Item 1. Business
Item 1. BUSINESS
Overview
Our mission is to make video communications frictionless and secure.
We provide a video-first unified communications platform that delivers happiness and fundamentally changes how people interact. We connect people through frictionless and secure video, phone, chat, and content sharing and enable face-to-face video experiences for thousands of people in a single meeting across disparate devices and locations. Our cloud-native platform delivers reliable, high-quality video and voice that is easy to use, manage, and deploy; provides an attractive return on investment; is scalable and easily integrates with physical spaces and applications. We believe that rich and reliable communications lead to interactions that build greater empathy and trust. We strive to live up to the trust our customers place in us by delivering a communications solution that “just works.”
The cornerstone of our platform is Zoom Meetings, around which we provide a full suite of products and features designed to give users an easy, reliable, and innovative unified communications experience. Users are comprised of both hosts who organize video meetings and the individual attendees who participate in those video meetings. In 2019, we launched Zoom Phone, a cloud-based PBX system, creating a unique unified communications platform. Many customers also choose to implement Zoom Rooms, our software-based conference room system, which enables users to easily experience Zoom Meetings in their physical meeting spaces. Our partner ecosystem, which includes App Marketplace and in-product apps, and developer platform help enterprises create elevated experiences with third-party applications to create customized workflows.
The happiness we bring is recognized by customers. Zoom has consistently high scores across customer review sites, including Gartner Peer Insights, TrustRadius, and G2 Crowd, including being recognized as a 2020 Gartner Peer Insights Customers’ Choice for Meeting Solutions and a TrustRadius Top Rated Web Conferencing Software. Industry analysts also recognize our market leadership: Gartner has named Zoom a Leader in its Magic Quadrant for Meeting Solutions based on our “ability to execute” and “completeness of vision.” In 2020 we also became a Leader in the Gartner Magic Quadrant for UCaaS. Frost & Sullivan recognized Zoom with its Global Connected Work Company of the Year award in 2020, as well as awards for Global Video Communications in The COVID-19 Crisis Enabling Technology Leadership, Asia-Pacific Cloud Video Collaboration Services Company of The Year, and Indian Cloud Video Enabling Technology Leadership.
We have a unique model that combines viral enthusiasm for our platform with a multipronged go-to-market strategy for optimal efficiency. Viral enthusiasm begins with our users as they experience our platform – it just works. This enthusiasm continues as meeting participants become paid hosts and as businesses of all sizes become our customers. Our sales efforts funnel this viral demand into routes-to-market that are optimized for each customer opportunity, which can include our direct sales force, online channel, resellers, and strategic partners.
Our Growth Strategy
We focus on the following elements of our strategy to drive our growth:
• Keep our existing customers happy. We provide happiness to our customers by giving them an experience that delights them. We respond to customer needs with action to drive positive user experiences. We believe these practices result in our high scores across customer review sites and will continue to generate referrals from our existing customers, providing meaningful viral adoption for the foreseeable future.
• Drive new customer acquisition. Our platform is designed to make it easy to host meetings. By attracting free hosts to use our platform, we promote usage that allows hosts and their meeting attendees to experience the difference of Zoom. We complement this lead-generation model with our multipronged go-to-market strategy that integrates the viral enthusiasm for our platform with optimal routes-to-market, including direct sales representatives, online channel, resellers, and strategic partners. This approach allows us to cost-effectively drive upgrades to our paid offering and expansion within organizations of all sizes and verticals.
• Expand within existing customers. As organizations experience our video platform and become familiar with its benefits, more teams and departments within these organizations adopt Zoom. Our platform may begin in a line of business and then organically expand across departments. This “land and expand” model has led to some of our largest deployments. Customers are also purchasing services for webinars, room solutions, and phone for the full Zoom Unified Communications as a Service (“UCaaS”) experience.
• Innovate our platform continuously. Our engineers aim to stay on the cutting edge of video communication and collaboration technologies. We strive to deliver the best experience to our users by dedicating a portion of
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engineering capacity to developing on-demand, customer-requested features that would be valuable across our customer base.
• Accelerate international expansion. With users, offices, and data centers strategically located around the world, we are poised to reach new customers globally. Our platform is intuitively designed such that localization requirements are minimal. For example, our platform works without intensive translation requirements with only a few language adjustments to our user interface and support systems.
• Grow our partnership ecosystem and continue to expand our platform. Our platform integrates easily with other systems and tools. We enable developers to embed our platform into their own offerings through open application program interfaces (“APIs”) and our cross-platform software development kits (“SDKs”). We have already partnered with several hardware video conferencing and peripheral providers and with software providers, including Atlassian and Dropbox. Third-party developers are able to engage with the Zoom App Marketplace and Zoom Developer Platform to extend the value and adoption of Zoom with our customers through the development of public and private apps and integrations.
