A top Zoom Video Communications official recently laid out the company’s plans to deliver a more expansive product portfolio made up of acquired and internally built technology to better serve existing and new customers.
Speaking at two investor conferences, CFO Kelly Steckelberg outlined six priorities for delivering new functionality to enterprise customers. Highlights include:
- Actively seek to acquire companies whose technology will expand the product portfolio with specific functions that get into customers’ hands more quickly than organically developed applications.
- Ramp up research and development to accelerate internal product development.
- Work on a co-creation basis with customers to develop new functionality.
More details on these three, and three additional, initiatives follow:
Make Acquisitions for Functionality That Customers Need
Zoom is actively considering acquisitions that will expand its product portfolio and enhance its ability to deliver functionality that solves additional customer problems. For instance, the company’s Contact Center currently supports video, voice, and SMS, and will soon add omnichannel functionality including social media support. Its recent acquisition of Solvvy introduces conversational AI into the mix as well. But it’s not done there.
“There are a lot of other areas you can think about for contact center we’re looking at that will be potentially built or we will buy — things like workforce management, which is also really important,” Steckelberg said. “We have a full roadmap ahead.”
For any possible acquisition, the company will look at the time required to build internally versus buying a smaller company, with tech functionality being the “primary lens” to evaluate a possible deal. “M and A is a very important part of our growth strategy,” she says. “I think what you’ll see in the future is more tech tuck-ins that accelerate our product development cycles, because the best way to accelerate top-line growth is by increasing the product output.”
The time-to-market point is a critical consideration in build-versus-buy decisions. For instance, Steckelberg noted that the internally developed Zoom Phone has been on the market for three years and has matured to the point that it now has a Fortune 10 customer. “At this stage, it’s meeting the needs of the most sophisticated users in the world; I expect Zoom Contact Center to follow the same trajectory.”
One of the most important things to sustain growth is to innovate every single day. We need to be at the right investment level to ensure for the next 5 years we’re innovating at the rate we need to be.
Kelly Steckelberg, Zoom CFO
Ramp Up Internal Innovation and Product Breadth
Steckelberg emphasized the importance of new products to grow the company. In addition to acquisitions, the company has aggressive plans to expand R and D spending to accelerate development — which includes hiring engineers.
The company’s long-term target for R and D spending is between 10% and 12% of revenue. Last year, it was under 7% and the year before that it was under 4%. “As quickly as we can, we’re hiring and attracting engineers on a global basis,” Steckelberg said. “One of the most important things to sustain growth is to innovate every single day. We need to be at the right investment level to ensure for the next five years so we’re innovating at the rate we need to be.”
Work With Customers on a Co-Creation Basis
Following on the preceding points and the role of new product functionality in the company’s strategy, Steckelberg said customer inputs are key when it comes to setting technology priorities. Using the example of Zoom Contact Center, she noted: “At this early stage, we listen a lot to customers. As with all new products, somewhere between 10% to 20% of all new feature ideas come directly from customers.”
She noted that Zoom Whiteboard is one example of a product influenced by customer requests; more specifically, the company knew that product needed to be given additional priority to accelerate delivery.
Become Customers’ Worklife ‘Operating System’
The company’s business model is built on increasing revenue per account by selling additional services; it gains a footprint with big customers via the core Zoom video meeting technology and consistently finds that it builds customer confidence that leads to sales of additional products. The various customer organizations that maintain diverse Zoom products — video, whiteboard, and phones — also mean that the vendor has additional points of contact to whom it can sell in larger organizations. (That one’s good for Zoom. However, how that works for the customer is not clear).
Taking the concept out further, Zoom CEO Eric Yuan recently shared a vision of Zoom in five years being the “operating system for your work life.” That means functions such as project management, collaboration software, and more “could potentially be opportunities for organic and inorganic” development, Steckelberg said. “The goal is that every year now, we will be announcing a new service, and all those new services lead to acceleration.”
Expand Partner Focus to Reach More Customers
Previously, fewer than 10% of Zoom’s total “meeting” deals were touched by a channel partner. With Zoom Phone, by contrast, around 20% of total deals are touched by the channel. That is fairly typical of how companies deploy enterprise-scale phone systems, so likely not a big surprise.
As the company expands internationally, the percentages could grow higher, Steckelberg noted, adding that it’s investing aggressively in both direct and indirect sales channels internationally based on the size of the opportunity.
Helps Customers If a Recession Hits
Macroeconomic factors loom large today for virtually all companies, though to this point they have not taken a bite out of cloud companies (including Zoom) — neither their momentum nor their customer demand. Zoom is uniquely positioned in this regard. If companies were to limit or reduce spending, then Zoom’s core technology should benefit, rather than take a hit. “Zoom is a very efficient way to keep employees productive,” Steckelberg says, and the company clearly has the track record to back up that statement.
A couple of additional macroeconomic observations from the CFO of this highflyer:
Customer loyalty/retention: “Nothing in our data points to anything other than maintaining our stickiness.”
Impact on pricing or contracts due to macroeconomic factors: Zoom saw stronger than expected renewals in Q1. Customers are renewing for longer time periods than they did during the pandemic and are not asking for price cuts or changes to contracts.
Final Thoughts: Engaging With Microsoft as Friend, Foe
Last week brought news of Microsoft’s claims that it is taking share from Zoom, then an announcement that the two companies are working together to facilitate collaboration across Zoom and Teams.
Steckelberg addressed the relationship directly, noting that Microsoft’s market presence keeps Zoom on its toes. “It’s incumbent on Zoom to keep investing; the way we win is if we have a more user-friendly platform.”
She also pointed to the partnership that has led to integration between Teams and Zoom so that you can launch a Zoom meeting from Teams, reflecting their collaboration to benefit customers. “We do partner closely,” she said.
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