Video conferencing software developer Zoom is the latest Silicon Valley darling to put itself on the market. Today it will go public.
In its March 22 S-1 filing to the SEC, Zoom highlighted the central role reliable communication plays in business performance. "The evolving nature of the modern workforce has made communication even more important than it has been in the past," according to the company.
Trends shaping this narrative includes a distributed employee model, a call for deeper engagement with employees, business partners and customers, changing workforce demographics, and employees' influence on IT departments.
From desktops to mobile devices and conference rooms, Zoom is proving itself as a vital enterprise tool. The company's revenue consistently doubled since fiscal year 2017 through 2019 from $60.8 million to $151.5 million to $330.5 million.
Zoom's revenue growth over the years
SOURCE: Zoom S-1 form
The company's is offering 20,869,565 shares of Class A common stock in its listing, raising more than $350 million. Zoom is expected to be worth about $9.2 billion in its public debut. Zoom's IPO signals its command of its product as well as the communication market in general. The communication and collaboration market and its ideas are healthy and offer the potential promise of future acquisitions.
"Zoom is differentiated from other meeting solution providers due to its focus on ease of use by eliminating barriers typically associated with video collaboration," according to Gartner. The research firm predicted spending on cloud-based conferencing to hit $3.1 billion in 2018 while increasing 4.4% in 2019.
The market already has similar offerings to Zoom, yet the video conferencing company "was able to build momentum for its offerings" because it narrowed its focus on "a video-first user interface," Mike Fasciani, senior director analyst at Gartner, told CIO Dive in an email. The approach made "video interactions more widely adopted, even by less digitally dexterous employees."
Stiff competition or not so much?
Zoom is comfortably situated as a leader in the video conferencing space, a market Slack has yet to break into. But like Slack, small- to medium-sized businesses were attracted to the service because they couldn't heavily invest in an audio and video conferencing infrastructure, Mrinal Rai, principal analyst at ISG, told CIO Dive.
The cloud-based solution freed SMBs of having to train IT departments while also having a "short adoption cycle for the end users. Providers like Zoom gained popularity by addressing this need," said Rai.
Zoom took another card out of Slack's playbook, offering customers a freemium licensing option. Slack's momentum was in part owed to initially offering a free version of the service, so employees outside of IT could experiment with how they collaborated.
"The competitors in the market have taken notice of Zoom's appeal and have refreshed their user interfaces with a focus on ease of use," said Fasciani.
Zoom is well positioned in Gartner's Magic Quadrant for meeting solutions, next to Cisco's, LogMeIn, and Microsoft's Skype and Teams. Its current competitors include BlueJeans, unified communications as a service (UCaaS) players like RingCentral, and Cisco's Webex.
Zoom is now integratable with existing Cisco hardware as Cisco is shifting focus onto other collaboration solutions, namely to compete with Microsoft and Slack, according to Rai.
Zoom does have areas of improvement, Gartner cautions, including its management dashboard for IT professionals to "monitor their cloud service adoption and performance." The direct sales model can unintentionally create tensions with buyers who wish to use third-party resellers.
UCaaS or bust
The expansion into the UCaaS market broadens Zoom's reach, though "it's still early days for Zoom in the UCaaS market and it is still unclear how buyers are responding to this bigger opportunity with Zoom," said Fasciani. It's not guaranteed Zoom's "appeal and popularity" will roll over into the UCaaS market.
"It's easier to delight and impress end users with an easy to use video service that actually works than it is in the UCaaS market where organizations are mainly buying telephony services," said Fasciani. "Reliability on telephony services is amplified, which makes it tougher to stand out from the competition and enterprise buying life cycles are longer."
By entering another market, Zoom is also facing a new set of challenges. UCaaS providers have to be concerned about how they are "clearly [distinguishing] their capabilities to specify which collaboration area they are focusing on," said Rai. "While video conferencing and meetings are an integral part of communication and collaboration, these players have to clearly delineate themselves from the players increasingly updating their offerings in the hot and strongly dynamic team collaboration solution market."
Cloud providers like Microsoft and Amazon Web Services are sharpening their tools to eclipse the more niche providers. Currently their offerings may not be best of breed, but they can cost less. Customers also know that sooner rather than later Microsoft and AWS services will be able to compress their competitive distance with other pure-play vendors.
Zoom is differentiating itself in several ways, including strategic partnerships with file sharing services like Dropbox. But the partnership pushes Zoom into the team collaboration competition. Zoom also launched its cloud PBX though it poses as "potential trouble" with other UC partners "as they may start to see them as competitors," said Rai.
"Though Zoom maintains that all their enhancements are meant to augment" Zoom's foundational video conferencing, said Rai, the "enhancements are either making them a player in the highly matured UCaaS market or rapidly changing team collaboration market."