Our Products
We provide a unified communications platform that delivers happiness and fundamentally changes how people interact, connecting them through frictionless and secure video, phone, chat, and content sharing. Our core products include Zoom Meetings, Zoom Phone, Zoom Chat, Zoom Rooms, Zoom Conference Room Connector, Zoom Video Webinars, Zoom Developer Platform, and Zoom App Marketplace.
Zoom Meetings
Zoom Meetings provide HD video, voice, chat, and content sharing across mobile devices, desktops, laptops, telephones, and conference room systems. Our architecture can support up to one thousand video participants in a single meeting. Conversations can be one to one, one to many, or many to many. Zoom Meetings feature 49-person video gallery view, virtual backgrounds, MP4/M4A cloud/local recording with transcripts, video breakout rooms, screen sharing with annotation, and integrations with other powerful business applications to help teams get more done together. Zoom Meetings integrate with tools created by companies such as Atlassian, Dropbox, Google, LinkedIn, Microsoft, Salesforce, and Slack. Our meetings are a flexible tool for on-the-go employees who rely on their mobile device or tablet throughout their business day.
An end-to-end encryption (“E2EE”) option is now available to free and paid Zoom customers globally who host meetings with up to 200 participants. Zoom’s E2EE uses the same AES-256-GCM encryption that secures Zoom meetings by default, but with Zoom’s new E2EE, the meeting host generates encryption keys and uses public key cryptography to distribute these keys to the other meeting participants.
Zoom Phone
Zoom Phone is an enterprise cloud phone system that provides powerful private branch exchange (“PBX”) features, such as secure call routing, call queuing, call detail reports, call recording, call quality monitoring, voicemail, switch to video, and much more. Available stand alone, or as an optional add-on to Zoom Meetings, Zoom Phone is a core component of our modern video-first UCaaS strategy that enables customers to replace their existing PBX solution and consolidate all of their business communications and collaboration requirements onto Zoom.
Zoom Phone provides inbound and outbound calling via its support for native connectivity to the public switched telephone network (“PSTN”). In the fiscal year ended January 31, 2021, Zoom Phone provided native PSTN connectivity in 44 countries and territories including Australia, Canada, Ireland, New Zealand, Puerto Rico, United Kingdom (“U.K.”), and the United States (“U.S.”).
Zoom Phone also supports Premise Peering and Cloud Peering, which provide enterprise customers with the flexibility of keeping their current PSTN service providers by redirecting existing third-party voice circuits to the Zoom Phone cloud. Hybrid connectivity is also supported, allowing customers to mix native Zoom Phone Calling Plans and third-party voice circuits. This unique capability allows customers to enjoy all of the benefits and features of Zoom Phone while keeping their existing service provider contracts, phone numbers, and calling rates with their preferred carrier of record.
Zoom Chat
Zoom Chat, which is included in the Zoom client for meeting and phone customers, enables organizations and teams to communicate and collaborate in groups, channels, or 1-1s and to stay connected by instantly sharing messages, images, audio files, and other content across desktop, laptop, tablet, and mobile devices. With Zoom Chat users can easily invite people outside a user’s organization to a chat conversation, and users can quickly switch from a chat to a phone call or video meeting
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during a conversation. Zoom Chat also features content storage for users who want discoverability and the ability to review their conversations or shared files. There are dozens of Zoom Chat compatible applications available in the Zoom App Marketplace that provide notifications and improved workflow for other enterprise systems.
Zoom Rooms
Zoom Rooms is our software-based conference room system that transforms every room–from executive offices, huddle rooms, training rooms, to broadcast studios–into a collaboration space that is easy to use, simple to deploy, and effortless to manage. Designed to increase workforce collaboration across in-room and virtual participants, Zoom Rooms bring one-click to join meetings, wireless multi-sharing, interactive whiteboarding, and intuitive room controls for a frictionless and secure Zoom Meeting experience. Zoom Rooms can leverage purpose-built hardware, such as Zoom Rooms Appliances, for a turnkey deployment, or customize room builds with Zoom’s open hardware ecosystem and professional audio/visual equipment, enabling organizations to build video conference rooms for any use case.
Zoom Rooms Scheduling Display helps meet the needs of the agile office by delivering simple, on-the-fly room booking and room utilization management through a calendaring system. With a single Zoom Rooms license, customers get unlimited access to this service, requiring only an iOS or Android touch display outside their rooms.
