Zoom has much more to offer its clientele than video conferencing and a meeting app. The company also provides a convenient hub for webinars and virtual conferences, even offering IT services. But have you ever wondered how Zoom makes money?
Zoom operates on a freemium software as a service (SaaS) business model. Zoom makes money by selling subscriptions for its video conferencing solutions to businesses and rendering technical support.
Zoom has certainly enjoyed wide publicity during the pandemic, but how will the company fare move forward? Revenue and market share statistics show a company continually expanding since its inception. New and improved services aim to keep the arrow tilted upwards.
First, we’ll discuss the business model that helps Zoom make money.
Business Model of Zoom
The business model for Zoom shows that the company has a simple solution for attracting clientele. Potential customers can easily see the product in action before committing to a purchase.
Giving Customers Free Access: Freemium Model
At its most basic subscription level, Zoom allows customers to unlock many of the benefits of the teleconference app without having to pay a single penny.
This is commonly referred to as the “freemium business model”. You provide customers with access to the most basic features while offering them a nice glimpse into which advanced features they’ll have access to if they upgrade to a subscription.
Easy To Invite Non-Subscribers
Anybody who’s ever hosted or attended a Zoom meeting is familiar with the user-friendly format of the email invite. Attendees are provided the opportunity to join the meeting via a link in the email or by calling in on a phone.
This means that attendees do not even have to download the app to access a meeting held over Zoom. In addition, once logged on, callers often become aware of features only available to those who download the app, such as the ability to raise your hand to capture the attention of the speaker or to share your screen when given permission.
Several Different Communication Services
Zoom is much more than just a videoconferencing app. Its services have been utilized by businesses, teachers, and doctors alike. The company continues to branch out with the addition of new and exciting apps, such as the Zoom Events platform.
- Videoconferencing and telecommunication
- A platform for webinars and virtual conventions
- Cloud-based phone systems
- Cloud-based Conference Room Hardware packages
A Safe And Secure Platform
One of the biggest obstacles for Zoom is being able to provide a safe and secure platform for virtual meetings and conferences. As such, you can expect some of the leading operating expenses to be:
- Cyber security
- Bug fixes and app updates
- New app development
- The cost of expanding the network, data storage, and processing during the surge of new customers
In 2020, the company enacted a 90-day freeze on developing all features not directly associated with cybersecurity. This undertaking led to the development of over 100 new security features. The update includes a more stringent process for welcoming users into meetings.
Limited Need For Marketing
Zoom’s marketing strategy emphasizes hands-on experiences. The company annually participates in more than 200 marketing and customer events around the world. They also celebrate their users at an annual user conference, Zoomtopia.
An ancient proverb says, “Tell me, and I forget, teach me, and I remember, involve me, and I learn.” Zoom puts this proverb into practice at these events by:
- Building awareness of Zoom products
- Demonstrating the usefulness of these applications.
- Showing clientele how to integrate Zoom products and telecommunication hardware.
Zoom also raises awareness of its services with targeted online and out-of-home advertising campaigns. The company projects that the continuation of these demonstrations and ads will continue to promote growth.
The company keeps its social media pages updated with news about its products. It also runs a blog, which regularly updates about Zoom’s most recent activities.
Zoom has set its sights on clientele in a wide assortment of industries. This includes education, finance, business, government, and healthcare.
Medical professionals are included in the clientele portfolio. In recent years, there has been a proliferation in the availability of telehealth services. As a result, patients can meet with doctors without having to visit a building.
A wide diversity of specific plans & pricing demonstrates the company’s desire to expand beyond the workplace. Stay tuned for more on this in the section below.
How Does Zoom Make Money?
Zoom makes money by providing users with the ability to host virtual meetings for free. The clientele is then shown a wide assortment of features that they can unlock with a paid subscription. These more advanced features include the ability to host larger events.
Zoom offers a wide assortment of business communication solutions beyond just their videoconferencing application. The release of new apps reflects the company’s desire to continually expand.
Video Conferencing & Meetings
Zoom earns revenue by offering four different tiers of subscription services, including an introductory-level free plan.
|Plan||Monthly cost per license||How Many Participants Can You Host?||Maximum Meeting Length||Notable Feature|
|Basic||Free||100||40 minutes||Private & Group Chat|
|Pro||$14.99||100 (up to 1,000 with add-on)||Up to 30 hours||1GB Cloud recording per license|
|Business||$19.99||300 (up to 1,000 with add-on)||Up to 30 hours||Single sign-on|
|Enterprise||$19.99||500||Up to 30 hours||Unlimited cloud storage|
Courtesy: Zoom Plans & Pricing
One thing to keep in mind is that the monthly charges apply to each license. Package deals are applied to companies that add multiple licenses to their account.
For example, a company can purchase 10 licenses for $199.90/month in the business tier. A larger business could receive 50 licenses for $999.50/month in the enterprise tier.
Cloud-Based Phone System
Zoom also offers cloud-based phone service. The service is marketed toward businesses looking for a solution to seamlessly integrate all aspects of their phone system.
Here are some notable features of Zoom Phone:
- Being able to route work phone calls through your phone.
- Automated routing systems for assistants staffing the company mainline.
- Being able to assign calls to fellow employees when you’re on vacation or personal leave.
