It’s not easy for small companies to breakthrough in the tech platform wars. When it happens, managers need to pounce — they need to press their advantages.
Zoom Video Communications (Nasdaq: ZM, Rated “C”) announced Tuesday that the video conferencing software company is partnering with four hardware companies to make stand-alone video conference gear.
To suggest business at the San Jose, Calif. company is zooming is an understatement. In early June, the company reported revenue growth surged 169% year-over-year. Cash flow from operations jumped from a mere $22.2 million in the first quarter to $259 million through the end of Q2.
It is one of those rare businesses. The Zoom user experience is so simple and so clean that almost anyone can pick it up and broadcast themselves to their friends and coworkers in minutes. In the work from home era, videoconferencing is vital. With Zoom, it just works. That’s a good thing.
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Too many tech companies get this wrong. In their zeal to lock-in customers, managers often forget the appeal of simplicity and openness.
Most Zoomers, for example, are opting to use their iPhones, despite the fact they have a perfectly good, built-in video conferencing software on their other devices. It’s called FaceTime. But FaceTime usage is not booming … Zoom is.
Zoom disrupted video calling on iPhones because the experience is cleaner and it’s easier to hook up with friends who don’t have iPhones.
By enlisting the help of hardware businesses, Zoom managers are taking dead aim at the larger video conferencing market now dominated by platforms like Cisco Systems (Nasdaq: CSCO, Rated “C+”) and Microsoft (Nasdaq: MSFT, Rated “C+”). ZD Net reports DTEN, Neat, Poly and Yealink plan to build hardware around Zoom’s popular software.
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The new hardware will be offered as a service. For between $6 to $200 monthly, business subscribers will get full access to Zoom’s easy to use software, housed in either a dedicated phone or meeting room hardware.
The strategy fits neatly with the larger business model to land and expand in corporate board rooms globally.
A June 2 press release revealed 279 enterprise customers with billings of greater than $100,000 per year. And Zoom managers now expect earnings per share of $1.21 to $1.29 during fiscal 2020, on about $1.79 billion in sales. That’s up from March when managers predicted earnings of 42 cents to 45 cents, on about $910 million in revenues.
The global market for videoconferencing is expected to grow to $11.6 billion by 2027, according to a report from Transparency Market Research, a specialty IT research group. During 2019, total sales of videoconferencing gear reached $6.1 billion.
Zoom shares trade at 165 times forward earnings and 88 times sales. Those nosebleed levels reflect investor’s expectation the heady growth will continue. Adding hardware partners is a good step in that direction.
When smaller companies like Zoom breakthrough in the platform wars, striking while the opportunity is plentiful is a good thing. Zoom is now taking dead aim at Cisco’s Webex and Microsoft Teams video integration partners.
Simplicity usually wins. Don’t bet against Zoom.
Best wishes,
Jon D. Markman
