Users can virtually communicate with one another through audio, video, and chat using Zoom, a cloud-based conferencing tool. The company’s competitive advantage is based on the product’s user-friendliness and high-quality audio/video output.
How does zoom make money? Zoom generates revenue through hardware rentals, subscription fees, and add-on services.
Before we look at Zoom’s Business Model, let’s discover the fascinating history of what might seem to be an overnight success.
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What Is Zoom?
Online face-to-face communication is made simpler with the help of Zoom, a cloud-based video conferencing platform. Zoom is frequently used for teleconferences, remote work, and distance education. In San Jose, California, the business was started in 2011. Zoom trades on the NASDAQ under the ticker ZM. The stock is trading at $153 per share as of February 1, 2022.
Zoom Business Model
Because it offers better quality and less lag time than rivals like Google Hangouts, TeamViewer, and Microsoft Teams, Zoom has emerged as a market leader in video chat and teleconferencing. Zoom has a robust, ad-free free service, but it also offers a paid subscription service. In order to assist those looking for the best video conferencing solutions, Zoom also rents out equipment.
How Does Zoom Make Money?
The three sources of revenue for Zoom. The first are its add-on services, hardware rentals, and subscription services. In 2020, the business brought in $622.7 million in revenue and made a net profit of $21.7 million. With $2.65 billion in sales, it experienced an increase of more than 300%. 68% of Zoom’s revenue is generated by Americans and American businesses.
1. Subscriptions
There are various service tiers offered by Zoom. The free service that participants can use Zoom for meetings lasting 40 minutes or less with fewer than 100 people is one of its most well-liked features. Users can then purchase a phone plan for $10 per month for each user. The first license for the video conferencing Pro plan costs $14.99 per month. Up to 99 licenses and 300 participants are allowed under the Business plan, which costs $19.99 per license per month. In addition, Zoom offers hybrid plans for educators starting at $7.50 per student license and for small medical practices starting at $14.99 monthly for telehealth portals.
2. Hardware Sales
In addition to its software products, Zoom also provides a range of hardware accessories that improve the functionality of its software platform.
To be more precise, Zoom provides a wide range of phones, tablets, speakers, whiteboards, and other devices.
These goods are provided in conjunction with other hardware producers like DTEN, Yealink, Neat., and more.
Then, customers pay a monthly subscription fee for each piece of hardware they purchase.
The manufacturer of the hardware equipment that handles installation and maintenance is then split the revenue by Zoom.
3. Add-on Services
Users of Zoom can pay a fee to add particular services to the standard zoom call. Depending on the required storage size, Zoom conference recordings can be purchased for $40 to $500 per month. Users can upgrade meetings and webinars with audio conferencing for $100 per month. Users who frequently hold large meetings will want to purchase additional capacity, which can cost $50 per month for 500 participants or $90 per month for 1,000 participants. Room connectors are available for $49 per month per connector and help desktops, mobile devices, and other endpoints communicate with Zoom.
4. Advertising
The advertisements that Zoom plays after a meeting starts are a second, albeit very minor, source of income.
Ads, which were first introduced in November 2021, are only shown to free Basic users who do not pay for the product.
As a result, Zoom can now monetize its non-paying customers who neither want nor need to do so.
Zoom is most likely paid per impression, just like with any other type of online advertising. In other words, Zoom makes a little money each time a user sees an advertisement.
With tens of millions of active users, this can quickly compound into a sizable portion of revenue.
5. Investments
As previously mentioned, Zoom unveiled a fund in April 2021 with which it would invest in startups that built on top of its ecosystem.
Out of its $100 million Zoom Apps Fund, Zoom has made investments in more than 20 startups over the course of 2021.
Every time Zoom is successful in raising more money than it paid for the shares of the businesses it invests in, it makes money from the fund.
It must be remembered that a liquidation event of this nature is probably not going to happen for a while. When existing investors have the opportunity to cash out during a second funding round, a sale, or an IPO, Zoom may sell those shares.
The objective is to actually improve the environment surrounding its product, in addition to profiting from those investments.
This enables Zoom to bring on a completely new group of clients, some of whom may have originated from the startups it finances. Furthermore, Zoom’s products become more appealing in general the more integrations they have.
In order to facilitate the integration of other software firms into Zoom’s product line, Zoom has also launched its own app marketplace. However, Zoom does not currently monetize its app marketplace but may do so in the future, for instance by levying a listing fee or taking a percentage of each sale.
A Short History Of Zoom
A former executive at the video and web conferencing company Cisco WebEx, Eric Yuan (CEO) founded Zoom in 2011.
Yuan led various engineering teams for 14 years prior to founding Zoom, first at WebEx and then at Cisco following the latter’s 2007 acquisition of WebEx.
He joined WebEx as one of the company’s first software engineers in 1997 after his 9th visa application finally got approved.
He frequently observed how angry Cisco’s clients were with the company’s failure to pay attention to their needs and the slow product iteration cycle.
For instance, the company’s systems had to determine whether to use the Android, iPhone, Mac, or PC version of a product each time a user logged into a WebEx conference, which significantly slowed things down. When there were too many callers, the connection became very strained, resulting in poor audio and video quality. Additionally, mobile screen-sharing functionality was missing from the applications.
In 2011, Yuan made the decision to leave his job and go it alone, making sure to bring a group of 40 Cisco engineers along for the journey.
The business was initially known as Saasbee before changing its name to Zoom. In the beginning, Zoom struggled to find investors because they didn’t think it was possible to unseat established juggernauts like Skype, Hangouts (by Google), and WebEx.
Fortunately, Yuan’s network, which included former WebEx CEO Subrah Iyar, and his extensive technical experience gave him the credibility needed to raise $3 million for Zoom’s seed round.
After waiting for two years, Zoom finally released its first product in 2013 (along with the news of a $6 million Series A round).
The product’s superior quality immediately stood out, helping the small software startup grow to become one of the top players in the video conferencing market. On all hardware platforms (i.e. desktop, mobile, tablet) with the ability to host 40 people at the same time.
Customers flocked to Zoom immediately because its prices were significantly lower. The business quickly grew to have over 1,000 clients, who together hosted 140,000 meetings after the company’s launch. Zoom had more than one million participants by May 2013.
Zoom quietly increased both the number of customers using its platform and the number of features over time.
The business’s IPO in April 2019 was the culmination of its ongoing success. At the time, Zoom’s operation on a profit caught many investors off guard. This stood in stark contrast to its tech competitors, such as Uber, Lyft, or Pinterest, which continued to lose money at excessive rates.
Zoom gained popularity around the world in 2020 as a result of the coronavirus pandemic as many businesses started utilizing it to host meetings and arrange their business operations. The company faced some criticism for its handling of security issues as it rose to international fame.
There were several reported instances of unintended people joining existing meetings, a term referred to as Zoombombing. For instance, a recent Holocaust memorial was vandalized and inundated with pictures of Hitler.
Is Zoom Profitable?
After its initial public offering (IPO) in April of that year, Zoom started to turn a profit. The COVID-19 lockdown contributed to the company’s increased profitability, which helped it achieve a net profit of $671 million in the fiscal year 2021. In contrast to just $22 million in the 2020 fiscal year, Statista estimates.
The Bottom Line
A useful free video calling option is Zoom. It is one of, if not the best, video conferencing options on the market today.
According to Zoom, it offers both paid and free services that host more than 300 million meetings each day. Investors hoping to capitalize on Zoom’s expansion should do their own research into the services the business offers.
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