The Zoom Business Model – How Does Zoom Make Money?

Executive Summary:

Zoom is a cloud-based conferencing tool that allows users to virtually interact with each other through audio, video, and chat. The company’s competitive advantage is centered around the product’s ease of use as well as high-quality audio/video output.

The business model of Zoom is built on charging businesses a reoccurring subscription fee for the various products the company offers. On top of that, Zoom makes money from the promotion of hardware products.

Founded in 2011 by a former Cisco executive, Zoom became an instant success due to its product’s superiority. This culminated in the company’s IPO in 2019. In recent times, Zoom became a global phenomenon as businesses had to revert to working from home.

How Does Zoom Work?

Zoom is a cloud-based SaaS application that allows private individuals as well as businesses to virtually interact with each other. Communication can occur via chats, audio, video, or a combination of the three.

Users can hold one-on-one meetings or conduct video conferences with up to 500 participants. Screen sharing allows meeting participants to better coordinate within meetings and distribute information.

The worldwide adoption of Zoom is powered by its two core products: Zoom Meetings and Chat as well as Zoom Rooms and Workspaces.

Zoom Meetings can be attended and held via a web browser, or desktop and mobile applications. The  Chat works as an extension to the Meeting product where users can interact through a chat with each other, share files, or create groups.

Rooms and Workspaces, on the other hand, allows businesses to utilize hardware such as a computer, tablet, camera, microphone, and more to hold virtual meetings. The product is specifically aimed at larger-scale organizations, which need to hold meetings across different offices.

To make integration with the hardware easier, Zoom even offers its own set of hardware that they developed in collaboration with other manufacturers (including the Poly X Series or DTEN ON).

Other products the company has developed are:

  • Zoom Phone, a cloud phone system that comes with features such as intelligent call routing, automated attendants, voicemails, dialing personas, call recording, and many more
  • Zoom Video Webinars, a conferencing tool that allows businesses to easily conduct large online events with audio, video, and screen sharing
  • An app marketplace, where existing customers can install third-party applications such as HubSpot, Slack, or Trello to enhance the functionality of the product experience

Zooms applications and hardware products are available across the globe. The company counts worldwide renowned businesses as customers, including the likes Uber, Rakuten, TransferWise, and many more.

A Short History Of Zoom

Zoom was founded in 2011 by Eric Yuan (CEO), a former executive at the video and web conferencing company Cisco WebEx.

Prior to starting Zoom, Yuan spent 14 years leading engineering teams – first at WebEx, then at Cisco after its acquisition of WebEx in 2007.

He joined WebEx as one of the company’s first software engineers in 1997 after his 9th visa application finally got approved.

At Cisco, he often saw how frustrated the company’s customers were with their inability to listen to their demands and the slow product iteration process.

For instance, every time a user logged into a WebEx conference, the company’s systems would have to classify which version of a product (Android, iPhone, Mac, or PC) to execute, which slowed things down. If too many people were on the line, the connection would be severely strained, which led to bad audio and video quality. Plus, the applications lacked features such as screen-sharing for mobile phones.

In 2011, Yuan decided to pack his bags and venture out on his own – making sure to take a team of 40 Cisco engineers with him in the process.

Initially, the company started out as Saasbee, but rebranded to Zoom soon after. In the early days, Zoom faced the problem of attracting investors since nobody believed existing giants such as Skype, Hangouts (by Google), and WebEx could be dethroned.

Luckily, Yuan’s network, which included former WebEx CEO Subrah Iyar, as well as his deep technological experience provided him with the necessary credibility to raise $3 million for Zoom’s seed round.

Two years later, in 2013, Zoom finally launched its first product (while announcing a $6 million Series A round).

The quality of the product stood out immediately, becoming one of the leaders in the video conferencing industry. Video conferences could be held on all hardware platforms (i.e. desktop, mobile, tablet) with the ability to host 40 people at the same time.

Because the Zoom’s pricing was significantly cheaper, customers were flooding in right from the get-go. Soon after launch, the company amassed a customer base of over 1,000 businesses which hosted a total of 140,000 meetings. By May 2013, Zoom reached crossed the magic mark of 1 million participants.

Over the years, Zoom quietly added an increasing number of features as well as customers to its platform.

The continued success culminated in the company’s IPO in April 2019. At the time, Zoom surprised many investors due to the fact it already operated on a profit. This stood in stark contrast to its tech counterparts including Uber, Lyft, or Pinterest, which continued to burn money at excessive rates.

