Thomas Edison once said that there is always a better way to do something, but you will have to find it, which Zoom's founder, Eric Yuan, did. While he worked at Cisco, he was disappointed that the company was unwilling to address the numerous customer complaints, yet he kept pushing for change. As a last resort, he decided to start his own company, Zoom, which has overtaken the likes of Skype over the last few years to be the most sought-after video conferencing app. The lockdown further helped push its use across the globe, and it has been raking in billions. If you wonder how Zoom makes money, here is every detail.
How Does Zoom Make Money through Different Subscription Plans
In business, numbers matter a lot hence the need always to have good financial records. They are useful to a potential investor to see if they are making a good investment or assist financial lenders in assessing if your project is a white elephant. Sound financial statements and ratios will indicate what changes need to be made, such as setting the right prices for a good profit margin. This kind of insight enables Zoom to have different pricing strategies to ensure each clientele's needs are well addressed. According to Marketing Mind, Zoom makes its money through paid subscriptions which are categorized in four groups, the first one being Basic. It is absolutely free and offers free unlimited meetings. It allows for unlimited one-on-one meetings with a maximum time limit of 24 hours for each meeting. However, if there are 3 or more participants, each meeting will have a 40-minute time limit. For those who want to record, this free tier has that option, and you can save it to your preferred storage device.
If you frequently hold group meetings, then maybe the second tier, Pro Plan, is better for you. It enables you to have unlimited group meetings with up to 10 participants. There are no time limits, so no need to keep starting after a certain period lapses. Making a recording is made efficient through the 1GB cloud recording space that comes at no extra cost. If you are a social media user, you can stream live your Zoom meeting to your Facebook and YouTube accounts. All these features, however, will set you back $14.99 every month. If you want to add more participants using the Large Meeting add-on, it will cost you $50 more for each host for 500 participants, totaling $64.99 monthly per host. The good news is if you do the math right, you will find the third tier, the Business plan, being more lenient for those with 300 participants because you pay $19.99 per month per host for at least 10 hosts. If you still require more hosts, you can purchase the Large Meeting add-on; it will cost you $50 per month for each additional host. It offers unlimited meetings that have a maximum time limit of 24 hours. Other video conferencing features include virtual background, full screen, gallery view, and waiting room. There are more features for web conferencing and video collaboration that are ideal for small and medium-sized businesses.
Big companies will find the fourth tier, the Enterprise plan, best for their needs. It can support up to 500 participants and offers unlimited cloud storage of any recordings. Like the Business plan, it starts at $19.99 per host with at least 10 hosts. It has discounts in webinars, and as usual, the Large Meeting add-on costs you an extra $50 per host.
Zoom Also Makes Money through Varied Products
Although the three business tiers are profitable, Zoom recognizes the need to have other plans depending on particular sectors, such as health and education. According to JotForm, Zoom offers a product tailor-made for education institutions, the Zoom for Education plan. It costs $1,800 per year, making it quite an expensive option since that translates to $150 per month. The hefty price tag could be due to the minimum number of hosts because Zoom for Education supports at least 20 hosts and allows up to 300 participants per meeting. However, the most expensive package has to be Zoom for Healthcare, whose video conferencing secures the company with HIPAA( Health Insurance Portability and Accountability Act). It offers a Business Associate agreement to protect healthcare professionals in case Zoom breaches their data. Of course, due to the healthcare industry's sensitivity, some meetings such as doctor-patient consultations cannot be recorded and stored in the cloud. Perhaps it is such extra measures that drive the cost of the package up to $200 per month, yet it can only support a minimum of 10 hosts.
One of the many options is the Zoom Phone, a cloud-based calling solution whose monthly cost is $10 per user. It has all that a typical phone offers, such as texting, voice calls, and call recording, among others. The Zoom video webinars also cost $40 per month for up to 100 attendees and $6,490 per month for 10,000 attendees and one host. The pricing from 100 to 10,000 attendees depends on the number of attendees as detailed on the site. Zoom Rooms and Workspaces also will make you dig into your pocket to benefit from them, and the starting price of Zoom Room is $40 per month per room.
The Entrepreneurial Journey of Zoom's Founder
The journey of a thousand miles begins with only one step, and Yuan started making the strides as a child. His entrepreneurial spirit was evident in fourth grade when, according to Forbes, Yuan was making money by recycling copper from construction scraps. He noticed a chicken shack behind his neighbor's house and decided to try and make use of the metal. He set fire to the shack, which ended up burning his neighbor's cottage. Although he could see he had upset his parents, Yuan was not ready to give up on being an enterprising man, especially not when Bill Gates motivated him to join the technology world.