Zoom Rooms Digital Signage leverages displays, in and out of conference rooms, to project image, video, and URL content playlists. Included as part of Zoom Rooms, role-based admins can easily manage unlimited Digital Signage content and displays through the Zoom Admin Portal and remotely control the content displayed across screens for corporate communications, internal marketing, branding, and more.
Zoom Conference Room Connector
The Zoom Conference Room Connector is a gateway for SIP/H.323 endpoints to join Zoom meetings. For organizations that use SIP/H.323 conference room systems from providers, such as Poly and Cisco, Zoom’s Conference Room Connector can take these traditional hardware video conferencing systems to the cloud, allowing users to leverage their existing investments while taking advantage of the Zoom platform. As organizations transition from legacy hardware-based conference rooms to software-based Zoom Rooms, IT administrators save cost on layers of service, maintenance, and support contracts and bridge their endpoints with Zoom Conference Room Connector. With the cost-savings, organizations can reinvest in video-enabling more rooms and continue to leverage their existing SIP/H.323 endpoints with a consistent, cloud-based experience across all their rooms.
Zoom Video Webinars
Zoom Video Webinars support interactive video presentations to large audiences from almost anywhere in the world and from many devices. Zoom webinars scale up to 50,000 people including up to 100 interactive video panelists. With webinars, hosts have control over the video viewing experience and attendees join to listen, learn and interact using chat, Q&A, live polling and more. Our powerful third-party integrations help users maximize usage of their webinars and expand capabilities with paid registration, marketing automation, lead nurturing and learning management.
Zoom Developer Platform and Zoom App Marketplace
Zoom Developer Platform allows developers to integrate our video, phone, chat, and content sharing into other applications, as well as manage Zoom accounts from any system, with full access to their usage and network metrics data. With our SDKs, APIs and webhooks, Zoom, third-party developers, and partners build applications that integrate our platform with other cloud services. Our customers can also develop highly customizable private applications that integrate Zoom into their systems. Our rich toolbox of extensible APIs, cross-platform SDKs, and MobileRTC powered an average of more than 1.6 billion API engagements per month for calendar year 2020.
Our App Marketplace brings together these integrations built by Zoom and third-party developers, making it easy for developers to publish their apps and for customers to enhance their Zoom experience with new functionalities. We fully vet apps in our marketplace for security and user experience. Zoom App Marketplace features apps and bots with services such as Salesforce, Microsoft Teams, and Google, as well as deep product integrations with Dropbox, Box, Atlassian, and Marketo.
OnZoom and Zoom Apps
We recently announced two additions to the Zoom platform: OnZoom and Zoom Apps. OnZoom is a new platform for Zoom users to create, host, and monetize online events. OnZoom is an extension of Zoom’s unified communications platform with robust monetization (ticketing and fundraising) and simpler event management capabilities. OnZoom is currently offered as a public beta for U.S. users to host and attend online events. Zoom Apps are a new app type coming soon to the Zoom App
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Marketplace. These in-product integrations will be accessible directly from Zoom Meetings and the Zoom Desktop client and are designed to facilitate collaboration and engagement during meetings.
Zoom Hardware-as-a-Service
Our Zoom Hardware-as-a-Service offering allows customers to access the latest and greatest video communication technology. Customers can deploy a world-class communications experience with a variety of subscription options for phone and meeting room hardware. Zoom customers will be able to scale video conference rooms and phones with hardware options and hardware refreshes at an affordable, fixed monthly price.
Our Technology and Infrastructure
Our unique technology and infrastructure enable best-in-class reliability, scalability, and performance. We designed our communications platform to be video-first and cloud-native. Most legacy approaches utilize single multipoint control units (“MCUs”) to bridge video and voice participants into an integrated stream that is broadcast back to the participants. These hardware devices are shipped with defined processing and memory capacity that are difficult to scale. In addition, an MCU architecture is similar to other mainframe-like approaches where stream processing and mixing run on the same machine, which is resource-intensive and limits scalability.
Our technology was specifically designed from the start to address the most difficult component of communications: video. Video requires intense computing resources for encoding, decoding, multiplexing, and synchronization, as well as higher bandwidth and network performance, to a much higher degree than other forms of communication like voice, chat, and content sharing. Our architecture separates video content processing from the transporting and mixing of streams. We allocate video content processing to intelligent agents that reside on client devices and dynamically encode and decode based upon the performance of client technology, network performance, and bandwidth. We leverage a next-generation multimedia router that operates on commodity hardware and a globally distributed cloud infrastructure to determine the optimal data centers to host a meeting and an optimal set of paths to connect the participants.
