A cloud-based conferencing platform that allows its users to interact via one another through its audio, video, and chatting tools, Zoom has gained popularity in recent years. This is due to Zoom’s competitive advantage over its contemporaries centered around its well-designed and easy-to-use interface and its excellent audio and video output quality.
So how does Zoom make money? For its business model, Zoom charges a recurring subscription fee for the companies and individuals who use its products. Additionally, the company also earns revenue from hardware product promotion. We’ll discuss that in detail in this article.
However, before becoming an overnight success because of its superior products, Zoom was first founded by a former Cisco executive way back in 2011, later developing into a full-blown company IPO back in 2019. Nowadays, Zoom has found continued success even with a global pandemic, all thanks to businesses that needed to start telecommuting to run.
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So How Does Zoom Work?
Before discussing how Zoom makes money, we need to understand how it works. Much like platforms before it, Zoom connects its users via chat, audio, and video, mainly combining all three. However, Zoom relies on cloud-based SaaS technology for it to work.
Through this technology, Zoom users can conduct anything from one-on-one meetings to video conferences that have an audience of 500 people. Users can also use screen sharing to either distribute information or just to better coordinate with one another.
To that end, Zoom Meetings and Zoom Rooms are at the core of the company’s worldwide adoption, especially in today’s digital age.
True to its ease-of-use and accessibility, users can hold or attend Zoom Meetings via mobile, desktop, or web browser applications. The Chat supplements this, providing a way for users to chat and share files, among others. Zoom offers integration with Calendly, a fantastic meeting scheduling tool, and Miro a whiteboard, that helps in the visual collaboration of remote teams.
When there’s a need for something bigger, Zoom Rooms and Workspaces provide an answer. This product allows businesses to hold more important meetings across different offices and spaces.
And to top it all off, Zoom also offers its hardware to make integration easier. The hardware itself is in collaboration with other prominent manufacturers in the industry.
Zoom has also developed other products such as:
Zoom phone:
This phone system offers features like automated attendants, dialing persona, intelligent call routing, and so much more. All this is possible due to cloud-based technology.
Zoom video webinars:
A conferencing platform that provides businesses with an easy way to hold large online events, complete with audio, video, and screen sharing for its participants.
An App marketplace:
Through this, users can enhance their experience of using Zoom products by installing third-party applications like Calendly, Trello, or Slack.
These products, along with other Zoom applications and hardware, are available globally. The company counts worldwide renowned businesses as customers, including Uber, Rakuten, TransferWise, and many more.
Zoom – A Short History
Before getting into the details of how Zoom makes money, we have to discuss its history. Zoom is the brainchild of its CEO Eric Yuan, a former executive at Cisco. He founded the conferencing company back in 2011.
Before starting Zoom, however, Yuan spent almost a decade and a half leading engineering teams from WebEx and Cisco (after its WebEx acquisition in 2007.) After he succeeded in getting his 9th visa application, Yuan hopped aboard as one of WebEx’s first software engineers.
While at Cisco, Yuan noted that he often saw their customers get frustrated as the company couldn’t accurately listen to their demands.
For example, the company’s systems always need to classify whether it needs to launch the Android, iPhone, Mac, or PC version of a product whenever a user logs onto a WebEx conference. This slowed things down. Even more so if too many people try to join all at once, as it strains the connection. This leads to worse audio and video quality. Additionally, features like screen-sharing were largely absent in mobile phone versions.
Yuan Leaves Cisco to Start Zoom
And so, Yuan decided to leave the company along with 40 Cisco engineers in 2011 to start their own venture.
Initially, Zoom started out as Saasbee before rebranding not long after. It was also a rough start, as Zoom could not attract many investors. This was because nobody believed that existing giants like Skype, Hangouts, and Yuan’s former company WebEx, could be replaced.
Thankfully, $3 million would be raised for Zoom’s seed round not long after, all thanks to Yuan’s specialized experience and his network, which included Subrah Iyar, WebEx’s former CEO. Come 2013, Zoom would finally launch its first offering and announce a $6 million Series A round.
Immediately, this product would stand out from its competitors, earning it the title of a video conferencing industry leader. Unlike before, hosting video conferences with 40 people can now be done easily. What’s more, it can be easily integrated into all hardware platforms.
Additionally, Zoom’s prices were also significantly lower than its competition, which attracted a lot of customers right from the start. In fact, it led to a customer base of over 1,000 businesses not long after its launch. Soon after, Zoom would cross 1 million participants by May 2013, a milestone for the young company.
Zoom’s Continued Success
Over the years, Zoom’s platform would steadily earn more customers while adding more features.
The company’s continued success would then lead to the company’s IPO in April 2019. By this time, Zoom was already operating on a profit, not only surprising many investors but also standing out in contrast to its tech contemporaries like Pinterest, Lyft, and Uber, all of which continued to operate at a loss.
