Editor’s note: This article is from the public micro-channel number, “I think I was in the pot” (ID: angelplusdevil), Author: I think I pot in GN, 36 krypton release authorized.
“The tailwinds have outweighed the headwinds (shun is better than reverse).”
This is the opening statement of Slack CFO’s Q1 earnings call this year. This sentence also applies to Zoom, which gained the fastest single-quarter revenue growth (169% year-on-year) in the history of software listed companies in the last quarter.Less than 60 US dollars soared to 240 US dollars, but this process also encountered doubts and criticisms caused by security issues.
(Source: Dayue Capital, as of June 13)
There are always media comparisons between Slack and Zoom, and the CEO of Slack has specifically explained the difference between the two companies:
“Unlike the many video conferencing solutions in the market such as Zoom, RingCentral, Google Meet, Microsoft Teams, Amazon Chime, and BlueJeans, we aren’t a digital substitute for physical, in-person meetings. Instead, Slack acts more like adigital office, a persistent place for users to connect and find information.”
(Unlike video conferencing solutions including Zoom, RingCentral, Google Meet, etc., Slack is not a replacement for physical places for interpersonal meetings. We are more like a digital office, a fixed place for users to connect and find information.)
This passage contains three points:
First of all, Zoom is an alternative to offline meetings and a remote upgrade of the phone. Slack is to break the tradition of email communication and create a new way of working.
Second, Zoom is easier to get customers to try from the perspective of experience upgrade, and Slack needs more time to educate users to change their habits.
Thirdly, Zoom cuts into a single scenario, and it is relatively easy to promote in any size enterprise, and Slack is more difficult to penetrate in enterprises with more complex organizational structures.
Therefore, the positive impact of the epidemic on Slack is not that great.Even because of the economic downturn, large enterprises, Slack’s most important customer base, may cut IT spending and reduce the purchase of non-core software.
However, according to the latest financial report, “Success is better than adverse” is indeed the best summary of the performance of the two companies during the epidemic.
Here are three major issues that this article wants to explore:
Based on earnings fundamentals, where is the “shun” between Zoom and Slack?
Under the fundamentals, where is their “reverse”?
In the future, how should the two companies overcome the adverse trend and continue to grow?
Combined with the continuous tracking of the two companies, I have the most profound experience, not only for the developing SaaS company but also all the companies in the ascending channel that have reference value:
Even in the adverse trend, we must persist in growth and look for the second curve-“out of the circle.”
Obviously, neither Zoom nor Slack wasted a “good crisis.”
According to the financial report, the revenues of the two companies during the epidemic experienced unexpected growth, but the extent of the difference was quite different.
(From the company’s financial report, the solid line is the actual data, the dashed line is the last quarter forecast)
Am I ushering in a “dark moment” in Slack?| As mentioned in the financial report, 30% is the growth red line of SaaS companies.Salesforce can maintain a growth rate of more than 30% after 16 years of listing. For Slack, which has just been listed for less than a year, it was said in the last quarter that Q1 was about to fall into this warning range. No wonder then the stock price fell to the bottom.
Therefore, the 50% growth brought about by the epidemic can “save” Slack.For Zoom, which has a daily activity of up to 300 million people, the epidemic helps it more like icing on the cake.
The chart below shows the changes in the paid customer metrics of the two companies.
(Zoom customer indicator analysis)
(Analysis of Slack customer metrics)
Combined with the content of the conference call, I found the following core features and differences:
First of all, in the customer profile, small and micro businesses and individual users form an important customer base for Zoom, and Slack relies more on the top-down promotion of large customers.
Zoom CFO mentioned in the conference call: The revenue contribution of small and micro customers with less than 10 people rose from 20% of Q4 to 30%, which is nearly 100 million US dollars.At the same time, the number of paying customers with more than 10 people surged by 184,000, surpassing Slack’s increase for the first time.However, the change brought by this part of customers is a significant increase in the monthly payment rate, and their future retention is the focus of future market attention.
On the other hand, Slack, the CEO made clear this year’s first task: Enterprise.In the number of large customers who paid more than US$100,000 in the first 12 months, Slack has grown significantly, and its share with customers is still 0.8%, and the 28th effect is obvious.In addition, contracts that have been signed for more than one year but not performed have reached US$379 million, an increase of 97% year-on-year.
Second, in terms of customer acquisition methods, the network effect shows a huge customer acquisition advantage during the epidemic, and server pressure and security issues have limited commercial impact on Zoom.
Look closely, the effect of the network effect on the two companies is actually different.Zoom’s product experience allows a registered user to enter an ID to join any meeting, which is very easy to share and spread within or between companies.