Our Customers
We have customers of all sizes, from individuals to global Fortune 50 organizations. Our current customer base spans numerous industry categories, including education, entertainment/media, enterprise infrastructure, finance, government, health care, manufacturing, non-profit/not for profit and social impact, retail/consumer products, and software/internet. No individual customer represented more than 10% of our total revenue in the fiscal year ended January 31, 2021. As of January 31, 2021, we had approximately 467,100 customers with more than 10 employees.
Sales
Our sales model combines our viral demand generation and our free Zoom Meeting plan with a sales approach optimized for the size of each customer opportunity. Our direct sales force includes our field sales representatives as well as our inside sales team, and it is organized by customer employee count and vertical. Our channel team coordinates the activities of resellers and strategic partners to build a strong ecosystem that broadens our reach. Our online channel supports high-volume, high-velocity, self-service sales.
Marketing
Our marketing team’s primary objective is to create preference for our brand by leveraging our viral growth, enhancing brand perception, and engaging our users with virtual events, social media, and customer advisory councils. We complement our viral growth with targeted online and out-of-home advertising. We shifted our events strategy from in-person to online during the pandemic, including hosting Zoomtopia, our annual user conference, to over 150,000 unique virtual attendees.
Research and Development
We drive our business with constant innovation. We have research and development presence in the United States, India, Singapore and China, which we believe is a strategic advantage for us, allowing us to invest more in increasing our product capabilities in an efficient manner with a “follow the sun” strategy.
Our Competition
The markets in which we operate are highly competitive. We face competition from legacy web-based meeting services providers, including Cisco Webex and LogMeIn GoToMeeting, and bundled productivity solution providers with video functionality, including Google G Suite and Microsoft Teams, as well as UCaaS and legacy PBX providers, including 8x8. Avaya, and RingCentral.
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We believe we compete favorably based on the following competitive factors:
• video-first platform;
• cloud-native architecture;
• functionality and scalability;
• ease of use and reliability;
• brand awareness and preference;
• ability to utilize existing infrastructure, such as legacy conference room hardware; and
• low total cost of ownership.
Intellectual Property
We rely on a combination of patents, trademarks, copyrights, and trade secrets, as well as contractual protections, to establish and protect our intellectual property rights. We actively seek patent protection covering inventions originating from our company. We also pursue the registration and enforcement of trademarks and domain names in the United States and in various jurisdictions outside the United States.
We control access to and use of our proprietary technology and other confidential information through internal and external controls, including contractual protections with employees, contractors, customers, and partners. Our software is protected by U.S. and international intellectual property laws. Our policy requires employees and independent contractors to sign agreements (1) assigning to us any inventions, trade secrets, works of authorship, and other intellectual property generated by them in the course of their employment, and (2) agreeing to protect our confidential information.
In certain circumstances, we license intellectual property from third parties for use in our products. This may include open source software. We take steps to ensure compliance with the terms of the licenses governing such licensed technology. We believe our business is not materially dependent on any individual patent, trademark, copyright, trade secret, license, or other intellectual property right. For information on the risks associated with our intellectual property, see “Item 1A - Risk Factors.”
Government Regulation
Our business activities are subject to various federal, state, local, and foreign laws, rules, and regulations. Compliance with these laws, rules, and regulations has not had, and is not expected to have, a material effect on our capital expenditures, results of operations and competitive position as compared to prior periods. Nevertheless, compliance with existing or future governmental regulations, including, but not limited to, those pertaining to global trade, business acquisitions, consumer and data protection, and taxes, could have a material impact on our business in subsequent periods. For more information on the potential impacts of government regulations affecting our business, see “Item 1A - Risk Factors.”
Human Capital
As of January 31, 2021, we had 4,422 full-time employees. Of these employees, 2,662 are in the United States and 1,760 are in our international locations. None of our employees are represented by a labor union or covered by collective bargaining agreements, and we have not experienced any work stoppages.
Our Culture of Happiness
We are focused on delivering happiness to our employees and customers. We strive to change the way business is done through our communications technology and our company culture. We take happiness so seriously that we have an employee-led happiness committee and crew to facilitate and amplify our efforts to deliver happiness to our employees and customers.
Our culture of delivering happiness drives our mission, vision, and values and is fundamental to everything we do at Zoom:
• Mission. Our mission is to make video communications frictionless and secure.
• Vision. Our vision is to empower people to accomplish more through video communications.
• Values. We care for our community, our customers, our company, our teammates, and ourselves.