In the recent COVID times, Zoom rose to worldwide prominence as many companies use it to conduct meetings and organize their work processes. With its rise to worldwide fame, the company received some backlash for its handling of security matters.

There were several reported instances of unintended people joining existing meetings, a term referred to as Zoombombing. For instance, a recent Holocaust memorial was attacked and bombarded with images of Hitler.

Multiple government entities, including the US or Germany, advised its administrative workers to avoid using Zoom.

Furthermore, more than 500,000 Zoom accounts were supposedly being sold on the dark web and hacker forums.  

The company responded to these events by upping its security features as well as acquiring messaging platform Keybase. Despite these hiccups, the company has been on an absolute tear, seeing its stock value almost triple.

How Does Zoom Make Money?

As previously stated, Zoom offers a variety of products tailored towards private consumers as well as businesses.

The company operates on a freemium model, which means that customers can use Zoom’s Meetings and Chat product for free. This allows users to host group meetings with up to 100 people and 40 minutes. 

If more advanced features or simply a greater capacity (in terms of users and time) is needed, premium plans must be bought. The freemium model allows potential customers to get to know the products, which increases awareness for Zoom through word-of-mouth.

Let’s look into each revenue layer in more detail below.

Zoom Meetings & Chats

Zoom Meetings and Chats is the company’s flagship product, allowing people to jump on a (video) call or chat over the application. Customers can access the application through multiple sources, including Zoom’s desktop or mobile apps.

The free version limits usage time to 40 minutes while limiting user count to 100 attendees. To lift these restrictions, customers will have to pay a monthly subscription fee.

Businesses will have to pay $14.99 when billed monthly or $12.49 for annual billing.

Zoom Rooms & Workspaces

Zoom Rooms are conference rooms systems that allow organizations to run video meetings. Customers can utilize their existing hardware providers such as Polycom and Cisco or purchase from Zoom-certified hardware providers.

The company’s Professional Services unit then ensures that the installation of conference rooms runs as smoothly as possible.

Customers are charged a monthly subscription fee, which comes in at $49 a month per installed conference room (or $41.58 per month when billed annually).

Furthermore, Zoom partners up with manufacturers like DTEN or Aver to provide their customers with the necessary hardware tools.

In all likeliness, these providers pay a percentage of every hardware sale to Zoom. In return, Zoom will make sure to promote their products to the company’s customers.  

Zoom Phone

Zoom Phone is a cloud-calling solution designed for users who want to have quick calls without video. Users can launch a VoIP call instead, while using the same Zoom tools available in its Meetings product.

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 the most qualified agents

… and many others. Similar to its other products, Zoom charges a monthly subscription fee of $14.99 for every host (or $12.49 per month when billed annually).

Zoom Video Webinars

Zoom Video Webinars is a web conferencing service that allows users to broadcast a Zoom meeting to up to 10,000 view-only attendees. Webinars start at a capacity of 100 participants and scale up to 10,000 participants, depending on the license bought.

As the organizer of the webinar, one can share your screen, video, and audio. Furthermore, attendees can use the chat or question and answer options to interact with the webinar host.

Registration for webinars may either be optional or mandatory, depending on the privacy settings chosen. Webinars can either be held once, reoccur successively, or the same session can be held various times.

Webinar pricing starts at $14.99 per month and user (when billed monthly). On top of that, a webinar license must be purchased. The price depends on the number of attendees hosted.

Lastly, Zoom offers special packages to organizations in the Education, Finance, Healthcare, and Government industries.

For instance, schools will have to pay 1,800$ annually to unlock 20 hosts and access the company’s premium features.   

Zoom Funding, Valuation & Revenue

According to Crunchbase, Zoom has raised a total of $146 million in six rounds of venture capital funding. Investors include the likes of Horizons Ventures, Emergence Capital, Sequoia Capital, and many others.

Zoom raised another $356.8 million in its IPO, which was announced in April 2019. The company made its debut on the Nasdaq stock exchange under the ticker symbol ZM. Many of Zoom’s tech counterparts that went public in 2019 did so while still losing money. Meanwhile, Zoom was already profitable and earned $7.58 million in net income for the fiscal year 2018.

For 2019, the company posted revenues of $622.7 million, up 88% year-over-year. Net income rose to $21.7 million. Currently, Zoom is valued at close to $47 billion.

Hi folks, my name is Viktor! By day, I lead a tech team of 10 for an e-commerce startup. At night, I work on expressing my weird thoughts through this blog. And if there's time, I cuddle my cat..