Slack was initially a platform for collaboration within the enterprise or team and calling other work software. It was also not suitable for sharing with the outside in terms of job attributes, making it difficult to form cross-enterprise communication.
Therefore, the network effect is much better for Zoom than Slack, and the pace of globalization is further accelerated.25% of Q1’s revenue came from APAC and EMEA (Asia Pacific and Europe), a year-on-year increase of 247%.
Finally, in the acquisition of major customers, Slack and Amazon Cloud AWS reached a strategic cooperation to master the important weight for their confrontation with Microsoft Teams.
On the afternoon of June 5, Slack and AWS announced a strategic cooperation, and all departments of Amazon will use Slack as the only work collaboration platform.
Slack will not only integrate Chime, an Amazon video conferencing product, but will also integrate with AWS Chatbot, Sandstone, Key Management Services and other products to enable customers who use both AWS and Slack to achieve one-stop management of internal cloud resources and work software..
With the thighs of AWS, Slack will also get potential customers on the cloud almost free of charge.For AWS, the competition with Microsoft Cloud Azure began to heat up last year, and both parties need to be connected.
This is a veritable win-win.
The following chart is the recent stock price performance of the two companies. It should be noted that the performance after the financial report is released.
After two major pullbacks, Zoom regained the trust of investors. However, Slack just struggled to climb out of the bottom of the valley two months ago, but plunged 14% after the financial report was announced.
The stock price reflects the market’s expectations for the future. What signals did the two financial reports release?
First of all, security and competition are the reasons for the two pullbacks of Zoom’s stock price. The problem behind the financial report is the potential cost increase and the approaching market ceiling.
In early April, Zoom was exposed as a safety hazard and became “Zoombombing” by public opinion. The stock price fell sharply immediately, and the details will not be discussed.The disaster is not alone. On April 26, Facebook announced the launch of Messenger Rooms, directly benchmarking Zoom Meeting, and the stock price once again callbacks.But with a series of rectifications and the acquisition of security company Kepbase, customer trust gradually returned.
Looking closely at revenue and profits, there is an important indicator of decline: gross margin.
(Source: Company Financial Report)
The decline is expected, but there are hidden dangers.
The main cost of video conferencing is the server or cloud.Providing free services to more than 100,000 K12 schools in 25 countries and the influx of a large number of individual users are the main reasons for the significant cost and consequently the impact on gross profit.
But this is not all. In order to eliminate the hidden dangers of customers, Zoom announced to provide end-to-end encryption for enterprise customers. In simple terms, this will increase the cost of bandwidth in disguise, and this is a long-term service promised by the company, which means that the gross profit margin is notIt can definitely return to the previous level.
This is not difficult to understand why Zoom announced on May 20 that it will stop the registration of individual Chinese users and no longer provide free services. The first reason is that it is not cost-effective.
The second reason is the fierce competition in the market where the ceiling is visible.On April 17, as Verizon announced the acquisition of cloud video conferencing company BlueJeans, there were few players left on this track.
This is not good, but the market has entered the giant harvest stage.
(In the US market, various giants “encircle and suppress” Zoom)
Looking at the domestic market, Ali Dingding, Tencent Conference, Toutiao Feishu and Huawei Welink are dividing up the market at almost no cost.Therefore, Zoom’s domestic initiatives, one hope to keep the existing city and focus on enterprise-level customers, and secondly, can focus on the international market and the actual threat of “meat combat”, which will be detailed later.
Secondly, “Not good enough” is the reason why Slack’s stock price once again encountered Waterloo. The problem behind the financial report is weak growth and high cost of sales.
How sinister it is to survive under the giant, and you will know a little or two by looking at Slack’s performance.
Even if all indicators exceed market expectations, compared with Zoom’s record performance, all aspects are inferior:
In terms of revenue, the year-on-year growth increased by one percentage point compared with Q4, while Zoom increased by nearly one hundred percentage points;
In terms of customer indicators, the growth of new paying customers increased by three percentage points from Q4, while Zoom has more than tripled.
Although the two are not very comparable, as SaaS companies that were listed at almost the same time and had almost the same total revenue last year, they all seemed to be stimulated by the epidemic. Zoom released a few days before Slack-the previous brothers played well, Why did you fall behind Slack?
The call also heard that as of the last quarter, Slack had accumulated a total of about 750,000 customers, an increase of about 90,000 compared to Q4, and paying customers increased by 12,000 during the same period, that is, a 13% conversion rate.
And this is obtained under the sales expenditure of about 110 million US dollars, accounting for more than 50% of the overall revenue, compared with the same period, Zoom’s sales expenditure accounted for only 37% of revenue.
(Source: Company Financial Report)
This is largely caused by the different network transmission properties of the products of the two companies. As mentioned above, the bottleneck of Slack’s communication is limited to the inside of the company and is not suitable for sharing with the outside world.
