.

Four months later, Zoom launched the first version of its product, which allowed 15 people to video chat at once.  At the time of Zoom’s entry into the market, legacy communication tools that enterprises used had failed to address the evolving nature of work. They had substandard technology, expensive deployments, complicated interfaces and aging, proprietary architectures. As a result, organizations had to deploy disparate and siloed technologies to address video, voice, email, chat and content sharing. These disparate technologies were difficult for employees to adopt and navigate and cumbersome and expensive for IT to support and manage.

Zoom’s approach to video was substantially different from the approach taken by competitors who attempted to add video to a legacy conference call or chat tool. Zoom was developed with a video first approach. One of the most important features of Zoom is its broad interoperability with a range of diverse devices, operating systems and third-party applications. Zoom is accessible from the web and from devices running Windows, Mac OS, iOS, Android and Linux.

Zoom’s Growth

Three months after launch, in November 2012, Zoom signed up Stanford Continuing Education as its first customer. Five months from launch, Zoom had 500,000 daily meeting participants and 1000 businesses on its platform. In two years from founding, Zoom had 1M users on its platform, 3,500 businesses on its platform in 2,500 cities worldwide. Today, more than half of Fortune 500 companies use Zoom. 

Zoom’s Funding, Valuation, Revenue, Users and Employees

1. How much Funding has Zoom raised?

Zoom has raised $164.8M in total funding across 5 funding rounds. Sequoia Capital and Emergence Capital participated in the Series D funding round in 2017. The post money valuation at the time for Zoom was $1B.  Zoom filed to go public in March 2019, when it was already profitable and it starting trading in April 2019, raising $356.8 million in its IPO and trading for as high as $66, when the company had priced its shares at $36. This shows the confidence that investors have in Zoom. Today in 2020, Zoom trades for more than $400. 

2. What is Zoom’s valuation?

Zoom’s market cap now stands at more than $129 billion, up from $25 billion a year ago. This is a testament to its great products, easy to use interface and user experience.

3. What is Zoom’s Revenue?

Zoom revenue increased from $330.5 million in 2019 to $622.7 million in 2020, up 88% year-over-year.

4. How many users does Zoom have?

Zoom has  more than 300 million daily meeting participants and averaged 148.4 million monthly active users in Q3 of 2020. 

5. How many Employees does Zoom have?

Zoom has 2854 employees. 

How does Zoom make money?

If Zoom video conferencing can be used for free, how does Zoom make money? Zoom makes money primarily through the sales of subscriptions on its products.  Zoom’s revenue model is a cloud based “freemium” business model. In this model, the basic product or service is free but users pay for a premium version with additional features. The idea behind this model is that the product can gain traction through its free users who will eventually convert to paying customers.  Zoom has mastered this model as it has gained a huge user base by giving the high quality Zoom app as a free version, yet has managed to make money on its premium offerings. 

The Zoom Business Model - How does Zoom make money?
How does Zoom make money?

1. Zoom Meetings

The Zoom Cloud Meetings solution is the company’s core offering. It allows users to connect through audio and video as well as chat, where users can share text, images audio files, etc. Zoom Meetings has four tiers of membership, basic, pro, business and enterprise.  The Zoom meeting app is available for the desktop and as a mobile app for iOS and Android. Here are the details of each of the tiers and the pricing.

Zoom basic

This tier is free and is great for personal use. It allows meetings for 40 minutes or less for free.  You can host up to 100 participants and host unlimited 1:1 meetings. Meetings can be recorded locally. 

Zoom Pro

This tier is great for small teams and allows unlimited zoom video conferencing meetings up to 100 participants and the cost is $149.90 /year/license. It allows for Social Media Streaming and local as well as cloud recording  up to 1 GB (per license). This option is great for small teams and allows for the purchase of 9 licenses per account.

Zoom Business

This tier is great for small and medium businesses and hosts up to 300 participants in a zoom cloud meetings. It is priced at $199.90 /year/license starting at 10 licenses for $1,999.00/year with Single Sign-On. You can host up to 300 participants and access cloud recording transcripts, which are audio transcripts that transcribe the audio of a meeting or webinar that you record to the cloud. This is currently supported for the English language.  With the Managed Domains feature you can use your company/university email address domain to add users to your account automatically. With the Branding feature, you can add your company’s branding to your own customized page where your users can join a meeting. You can also create a branded email template to send invites to attendees.

Zoom Enterprise

This tier is apt for large enterprises and hosts up to to 500 participants in zoom video meetings. It can host up to 1000 participants with an Enterprise+ Plan. This plan which is priced at $199.90 /year/license starting at 100 licenses for $19,990.00/year has unlimited cloud storage, a dedicated customer success manager and transcription benefits.