This culture supports our hiring and serves as a competitive advantage in attracting and retaining top talent. Comparably recognized Zoom for numerous culture awards in 2020 including Best Company Happiness and Best CEO. Our employees also named Zoom among the winners of Glassdoor’s Employees’ Choice Awards honoring the Best Places to Work in 2021.
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Diversity, Equity and Inclusion
Diversity, equity and inclusion (“DEI”) at Zoom is an embodiment of our core value of Care. DEI also represents our intentional effort to create an inclusive environment of the brightest minds from a broad set of backgrounds in order to create the most innovative solutions for our customers. Our approach to DEI is driven across four strategic focus areas: workforce (who and how we hire), workplace (how it feels to work at Zoom), marketplace (how we include our customers) and community (how we help to make the world more equitable).
In June, we hired our first Chief Diversity Officer, Damien Hooper-Campbell, to lead our DEI function globally. We have taken steps to diversify our candidate outreach through engagements with AfroTech, Merritt College, AnitaB.org and a five-year strategic partnership with Claflin University. In our workplace, we launched our Zoom Talks initiative to create ongoing spaces for our employees to learn more about each other's unique backgrounds. We also launched our inaugural Employee Resource Group (“ERG”) program with a focus on Black, Latinx, Women's, Veterans and LGBTQ+ communities. Our DEI Team continues to partner with teams leading our product design and marketing to invest in making our products even more inclusive and accessible to the diverse set of communities we serve. Finally, in an effort to both further our education internally and provide others outside of Zoom with an opportunity to learn, we created the nine-part learning series, “Race in the Workplace”, in partnership with TIME and renowned expert, Dr. Shaun Harper.
Compensation and Benefits
We offer fair, competitive compensation and benefits that support our employees’ overall well-being. Our employees’ total compensation packages include base pay, bonuses or sales commissions, and equity. We offer a wide array of benefits including comprehensive healthcare benefits, including mental health and fertility benefits, wellness benefits, a book reimbursement plan to support continuous learning, and charitable gift matching through our Zoom Cares program.
In response to the COVID-19 pandemic, we implemented significant changes that we determined were in the best interest of our employees as well as the communities in which we operate. This includes having the vast majority of our employees work from home, while implementing additional safety measures for employees continuing critical on-site work. We also provide flexible work hours in certain cases. We have also provided a work-from-home reimbursement policy to assist employees in that transition.
Our Facilities
Our corporate headquarters is located in San Jose, California, where we lease approximately 103,000 square feet of commercial space pursuant to operating leases that expire in the fiscal year ending January 31, 2030. In addition, we maintain additional offices in the United States and internationally in Asia-Pacific (“APAC”) and Europe, Middle East, and Africa (“EMEA”). We believe that our facilities are suitable to meet our current needs.
Corporate Information
We were incorporated under the laws of the state of Delaware in April 2011 under the name Saasbee, Inc., and in February 2012, we changed our name to Zoom Communications, Inc. In May 2012, we changed our name to Zoom Video Communications, Inc. Our principal executive offices are located at 55 Almaden Boulevard, 6th Floor, San Jose, California 95113. Our telephone number is (888) 799-9666. Our website address is https://zoom.com. Information contained on, or that can be accessed through, our website is not incorporated by reference into this Annual Report on Form 10-K. The Zoom design logo, “Zoom,” “Zoom Video Communications,” and our other registered or common law trademarks, service marks or trade names appearing in this Annual Report on Form 10-K are the property of Zoom Video Communications, Inc. Other trade names, trademarks, and service marks used in this Annual Report on Form 10-K are the property of their respective owners.
Available Information
We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Exchange Act. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information that we file with the SEC electronically. Copies of our reports on Form 10-K, Forms 10-Q, Forms 8-K, and amendments to those reports may also be obtained, free of charge, electronically through our investor relations website located at investors.zoom.us as soon as reasonably practical after we file such material with, or furnish it to, the SEC.
We announce material information to the public through a variety of means, including filings with the SEC, press releases, public conference calls, our website (www.zoom.com) and the investor relations section of our website (investors.zoom.us). We use these channels, as well as social media, including our blog (blog.zoom.us), our Twitter account (@zoom_us), our LinkedIn page (linkedin.com/company/zoom-video-communications), and our Facebook page (facebook.com/zoomvideocommunications), to communicate with investors and the public about our Company, our products
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and services, and other matters. Therefore, we encourage investors, the media, and others interested in our Company to review the information we make public in these locations, as such information could be deemed to be material information. Information on or that can be accessed through our websites or these social media channels is not part of this Annual Report on Form 10-K, and the inclusion of our website addresses and social media channels are inactive textual references only.