Zoom is one of the few companies that benefited greatly due to the COVID situation. It is a cloud-based software that is used as an online conferencing tool by organizations and individuals alike.The video calling application was not always big, as many people found out about Zoom after it became popular among educational institutes and workplaces. This makes us question, how does Zoom make money to stay profitable and serve customers across the globe.
There are many businesses and institutions that went downhill ever since COVID first established a new normal trend throughout the world. But there are a few lucky names that also picked up because of the pandemic and Zoom is one of them. Initially when we think of the time that is corona-ridden, we think of economic collapse, the initial panic that took over all markets and the lockdown that halted all travel and transport.
There was a time when online video calling was only associated with Skype, just as any search query is associated with Google. The name has become a verb, where people refer to it as ‘Google it’ when they want to look something up. Similar was the situation with Skype, but Zoom took that moment of reclamation when the pandemic started and it utilized it to make sure they would not fail.
Google hangouts and Skype were the two contenders that are in the market for many years, they were the flag bearers. Zoom was founded in San Jose, California in 2011. The management that initially started it has come and gone ever since then. If you look at that initial stage of the mild market to when it finally picked up in the first quarter of 2020, the company has come a long way.
People debate over whether Skype was already on a downward slope or was it a direct effect of the pandemic and Zoom capitalising on the opportunity. If we think of it pragmatically, we had seen Skype suffering before the pandemic, Zoom just gave it one final shove when it took over the video calling/conference market. Their website claims to provide ‘Frictionless and high-quality audio and video chat for professional settings as well as personal calls.’
This majority of the audience has engaged with the app for meetings, classes, conferences etc. Due to this reason, it gets difficult to understand and even comprehend how Zoom makes its money.
Zoom has what the company calls a freemium business model, that uses subscription fees on its products, on top of advertising hardware items from different places. There are many businesses that run on the subscription model, from media websites to libraries. Similarly there are others that provide free services/products, but offer additional services under their premium offers. Almost all apps and services that have business associated with it use this strategy and so does Zoom. Let’s look at different aspects of the backstory of how it came to being where it is today, how it works and how it makes money:
Former executive Eric Yuan initially joined WebEx after coming to the US from China. WebEx similar to Zoom was a video conference platform, and Yuan joined the company as the one of the first batch of software engineers hired by the company. The year 2007 brought the acquisition of WebEx by Cisco where Yuan had still been working, he became Vice President of the company with time.
While working for WebEx, Eric encountered many complaints and feedbacks from customers that helped him understand what was wrong with the application. WebEx’s system had this protocol to identify whatever product the users were using to run the application, which slowed down the entire process. Thus, every time you logged in, the application started its identification process, whether you were using a Windows PC, Mac, iPhone or any other device. Additional complaints all ranged from bad audio and video quality, to poor connectivity issues in case many people logged in at once.
To add to that, it was a time when conferences started being used for meetings and the application had no screen sharing option. All these insights lead to Yuan creating a pitch for a new video conferencing app that would be compatible with all these concerns. When he brought the idea to the management’s attention, it got rejected.
He decided his idea was worth taking a risk for, and left the company, along with 40 other Cisco engineers who followed. He created a company under the name of Saasbee that would bring this idea for a video-friendly smartphone compatible platform to life.
Since the market was already dominated by not only Skype and Google but also by Cisco itself, he had trouble gathering funds by investors and venture capitalists. A high competition market is difficult to make your place in, that’s what stopped the investors to step up. Luckily for Yuan, and future Zoom stakeholders, former WebEx CEO Subrah Iya knew Eric Yuan as a highly compatible professional. She took a leap of faith in his abilities and experience and invested seed money of $3 million.
It took Yuan an year to finally come around to naming the company Zoom Video Communications, Inc. The initial phase after the launch was not smooth. The technology was not as updated, there were interface issues, only 15 people could get on a call, and a very expensive deployment all created hurdles.