By 2020, Zoom would rise to worldwide prominence under the COVID pandemic, as companies used it to organize processes and switch to telecommuting. This worldwide fame, however, came with a few setbacks, such as backlash from the way the company dealt with security matters.
For example, there were instances of “Zoombombing,” which is when uninvited people manage to join ongoing meetings. This led to a few incidents, such as a recent Holocaust memorial getting disrespected by “Zoombombers” that bombarded it with photos of Hitler.
This led to multiple government entities advising their administrative workers against using the platform. Reports state that there are currently more than half a million Zoom accounts being sold on both hacker forums and on the dark web.
As a response, the company then improved its security features and acquired Keybase, a messaging platform. Nevertheless, the company continued to rise, with its stocks tripling in value. Ok, now let’s discuss in detail: how does Zoom make money?
How Does Zoom Make Money?
Ok, so how does Zoom make money? Zoom offers a wide range of products, all of which are aimed towards both businesses and individuals.
As for its business model, Zoom operates on a “freemium model,” which means that while customers can use Chat and Meetings for free, you’ll need to pay for advanced features and greater hosting capacity. For example, users can host meetings with 100 people for up to 40 minutes. If you need longer time and more users, there are Zoom’s premium plans.
Additionally, this freemium model familiarizes customers with Zoom, all while increasing awareness about the products.
Let’s look into each revenue layer in more detail here:
Zoom Meetings & Chats
As Zoom’s flagship product, it lets people join video calls or chat via the application. It’s also available on all platforms, like desktop and mobile.
Using this version for free limits meeting times to only 40 minutes and 100 attendees, and lifting these restrictions require paying a monthly subscription. For businesses, this means either a monthly payment of $14.00 or $149.90 annually.
Zoom Rooms & Workspaces
This product is aimed at organizations that hold video meetings from time to time and is guaranteed to run as smoothly as possible. Additionally, customers can also make use of products from hardware providers like Cisco and Polycom, as well as purchase from providers certified by Zoom.
For this product, Zoom charges a monthly subscription fee of $49 per installed conference room. When billed annually, the price goes down to only $41.58.
Furthermore, Zoom also ensures its customers get the needed hardware tools by partnering up with manufacturers like Aver or DTEN, among others. These providers then pay a percentage with every hardware sale, while Zoom continues to promote its products to its users.
Zoom Phone
If you prefer quick calls without video, then the Zoom phone is for you. Using cloud-calling tech, users can then make a VoIP call, with the same Zoom tools found in its Meetings product available to them.
Other features include:
- AI-assisted call management and routing
- Call recording and voicemail.
- Secure HD audio for clear conversations
- Auto-attendant and IVR tools to redirect calls to qualified agents and many others.
Users are charged a monthly fee of $14.99 for every host, which also goes down to $12.49 when billed per year.
Zoom Video Webinars
True to its name, these Webinars allow Zoom users to broadcast a Zoom meeting with up to 10,000 view-only attendees/viewers. Depending on the license purchased by the user, these Webinars start at a 100-person capacity and gradually scale up.
Webinar organizers can share their screen, video, and audio, while webinar attendees can interact by either using the chat or participating in question and answer options from the host. Additionally, webinar hosts can also set the privacy settings to make registrations optional or mandatory. Furthermore, these webinars can also either be held once or multiple times, even reoccur successively.
As for pricing, the Webinar product starts at only $14.99 per month and users monthly. Additionally, a webinar license must also be bought, the price of which depends on the number of its attendees.
Lastly, special packages to organizations in the Education, Finance, Healthcare, and Government industries are also provided by Zoom.
For example, if a school pays $1,800 annually, they can unlock 20 hosts, as well as get access to Zoom’s premium features.
Zoom Funding, Valuation & Revenue
Per data from Crunchbase, a total of $146 million was raised by Zoom since its initial founding, all through six rounds of venture capital funding. Notable investors include Emergence Capital, Horizons Ventures, and Sequoia Capital, among others.
Additionally, the company’s IPO, which was originally announced back in April 2019, was also able to raise a total of $356.8 million. From there, the company would make its debut on the Nasdaq stock exchange, using ZM as its ticker symbol. It’s also worth noting that while Zoom’s tech counterparts that also went public in 2019 operated at a loss, Zoom was already profitable.
In fact, the company earned a total of $7.58 million in net income for the fiscal year 2018. Come 2019, Zoom would post its revenue of $622.7 million, equivalent to an 88% year-over-year increase. Overall income also rose to $21.7 million, with the company currently valued at around $47 billion.
Hopefully, you feel comfortable with the answer to the question – How does Zoom make money?
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