The dream remained in his heart, and the experience as a freshman pushed him to make it come true. He studied computer science and applied mathematics at Shandong University of Science and Technology. His girlfriend was in college a few miles and a ten-hour train ride away. The trip made him start thinking of a device that could enable him to see and talk to his girlfriend without taking ten hours. However, Yuan believed that China was still lagging in technology, and his idea would come to fruition if he moved to the United States with his girlfriend. He applied for a visa but was denied eight times due to a misunderstanding about his nature of work. The ninth time was different, and he moved to California at 27. With barely any knowledge of the English language, Yuan focused on writing code, which took up most of his time. He spent his free time playing pick-up soccer. He then became an engineer at WebEx Communications and was among the team that created the company's initial version of its web conferencing product. In 2007, Cisco acquired WebEx and Yuan was among the employees that were absorbed into Cisco. He climbed the ladder to become the Corporate Vice President. Unfortunately, the products were no longer appealing to the customers.
According to Use FYI, the video and audio quality was inconsistent, the connection was unstable, and scheduling calls was a headache. He talked to the customers, understanding their frustration and noting them down as he realized that they only used WebEx because they had no option. Cisco was not ready to modernize the web conferencing tool or build an entirely new one despite Yuan pleading with the management because the product was the backbone of Cisco's success.
How The App was Founded
Armed with what needed to be done to keep the customers happy, Yuan quit in 2001 and took 40 engineers to start his own firm that would come to be known as Zoom. At first, his wife was not on board with his decision wondering why he would leave a lucrative paycheck to start from scratch, but Yuan had faith, as did his friends who gave him $3 million in seed capital since venture capitalists were not buying the idea. On August 22, 2012, after tirelessly working out of a tiny office in Santa Clara, the first version of Zoom was released. It had successful funding series, and by 2017, it had a series D funding worth 100 million and $1 billion. The company had first to attract users by setting the subscription rates very low. The Basic plan had calls limited to 20 minutes for meetings with at least two attendees, but it was free. The Business plan cost $9.99 monthly per host and had no time limit in the meeting duration; the Enterprise plan has the same cost and features. The Zoom for Education was priced significantly low at $0.99 per month, enabling it to tap into the education sector, where it foresaw the potential for growth.
The Growth of Profits for Zoom
Many companies were forced to shut down as others lay off their workers since they had to make do with a shoestring budget. On the other hand, Zoom was experiencing the best year in the midst of a pandemic. The lockdown became the big break, and as published by BBC, profits grew by 30-fold in April 2020. Daily participants increased to 300 million while paying customers tripled. As a result, the company knew the profits would grow exponentially, thus forecast sales worth $1.8 billion in 2020, nearly double what it had predicted earlier in March 2020. The company's net worth grew to $4 billion by March 2020, thanks to the need for people to keep in touch during the lockdown. Since it allows a user to talk to up 99 users simultaneously, every organization that needed group meetings such as businesses, schools, churches, and even governments relied on Zoom to keep the operations going without a hitch. Consequently, on March 23, 2020, it was reported that the app had been downloaded 2.13 million times worldwide, yet a month earlier, the figure was a mere 56,000. All these changes helped increase the company's revenue despite the app offering a free version for calls that last less than 40 minutes.
Revenue growth has been consistent in the last few years. For instance, the company reported an 85% revenue increase in the other months leading up to October 2019, when the figure was $166.6 million. However, that was nothing compared to what awaited them in 2020. Zoom's annualized revenue based on the quarter ending in October 2020 had grown by 367%, a steady rise from the previously recorded increase of 355% and 169% in the other two quarters of the year. In August 2020, profits had soared to $186 million thanks to customer growth of 458%. Despite the popularity of the Zoom app, it has not been widely accepted globally, with some countries banning its use for various reasons. Among the countries that do not allow the use of Zoom are Cuba, Sudan, South Korea, Ukraine, Syria, and Iran. Government agencies such as NASA also prohibit its use, reasoning that calls are not end-to-end encrypted, the recording feature can leak videos, and the possibility of photo and user email address leakage is high. In the United States, the video calling app is banned from being used in schools. Schools in New York have been advised to adopt Google or Microsoft video conferencing instead. As a result, although Zoom makes billions of dollars in revenue, it could earn loads more if its use was not prohibited.
Written by Allen Lee
Read more posts by Allen Lee