Zoom ends the year of COVID-driven success on a high, but can growth rates hold up in the Vaccine Economy?

Profile picture for user slauchlan By Stuart Lauchlan March 2, 2021 Audio mode
Summary:
The least unexpected set of quarterly success numbers in the current financial reporting period, but can Zoom's growth be sustained as workplaces re-open?

virtual meeting

In the least surprising set of financial numbers for a long time, Zoom exited its COVID-stricken full fiscal year 2021 with revenues up 326% year-on-year to $2.65 billion. And just to emphasise the grip that the platform has had on our lives in recent times, its Q4 growth rate was even higher at 369%, hitting $882.5 million for the quarter.

While the provider’s free service remains the most widely-used option, the firm ended the year with 467,100 paying customers with more than 10 employees, a 470% increase on this time last year. Just to put a tiny caveat on all the good news, the Q4 growth rate was slower than the Q3 level of 485%, but that dip certainly wasn’t about to put a dip in founder and CEO Eric Yuan’s enthusiasm for what’s to come.

The challenge now facing the firm, whose name association with the pandemic seems inevitably to be writ large in any history of 2020, is how the emergence of the Vaccine Economy and the prospect of a safe return to the corporate workplace will impact on those numbers by this time next year?

That in turn will depend heavily on macro-trends in relation to the Future of Work. Will people move back to their old office environments or want to remain working from home? Will corporations, forced this past year to shift their sales operations across to video meetings rather than face-to-face pitches stick to what, for many, has worked during the lockdown months (as Salesforce CEO Marc Benioff last week indicated his firm will).

Yuan inevitably argues that:

The future is here with the rise of remote and work-from-anywhere trends. 

There will still be a dependence on video conferencing when offices re-open, he added:

We all want to go back to the office, right. We [have all been] stuck in our home for such a long time, so painful, but actually even if we all go back to the office, I think the videoconferencing product is well [set] for the growth.

Phoning up the future

That said, there’s more to Zoom than video-conferencing, he insisted. The Zoom founder was keen to play up the success of Zoom Phone, the solution for users who want to set up quick VoIP calls without video, highlighting the notion of Unified Communications as a Service (UCaaS). Zoom Phone was the fastest-growing product line quarter-over-quarter in Q4, with 18 enterprise customers with more than 10,000 seats each. Yuan argued:

Enterprise customers choose to replace their legacy phone system because of their positive experiences with our high-quality products that are very easy use and are well integrated. With the value of our rapid innovation cycles and ability to scale for large and global deployments, they also look to us to partner with them to deliver a Unified Communications solution that will make their users happy and productive.

Cited customers included the University of Southern California (USC) and Universal Music Group:

After a six months evaluation of UCaaS vendors, USC chose to deploy 21,000 Zoom Phone seats. We are so thankful that USC put their trust in Zoom to deliver an increasingly comprehensive and integrated set of communications services…Universal Music Group (UMG), the world’s leading musical company, is adopting Zoom Phone for its global workforce. UMG was looking to replace and consolidate legacy on-prem technologies with flexible, cloud PBX solutions. As an existing Zoom Meetings and Azure customer, UMG was drawn to the integrated nature of the Zoom Phone product. They will be using Zoom United, which will provide their global users with a one touch experience of video, chat and voice.

That kind of cross-product upsell opportunity into Global 2000 enterprises after a year that has bolstered Zoom’s brand to the status where the company name has become a verb, is considerable, said Yuan, and has seen the go-to-market process changed as a result of the pandemic:

If you look at our history, the way for us to grow our revenue, our user base, is from the bottom up - from one user, two users, one department to multiple departments and [then] we talk to the CIO…

If you talk with enterprise customers, if you do not have a very strong brand, normally they even do not want to talk with you. Because [over the] last year Zoom has become a household brand, we have more and more opportunities in the pipeline and people like to talk with us now, not only from bottom-up, but also from the top down as well.

My take

Whatever remote working evangelists/zealots - delete as applicable - might insist, there was a recognition from Yuan that things aren’t going to be as simple as ‘everyone works remotely from now on’ when he pledged:

As companies begin their safe return to the office and re-imagine their working models, Zoom is here to help…We are very energized to help lead the evolution to enable the future of work that allows greater flexibility for both in-person and virtual connections, a future that we believe will be better for the planet, productivity and employee happiness.

That’s the theory and that’s the trick that Zoom has to pull off.

This year has been — brace yourselves! — “unprecedented”. That being so, the question is what comes next and how does Zoom ensure that it remains at the center of the ‘new normal’ of work?  That’s also going to mean taking on Microsoft Teams and winning. Despite the range of the Microsoft stack and that firm’s enterprise CIO familiarity, Yuan argues that best-of-breed will win out:

From an end user perspective, if you look at today’s workforce, almost over one-third are Millennials. They would like to use the best-of-breed service. If you give them something they do not like, they say, ‘No, I’d like to pay it with my own credit card’. So the best-of-breed service will win, for sure. If you look at it from a CIO or IT perspective, they would like to bet on good vendors. If you’re stuck with one vendor for everything, guess what, what if there is an outage? What if in the future, innovation speed slows down? That’s why I’m talking with enterprise customers — they like to deploy best-of-breed service.

But there can be co-existence, he insisted, noting that there are plenty of Microsoft Office 365 users who also use Zoom:

Customers would like to bet on good solutions because we can co-exist very well. This market size is much bigger than anyone can emerge in. That’s why I think that a co-existing strategy works well.

How that pans out will become increasingly clear as the Vaccine Economy kicks in.