Zoom makes a small bet on hardware that could have a big payoff

One of the most interesting aspects of the ongoing narrative around the pandemic-friendly success of Zoom Video is its David-versus-Goliath vanquishing of the WebEx unit of Cisco Systems. Zoom CEO Eric Yuan and much of his management team hail from WebEx. At Zoom, they created an easy-to-use business product that has become a consumer cultural sensation.

Zoom flexed its muscles last week with a boffo earnings report. Revenues more than doubled, and the company reported impressive gains (to 769) in its big-ticket customers, those who pay $100,000 or more per year, and, importantly, companies with at least 10 employees, the types of companies that pay to use Zoom, to more than 765,000.

Critical to Zoom’s success is that it’s a software company. Whereas WebEx is part of a network-equipment-making giant and sells devices of its own, Zoom put all its energy into the visual experience of video conferencing.

Little noticed is that Zoom might not be content to refer its customers to other hardware vendors. Last year it invested in a Norwegian company called Neat, which says it “was created with Zoom to provide the ultimate Zoom Room experience.” Though Zoom didn’t comment on it in its earnings call with investors, the company disclosed a few days later that it has increased its investment, though it doesn’t name Neat in its filing. “In the third quarter of fiscal year 2020, we made a $3.0 million strategic investment in a private company in the business of designing and developing video communications hardware,” Zoom said. “In the first quarter of fiscal year 2021, we made an additional $8.0 million strategic investment in this company.” (Zoom’s fiscal 2020 ended Jan. 31, 2020.)

It’s a small investment in a small company. Then again, that’s how Zoom started—when Yuan left Cisco-owned WebEx.

Adam Lashinsky

@adamlashinsky

[email protected]

This edition of Data Sheet was curated by Aaron Pressman.

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