Other solutions that Zoom has include the Zoom Phone, Zoom Video Webinar and Zoom Rooms. 

2. Zoom Rooms

Zoom Rooms are ideal for enterprises and require an additional subscription with a Zoom subscription.  Zoom Rooms is a software-based video conferencing system which uses off-the-shelf, hardware for cameras, speakers, and monitors – making it the most flexible video solution for any of your rooms.  This solution is priced at $499.00/year/room and you can purchase up to 49 Zoom Rooms licenses online.  If customers already have conference rooms setup using existing vendors, they can use the Zoom conference room connector to start Zoom Meetings directly from existing conference room systems. If not, they can purchase hardware from Zoom’s hardware partners. Zoom also provides customers with installation support for the conference rooms.

3. Zoom Phone

Zoom Phone is a simple and straightforward cloud calling solution designed for Zoom users who want to set up quick calls without video. The Zoom Phone experience turns Zoom into a fully-featured communication and collaboration product, complete with voice, conferencing, messaging, and video in the same solution.

4. Zoom Webinar

Zoom Video Webinar allows you to broadcast a Zoom meeting to up to 10,000 view-only attendees, depending on the size of your webinar license.  Webinars can be held once, can reoccur in a series, or can be the same session held multiple times. Zoom webinar is priced ranging from $400.00 /year/license for 100 attendees  to $64,900.00 /year/license for 10,000 attendees. This solution can be used for holding townhalls, presentations and trainings.

In this age of collaboration, products that integrate with other products seamlessly are preferred. Zoom has integrations with Atlassian, Dropbox, Google, LinkedIn, Microsoft, Salesforce, Slack and a variety of other productivity, collaboration, data management and security vendors.

Zoom also provides special plans for education, healthcare and government sectors.

Is Zoom Secure?

Zoom was designed with enterprises in mind, so there is an expectation of higher security and privacy. However, Zoom has come under fire for the privacy and security issues that have cropped up recently. Zoom has been sued a total of 17 times in April alone, ranging from securities fraud to breach of contract for privacy violations and for false and misleading statements about it security and privacy practices.

Zoom Security and Privacy Issues

A class action lawsuit has claimed that Zoom has allowed companies such as Facebook and LinkedIn to eavesdrop on their conversations. The argument is that Facebook should have informed users and obtained their consent. The lawsuit claims that Zoom collects user data and sends it to LinkedIn for Zoom users to subscribed to a the sales prospecting services called LinkedIn Sales Navigator. Once a Zoom user enabled the feature, they could view LinkedIn profile data for people in the Zoom meeting by clicking on a LinkedIn icon next to their names. Zoom allegedly did this without consent from its users.

The lawsuit further claims that Zoom users had their personally identifying information leaked, including their email address and photo, and were offered for sale on the dark web. The gave strangers the ability to start a video call with them through Zoom.

Furthermore, hackers were able to take over actions of users on the Zoom web and install malware on computers using Zoom software. A security flaw in Zoom enabled hackers to disrupt meetings without even being on the call and take over a user’s account, called Zoombombing. Hackers could also secretly observe users’ video calls. These issues were addressed by Zoom in 3 months, although some claim that this took too long to address.

Another lawsuit against Zoom claims that Zoom did not provide end-to-end encryption as it had promised its users. As a result, the company had access to all the videos and audios on its platform. Initially, in May 2020, after these privacy concerns surfaced, Zoom announced that it was providing an end-to-end encryption feature. However, there was an uproar after the CEO, Eric Yuan mentioned on the earnings call that this feature would only be available to paid users. Since then, in October 2020, Zoom has announced it was rolling out the end-to-end encryption for both paid and free users.

Zoom has a lot of fixes to make both on its PR side as well as on the security and privacy side and the company is working hard to address these issues.

The Success of Zoom

Zoom’s success results from a culture that is focused on customer and employee happiness, a video-first cloud solution, viral demand, an efficient go-to-market strategy and superior customer support.  A critical part of this success is the the leadership of Eric Yuan, who has provided overall management direction, strategic vision and engineering direction for product development, in addition to setting the bar for company culture and operations. 

Zoom’s customer satisfaction and delight is reflected in its average Net Promoter Score which is over 90. Gartner named Zoom a Leader in its Magic Quadrant for Meeting Solutions based on its “ability to execute” and “completeness of vision.” Zoom also has consistently high scores across customer review sites.

Zoom’s scalable and sustainable business model based with its success with customers of all sizes across industry verticals and geographies has contributed to its rapid revenue growth and profitability. With its strong leadership, committed team and mission of providing customers with easy to use communication and collaboration solutions, Zoom is firmly positioned as a market leader in the telecommunication services industry.

References

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