For most people in 2020, “Zoom” has become synonymous with “webinar” or “videoconference,” just like the term “Google” has become synonymous with online searching. A casual observer would assume that a company seeing such explosive growth and popularity would be rolling in cash. But how does Zoom actually make money?
Initial Funding & Growth
Zoom is a software platform specializing in videoconferencing, VoIP (voice over Internet protocol) telephone, and similar methods of online communication and collaboration. It began as a venture-funded startup in 2011 and became a publicly-traded firm in 2019.
Zoom will likely be best remembered for its massive role in keeping the world connected during the troubles of 2020. When the COVID-19 pandemic hit and many businesses and schools closed down, Zoom became a mainstay for education and businesses to keep students, employees, and people everywhere connected during a time of physical distancing. However, for a company that only last year turned its first annual profit, the question of how it makes money is worth asking.
Zoom has four products that it sells, which generate the majority of its revenue. It still has some outside capital, but can now largely sustain itself from its revenues from its products. There is a high degree of connectivity and interactivity with these product suites. Zoom has made it very easy to make a wholesale subscription that includes lease or purchase of hardware, audio calling, videoconferencing, virtual events, and more.
1. Zoom Meetings & Chats
Its primary product (at least in the eyes of the public) is Zoom Meetings & Chats. This was the original product Zoom launched and is still the one that receives the most widespread use. Through Meetings and Chats, customers can enter a videoconference “call” with others through Zoom’s desktop software or mobile app.
Several subscription tiers (listed below) determine what features are included or excluded with an individual user’s account, but the central features remain the same.
2. Zoom Rooms & Workspaces
The next major product is Zoom Rooms & Workspaces. This product delves into the “conference room” setting, which – rather than a standalone meeting or webinar – acts as a centralized “office” where employees can collaborate. The intent of this product is to create a virtual space for teams in different geographical locations to work together.
As a result, the target market for this product suite is businesses. Zoom itself handles the installation of the required hardware and infrastructure, which can be purchased directly from Zoom or retrofitted from a company’s existing computing resources.
3. Zoom Phone
The rise of online-only telephone service has in turn given birth to Zoom Phone. Also targeted mostly toward businesses, Zoom Phone replaces a traditional landline telephone with a cloud-based system. All of the usual office telephone features – call waiting, voicemail, conference lines, and more – are included with Zoom Phone, making it a natural replacement for the landline.
It also incorporates seamlessly with Zoom’s other services, providing a uniform service for all audio and video calls. Because it is targeted primarily toward business customers who have upwards of hundreds or thousands of phone numbers to convert, this has become a lucrative segment for Zoom from a sales perspective.
4. Zoom Webinars
Zoom’s latest product line, which has arguably seen the greatest growth in the past year, is Zoom Webinars. Like many other similar webinar services, Zoom thrives on a user-friendly platform to host standalone virtual meetings with others. They can be simple interpersonal gatherings or large online conferences for thousands of attendees.
Webinar presenters can share their computer’s screen or media, and differing levels of audience participation are included based on the subscription level. Zoom also provides support for webinar registration if that is a desired feature. Each of its products requires an additional license per user per service, which is an important revenue-generating factor.
For most of its customers, Zoom is a paid service. Rather than rely on word-of-mouth and popular use to generate funding, Zoom charges individuals and businesses a fee to use its services. Given the vast resources that are required to keep its enterprise active and afloat, this makes perfect sense. There are currently four cost “tiers” for the vast majority of Zoom customers. These tiers primarily revolve around their virtual Meeting or Webinar services.
1. Tier 1: Basic
The first tier, Basic, is a free model that provides only the most fundamental and critical functionality. While a Basic user can host an unlimited number of meetings, it can only host up to 100 participants at a time, and its meeting duration is limited to 40 minutes per meeting. There are some additional features included, but it does not provide some of the advanced features that a business may need. That being said, this tier is sufficient for the needs of many casual users.
2. Tier 2: Pro
The next tier up is Pro, and is the first paid tier. This tier includes additional administrator features like attendee management (deciding who is and is not allowed to be admitted to a meeting room) and meeting recordings. There are still some features that are not included, but this tier is ideal for small businesses who have semi-frequent use of Zoom’s services, but do not require a more robust operational model.
3. Tier 3: Business
The Business tier is the first tier that requires a minimum purchase based on the number of “hosts,” or users authorized to be meeting administrators. At least 10 licenses are required for this level of purchase, but with this increased financial commitment comes additional levels of service. This kind of corporate account includes dedicated support, administrative management for the company’s plan, the removal of Zoom branding, and the inclusion of the company’s branding.
4. Tier 4: Enterprise
The final and most expensive tier is Enterprise. This requires a minimum of 50 hosts, which makes it a natural fit for larger corporations to purchase. This plan includes all of the features of the lower tiers and includes enhanced services like unlimited cloud storage, a dedicated representative for customer service, and other bundled discounts on additional products.
The importance of this kind of scaled subscription model fits into the “freemium” approach that many tech companies have used to attract customers. In fact, the majority of Zoom’s paying customers actually started out with at least one free user. The intent is to attract at least one user for a trial period under the free subscription tier, in the hopes that they will be impressed with the service and upgrade to a paid model. Through positive word-of-mouth and conversion to business-wide operations, Zoom can grow its revenues exponentially depending on the size of a given business licensee.
There are some discounts available for businesses who want to pay all the fees on an annual basis instead of a monthly payment plan. Zoom may also offer a bundling discount for companies that purchase several products together. There are also discounted packages available for key segments like education, government, healthcare, and non-profits.
These are both standard industry practices that make entry for new and upgrading customers easier and allow companies to utilize these services when they could not otherwise afford them. Additional features like advanced levels of customer service can also bump up the price tag.
Zoom is a wildly popular service that will likely only grow as time goes on. Since more and more businesses have made videoconferencing an indispensable part of their daily operations, companies like Zoom should see their profits and subscriptions increase in the coming years.
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