Zoom has announced the first companies to receive investment from its $100m start-up fund. The investments, which were revealed as investors gave a lukewarm welcome to the company’s latest financial results, reflect Zoom’s desire to build an ecosystem around its core communications platform as it seeks to remain relevant in the post-Covid-19 world of work.
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After enjoying rapid growth in 2020 as all communications moved online during the pandemic, Zoom’s progress has slowed in recent months. On Tuesday it revealed second-quarter revenue of $1.02bn, representing year-on-year revenue growth of 54%. However, this followed a quarter of 191% growth, and with the company forecasting a further drop to 31% growth in Q3, its share price slipped 10% after the results were revealed.
Zoom’s start-up investments are intended to bolster a fledgling but ambitious platform strategy that it hopes will deliver higher rates of growth. The companies it has chosen reveal its vision for how hybrid working, powered by AI-centric apps, might operate.
Why did Zoom’s results disappoint investors?
Zoom’s Q2 revenue was slightly above analyst expectations of $991m, and Zeus Kerravala, principal analyst at ZK Research, which covers the unified communications as a service (UCaaS) sector, says it was the lower Q3 guidance that spooked investors. “The guidance was a big part of the dip in stock price,” he says. “I know many investors were hoping to see the company raise its guide more than it did.”
Kerravala adds that many investors fear that after the pandemic Zoom "will no longer be relevant". But, he explains, "There are two flaws with this thinking. In the near term, we are nowhere near a post-pandemic state. Most businesses leaders aren't even considering a return to work for another six months. The bigger misunderstanding is that Zoom is a work-from-home company; it's a hybrid-work company."
Zoom and hybrid work: an AI-powered vision of the future
Announced in April, Zoom's app investment fund is part of its strategy to become a platform for collaboration software. Funding is available to software companies building tools that integrate with its core video conferencing solution.
The recipients announced this week include interview intelligence platform BrightHire, meeting productivity platform Docket, AI-powered note-taking app Fathom, and project management and collaboration platform Hive. Though the company hasn't disclosed the size of its first investments, they are thought to range from $250,000 up to $2.5m.
These start-ups have been chosen with the aim of "making the Zoom video-first unified communications offering more compelling by targeting enterprise collaboration and productivity use cases", says Raúl Castañón-Martínez, senior research analyst at 451 Research.
He says Zoom is betting on businesses demanding more AI-powered functions to make their interactions with customers and colleagues smarter. "Together with other recent announcements – such as its acquisition of multi-language machine translation start-up Kites and new features like Smart Gallery – these investments highlight that Zoom is pushing forward with comprehensive AI-enabled capabilities for smart meetings, smart events and smart unified communications," he explains.
Zoom also has ambitions in the call centre, and earlier this year acquired Five9, a cloud-based call centre software platform. Kerravala says building a broad platform with a strong accompanying app ecosystem can enable Zoom to continue a rapid growth trajectory, and that investing in promising start-ups will help this ecosystem develop. "Zoom is making the shift to becoming a platform company where other software companies can build on its software," he says. "It wants to be massive, not just big, and this [investment] is an important part of it.
"The bigger the ecosystem of companies around it, the more sticky the company becomes. VMware is a great example; there have been many companies that have taken runs at its [core] hypervisor business but it has maintained its position because of the ecosystem."
He adds, "Clearly Zoom believes the state of work will be a mix of in-office and home workers, and wants to bridge that gap."