Over time the company came to improve on all those fronts, gradually but surely. In 2013, they launched their first product to raise $6 million Series A round. The gradual improvements in the application is what brought it to its current success. Whenever services are concerned, users only think about you as long as you provide something of quality. Just a Skype was easy to let go of, Zoom took those pain points users had and made sure to bring something of value.
How does Zoom work?
Initially what was introduced as an application is now available to users on different platforms. It is available as an application for phones and desktops, as Outlook plugin, and as search engine extension for Google and Firefox. No wonder the app has 300 million daily meeting participants.
Zoom made meeting up online convenient and easy for its users. There are easy to use features that let the participants create individual or group meetings. The app allows users to share screens, record sessions, invite others, change their username, start or stop any video, and live chat. The newest features even allows you to create polls and go live on Facebook.
The reason it took charge so easily was due to its large participant cap that allows users to conduct huge meetings with 100(s) of users. It is famous in organizations big and small due to this reason. It’s corporate features include Zoom rooms, meetings, chat rooms and workspaces that make it a viable option for the vast majority of the audience that uses the app. It does have other products such as Zoom webinars and Zoom phone etc.
How does Zoom make money?
We already mentioned what the app offers to users for free, they have the entire basic meetings feature available for free for anyone to download and use. Apart from those that are included in the freemium model, there are some advanced features available within the premium package. People are not fully aware of many features that Zoom offers. There are 4 different categories in which its products are varied in:
The basic feature the majority uses this app for is meetings. Chat is an additional option users get to use and can talk to individuals and groups. There are four more types of premium packages within meetings apart from the basic option that is available for free, those are:
For small teams that require 100 participants, unlimited group meetings, 1 GB recording per license and social media streaming, it costs $149.90/year/license or $14.99/month/license.
For participants upto 300, Zoom Business is offered at $199.90/year/license or $19.99/month/license. Includes single sign-on, managing domains, cloud recording transcripts, company branding, and branded email templates, used largely by small to medium businesses.
Zoom United Business:
Unlimited calling feature in US and Canada, with participants upto 300 in any meeting. Zoom United Pro has all the features that the company offers.
This includes business features among some other basics.
Rooms and Workspaces:
Zoom Rooms and workspaces are for large participants conferences and meetings. It is compatible for multiple devices large and small. Since this is a paid option, the subscription for this feature costs $499/year/room to have a maximum of 49 rooms.
Zoom Rooms require a Zoom conference room connector in order to connect and install. If there are no conference rooms setup, you will be required to get the tools from Zoom’s hardware partners DTEN or Aver.
The manufacturers pay Zoom a certain amount from those sales, and Zoom advertises those products to reciprocate. This answers part of the question ‘how does Zoom make money.’
Webinars are more host-focused features that might have similarities with meetings but have some differences to set it apart. The host in webinars has full access to who views the content on the screen through the attendees only and other similar options. They also control the microphone settings, getting authority to mute and unmute anybody in the call.
The participants get to ask their questions via either Q&A, Chat or answering polling in the app. The cost goes from $14.99/month up to $64,900.00 /year/license. The license gives access to the number of participants allowed respectively. The maximum limit is 10,000 and the minimum is a 100.
Lastly there is a cloud-calling option for those users that only require the audio part of it. It costs $14.99/month. AI-based call routing, Messaging, Auto-attendants and IVR tools to redirect calls and voicemails to ensure clear conversations. Moreover, Call recording or blocking are all the features available to you through Zoom Phone.
Despite all these different ways that Zoom earns money, the company still relies more on the funds it has raised rather than the profit it has made. National Science Foundation and the Corporation of Public Broadcasting, Horizon Ventures, Emergence Capital, and Ame Cloud Ventures are among a few of the top investors of Zoom Inc.
It can be difficult to comprehend that a company that initially ran losses for a good couple years in the start can come to make money at such a level. It’s revenue model seems to grow with time and we can expect to see it venture into other avenues of tech and communication tools.