What Zoom's IPO says about the video collaboration space
Zoom's initial public offering will represent a milestone on many fronts, but it'll mostly be an indictment on a technology category that has repeatedly disappointed, failed to be cloud native and ultimately caused way too many meeting headaches.
For anyone that frequently has meetings with screen sharing, voice, and video, Zoom's ability to land paying customers, garner a strong following, and grow quickly isn't that surprising. After all, Zoom just kind works. Microsoft's Skype for Business historically has been terrible. Cisco's WebEx has improved over time, but can be clunky. You can run through this entire Gartner Magic Quadrant on meeting technology and find a gripe with most of them.
Zoom has somehow overcome those gripes. At ZDNet, we use it for everything from video production to team meetings. It's handy. As for the others, I'll let my recent tweet on Skype for Business tell the tale. Yes, I know Microsoft Teams is supposed to save the day, but I'll believe it when I see it.
To whom it may concern. There's no need to frustrate a user base with collaboration and conferencing crap that doesn't work. After another failed Skype for Business call I'm done. There are plenty of collaboration tools that just work. Use them.
— Larry Dignan (@ldignan) April 11, 2019
Now when you read Zoom's risk factors, it's clear there are some big guns in the video collaboration space, but there is nothing in recent history that'll indicate these giants will get collaboration right. Add it up, and Zoom had wiggle room to raise its IPO price range to $33 to $35. Zoom ultimately priced its shares at $36 in a sign of strong demand.
Zoom sums up why it's successful in two paragraphs. Here's a long-winded reason why Zoom is successful:
We have a unique model that combines viral enthusiasm for our platform with a multipronged go-to-market strategy for optimal efficiency. Viral enthusiasm begins with our users as they experience our platform – it just works. This enthusiasm continues as meeting participants become paid hosts and as businesses of all sizes become our customers. Our sales efforts funnel this viral demand into routes-to-market that are optimized for each customer opportunity, which can include our direct sales force, online channel, resellers and strategic partners. Our sales model allows us to efficiently turn a single non-paying user into a full enterprise deployment. For the fiscal year ended January 31, 2019, 55% of our 344 customers that contributed more than $100,000 of revenue started with at least one free host prior to subscribing. These 344 customers contributed 30% of revenue in the fiscal year ended January 31, 2019.
The short version? It just works.
And the technology approach:
Our architecture is video-first, cloud-native and optimized to dynamically process and deliver reliable, high-quality video across devices. Our approach to video has been substantially different from that taken by others who have attempted to add video to an aging, pre-existing conference call or chat tool. We developed a proprietary multimedia router optimized for the cloud that separates content processing from the transporting and mixing of streams. Our globally distributed cloud architecture delivers a differentiated user experience.
Not surprisingly Zoom is profitable because if people don't have to travel and are more productive enterprises can generate returns on investment. The Zoom story is similar to the Slack tale. In fact, once both companies go public perhaps they'll merge.
For now Zoom is doing just swell. For the year ended Jan. 31, Zoom reported net income of $7.58 million on revenue of $330.5 million. up from $151.5 million in fiscal 2018.
Zoom operates its own data centers and bursts to the public cloud as needed. The technology approach is decidedly pragmatic. Zoom does warn that growth may slow over time, but the company is deploying tried and true enterprise sales techniques that will likely pay off.
First, Zoom is covering all the key price points for enterprises of all sizes.
And then you expand with phone services and going vertical. The vertical approach is the real cash cow potential. For instance, Zoom for telehealth is HIPAA compliant with plans starting at $200 a month. News flash: It's early for telehealth applications, but rest assured insurers and healthcare players will push it.
Zoom for education is a way to produce a nice base of future users. Zoom is also targeting financial services as well as government. This vertical model isn't unique, but it does work well, and Zoom is ahead of rivals. Zoom has also created a nice application ecosystem and integrates with core enterprise tools.
Perhaps the main question to ask about Zoom's success is how established players blew it on video collaboration. There's an innovator dilemma case study as well as one that revolves around salvaging old code and approaches.
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