Just as is the case with videoconferencing, Zoom does split its cloud-based phone service into several different tiers, ranging from $10 to $20/month per user.
What are Zoom Rooms? Imagine holding a conference between two remote rooms without paying for expensive hardware. Zoom Rooms allows remote parties to connect and share information with cloud-based software.
The service costs $42/month. Zoom Rooms is an upgrade over the videoconferencing platform thanks to several notable features:
- You can hold conference room meetings without having to bring a laptop.
- No audio feedback that’s associated with multiple employees attending virtual meetings in an office.
- Zoom Room kits come with all the hardware necessary to hold meetings.
Zoom Events & Webinar
The sudden proliferation of virtual events in 2020 led to one revelation. It’s super annoying to have to set up multiple Zoom meetings when you’re hosting a major conference. Zoom Events was first launched in 2021.
- Create a “hub” where all video conferencing events are listed on a single page.
- Provide ticketing and registration services, as well as track how many invitees are registered.
- Communicate with all conference/webinar attendees in a virtual lobby.
The application is separated into 2 tiers: Zoom Webinar and Zoom Events. These cost $79 and $99/month/license, respectively. You can only create virtual hubs in Zoom Events.
Bundle & Save with Zoom
One thing that is noticeable about Zoom is its easy-to-use online order form. Customers are immediately directed to a page where they can select the number of licenses for each product and see what each package includes.
Zoom also advertises bundle packages in which customers can purchase video meetings, chat and phone for a price of $250 per year at the pro tier. Zoom United costs $300 annually at the business tier.
Zoom realizes that many customers may desire help integrating all of the services that the company has to offer. Even just hosting a virtual event can be a complicated business.
Small companies may not have the IT staff on hand to pull off a large event. This is where Zoom Event Services comes into play. Services include event consultation, moderation, technical production, and more.
Event services are offered in 5 different tiers:
Zoom For Developers & App Marketplace
Zoom attracts third-party developers through its Zoom developers platform. This program allows users to integrate video, phone, chat, and content into other applications. From 2019 to 2020, there were more than 170 million API engagements per month.
Zoom also has its own App Marketplace. The company allows third-party developers to create applications that enhance the Zoom experience. Examples include Salesforce Sales Cloud 360, Google Workspace, and much more.
Zoom Funding, Valuation & Revenue
According to BBC, Zoom’s subscription base increased by more than 370% during the first six months of the COVID-19 pandemic.
The big question is: how will Zoom fare in the post-quarantine era. Well, there’s plenty to be positive about. The platform has retained many of its pandemic gains, registering a record-breaking $1,021M in the second quarter of FY 2022.
In October of 2020, Zoom officially surpassed ExxonMobil in market valuation at $139 billion. A market cap of $54.81 billion in December 2021 makes Zoom the world’s 325th most valuable company. The plunge has been chalked up to speculation about COVID-19 and the future of work-from-home activities.
Zoom reached a record number of subscriptions in FY2021, but even before the pandemic, the company was growing at a rapid rate. Between 2019 and 2020, Zoom nearly doubled its gross profit.
|Cost of Revenue||$821,989||$115,396||$61,001|
Courtesy: Zoom Annual Report FY2021, Fiscal Year Ending January 31
The leading operating expenses for the last 3 years have been in the sales and marketing & General and administrative categories.
Remember seeing all those viral videos of unwanted guests crashing Zoom meetings? This was of particular concern because it exposed attendees to explicit content.
The costs of keeping Zoom safe and secure will not go away. For the time being, this doesn’t appear to have cut into revenue significantly. It will be interesting to see what operating expenses will look like for FY2022.
Stock Performance: 2019-2021
Zoom Video Communications was first publicly traded on April 19, 2019. Seven years of rapid growth preceded this milestone. The share price increased by 72% on the first day alone.
- The price peaked in October 2020 for $559 per share, following a cycle of growth dating back to February 2020 when the price was $105 per share.
- December 3, 2021: $183.92 per share.
- Price held steady at around $350 per share during January-August 2021.
What Is Zoom’s Market Share?
Zoom is certainly not without competitors. In its 2019 annual report, the company identified Cisco WebEx, GoToMeeting, and Microsoft Teams as leading competitors.
The good news is that Zoom has conquered video conferencing. The term “Zoom meeting” has become synonymous with videoconferencing, even when events are hosted on other platforms.
As Zoom has experienced 876% growth over the last few years, Cisco WebEx has only seen 91% growth. As of March 2021, Zoom holds nearly half of the market share for video call platforms.
|Platform||Market Share March 2021|
Is Zoom Profitable?
Zoom is a profitable company, having more than doubled its gross profit every year going back to FY2017. Zoom saw its largest jump in revenue during 2020 when its customer base grew by more than 458%. The company looks to expand its customer base by demonstrating new applications, such as Zoom events, at conferences and workshops.
Conclusion: How Does Zoom Make Money
In this article, we discussed Zoom’s freemium business model for its video conferencing software and the features it offers to its users. Zoom has a unique business model that allows it to be profitable.
As we saw, the company’s services rely heavily on its proprietary software. This lowers operating costs and capital expenditure requirements, thereby allowing Zoom to have lower subscription fees. Zoom has positioned itself as the leader in cloud technology for delivering an effective video conferencing service.