How Does Zoom Make Money? Business Model Explained!

Thousands of people around the world use Zoom Video Communications Inc. (ZM)’s video-first communications platform both for business and personal use.

Through the platform, people can communicate via video, telephone, chat, and content sharing, and it can be integrated into a wide range of devices. It is possible to hold 1,000-person meetings on the platform and 50,000-person webinars.

Zoom makes money by selling subscriptions.

What is Zoom?

Zoom is a communication platform that connects users via video, audio, phone, and chat. In 2011, the company was founded in San Jose, California. Zoom is listed on the NASDAQ under the ticker symbol ZM. The stock is currently trading at $153 per share as of February 1, 2022.

Zoom requires an Internet connection and a compatible device. Most first-time users will want to create an account and download the Zoom client for meetings. Others may want to look at the different solutions on the Zoom platform to see which one best suits their needs.

Zoom has seen a surge in popularity during the Covid19 crisis, with millions of people using it to stay in touch with others. Zoom became one of the most downloaded mobile apps in the world in 2020, with over 500 million downloads. Zoom will have over 300 million daily meeting participants by 2020.

Overview of Zoom’s Financials

Zoom released its 2022 fiscal year (FY) results in late February, which ended on Jan. 31, 2022. In comparison to last year, the company reported net income of $1.4 billion, an increase of 104.6%. Revenue increased by 54.6% to $4.1 billion, with revenue being driven by new customer acquisitions and services expansions.

With increasing numbers of people working and studying from home and needing reliable ways to connect with colleagues and attend online lectures, Zoom’s video-first communication platform saw significant growth during the pandemic.

Zoom aims to increase the number of customers who contribute more than $100,000 in trailing 12-month revenue (TTM). Zoom’s size of this customer group illustrates two things: it shows its ability to scale its offering to meet the needs of its users, as well as its ability to attract large organizations to its platform. By FY 2022, there were 2,725 of these customers, an increase of 65.8%.

Zoom Business Model

Zoom has made a name for itself in the video chat and teleconferencing space due to its superior quality and lower lag time. Zoom offers a robust free service with no ads, as well as a paid subscription service. Zoom also rents hardware to those who need the best video conferencing solutions.

Zoom competes in the same market as legacy web-based meeting service providers such as Cisco Systems (CSCO) WebEx and GoTo.

There are many other competitors to Zoom. They include Microsoft Inc.’s (MSFT) Microsoft Teams and Alphabet Inc.’s (GOOGL) Google Workspace. Avaya Holding Corp. (AVYA), RingCentral Inc. (RNG), and 8×8 Inc. (EGHT) are the other competitors that offer unified communications as a service (UCaaS).

How Zoom Makes Money

Zoom’s primary business is Zoom Meetings, which it sells as a freemium service. Zoom also makes money through subscription-based offerings including Zoom Phone, Zoom Events & Webinars, Zoom Rooms, Zoom United, and Zoom Contact Center. Zoom also earns some revenue from hardware sales and ads shown to free tier users.

Before moving on to the company’s financials, let’s take a closer look at each subscription revenue source individually.

1. Zoom Meetings

Users can connect via audio & video in Zoom Meetings. Zoom Meetings is also the most popular service Zoom offers. Zoom chat is also included with meetings, enabling users to share text, images, audio files & content.

Basic plans are free, but they have limitations such as a 40-minute time limit and a maximum of 100 participants. Zoom’s Pro, Business & Enterprise plans each come with features tailored to the size and needs of small and medium-sized businesses and large enterprises, respectively.

2. Zoom Rooms

Zoom rooms allow users to hold video meetings over Zoom using conference room systems. Most often, they are used by large organizations.

There is a free trial period of 30 days for rooms. Once the trial ends, users can purchase a subscription at $49 per room if they wish to continue using Rooms. As more conference rooms are connected through Zoom rooms, the more money the organizations will have to spend. For instance, organizations would have to pay $490 per month for a plan with ten rooms.

Imagine the customers already have Polycom, Cisco, or Lifesize conference rooms. Zoom Meetings can be started directly from existing conference room systems using the Zoom conference room connector.

They may purchase Zoom’s hardware partner equipment, such as HP, Lenovo & Logitech, if they don’t already have a conference room setup. The company also provides assistance with the installation of conference rooms if necessary.

3. Zoom Phone

The Zoom Phone add-on increases Zoom’s collaboration capabilities by adding traditional telephony capabilities directly to the application. Zoom Phone turns Zoom into a complete collaboration product by combining voice, conferencing, messaging, and video services.

With a monthly price of $10/user, it offers call recording, auto-attendant, and many other features.

4. Zoom Events & Webinars

Users can host online web conferences using Zoom Video Webinars. Until 500 attendees are on board, the offering will cost $79/month/license – and as the number of attendees increases, so will the $79 base price.

Zoom Webinars are useful for single-session, one-to-many presentations, but Zoom Events allow multiple webinar sessions to be connected simultaneously. Also included are event management features such as branded events hubs, registration and ticketing, and enhanced reporting. Up to 500 attendees can be accommodated by the Event offering for $99/month.

6. Zoom Contact Center

Voice is the most common technology used in contact centers. In 2022, Zoom will launch Zoom Contact Centre, an omnichannel contact center platform that supports video, voice, and messaging. Prices for Zoom Contact Centers aren’t disclosed on Zoom’s website, only revealed to companies that contact the company.

Recent Developments

Zoom became the first video communication client to achieve Common Criteria certification on Jan. 10, 2022. Common Criteria is an international standard that ensures that IT products comply with pre-defined security requirements. A leading benchmark for product security certification, it is recognized in over 25 countries.

According to the German Federal Office for Information Security, Zoom has received Common Criteria Evaluation Assurance Level 2 (v3.1 rev. 5).

In June 2022, Zoom One was launched. It combines chat, phone, whiteboard, and video conferencing capabilities into a single product. Zoom also opened its Zoom Apps developer program to all developers in June 2022, via Zoom Apps SDK. With the release of Zoom One, the company now offers video conference translation and subtitles in 11 languages.

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