Therefore, customer acquisition has become a cost center that Slack needs to continue to invest.
Despite gaining a sufficient customer base after the epidemic, how to increase the payment rate, especially the acquisition of large customers, has become the top priority this year.The CEO said: “We will market aggressively (we will be more aggressive in marketing)”.
But a more aggressive market strategy means that it will continue to exert pressure on cash flow. After raising revenue expectations, the company expects to achieve revenue of 850 to 870 million U.S. dollars, an increase of 37% year-on-year, compared with the figure given by Zoom.185%.
To summarize, despite the benefits of the epidemic, the issues facing the two companies are also clear:
For Zoom, how to consolidate the moat and break the current market ceiling in the face of downward gross profit and fierce competition?
For Slack, in the face of slowing revenue and high sales investment, how to achieve cross-enterprise communication like Zoom and resume high-speed growth?
Behind both questions, we point directly to a goal-find the second curve.
03 Out of the circle
As mentioned in Zoom’s “Song of Ice and Fire” | Hardcore, Zoom’s niche market is Cloud-based Video Conferencing. This market has clear requirements, low hardware requirements, and low ceilings.
(Global telecommunications related market size in 2020, source: public information)
Zoom’s “out of the circle” is to break the ceiling of cloud video conferencing and break through to the tens of billions of dollars of unified communications market.
This requires the product to be able to adapt to more communication equipment such as landlines, mobile phones, etc., to meet the needs of more scenarios such as conference room systems, telephone access, etc., and eventually become a unified communication entrance that integrates various audio and video lines.This was mentioned briefly in the “Market Opportunity” section of Zoom’s prospectus.
To achieve this goal, Zoom launched three core products:
Zoom Meeting, a cloud video product for individuals or enterprises;
Zoom Room for large enterprises and governments: Integrate traditional communication equipment such as Cisco and Polycom into a unified Room system through connectors;
Zoom Phone integrated with traditional switchboard business: Integrate the telephone line into a unified communication entrance, and participants can dial in by telephone when video is not available.
Yuan Zheng did not hesitate to express the importance of the latter two in the conference call for several quarters. This time he also specifically mentioned a heavy client ARM, which deployed 8000 sets of Zoom Meeting, 800 sets of Zoom Room and 9000 in a single quarterSet a Zoom Phone to meet the remote meeting needs of employees worldwide.
The trend that Zoom is accelerating “out of the circle” is also reflected in the following three aspects, the importance is in descending order:
Zoom Phone sales are accelerated by the outbreak of the epidemic: gaining customers with free Meeting products, and then reverse penetration of traditional teleconference scenarios. This is Zoom’s “Land and Expand” strategy.Yuan Zheng and the CFO mentioned at least three times that this was a “Huge opportunity” because customers increasingly needed a “uniform” meeting solution, including voice and video, meaning that “TAM (target market) will”Greatly improved”, that is, unified communications market.
The combination of Room and Phone accelerates penetration into large customers such as finance and government: this is the only way to “out of the circle”, the two industries together account for almost half of the entire market, and it is also the lifeblood of traditional suppliers including the old owner Cisco.The acceleration is reflected in two points: 1. The second case mentioned in the conference call was a bank customer, deploying 175,000 accounts in a quarter.The usage of the Global 2000 customers increased by 200% month-on-month; 2. After the security problems broke out, local governments such as the United States and India began to look for alternatives.Conversely, this shows that Zoom has already entered many government departments.
App Marketplace (app store) from the “out of the circle” of communications to a collaborative market: in early May of this year, together with Emergence, Sequoia and other institutions, Zoom held the first “app store” competition.Docket, a start-up company that provides companies with meeting schedules, tasks, and workflow management based solely on the Zoom API stands out, winning the championship and winning $2 million in investment.
It is still difficult to judge whether the pan-Collaboration platform is established from the conference scene.Some analysts mentioned this topic in a telephone conference. Yuan Zheng’s attitude is consistent with the purpose of holding the contest: openness and integration.Indeed, customers always want a platform to solve as many problems as possible. Ecological closure and system islands are where traditional suppliers are criticized the most.
I once said that Slack is “making things” because it chose a market with few (more difficult to measure) ceilings from the beginning, which is why Microsoft has become a “nail” in the early days.
Slack’s “out of the circle” is to break the barriers of communication between enterprises, maximize the network effect, and become the “Digital office” entrance of enterprises.
(Slack needs to create a network effect like Zoom)
Shared Channels (shared channels) have undertaken this key function since its release in late 2018. It allows customers to share the internally established project team, Channel, to external companies, usually their customers or partners, to achieve information synchronization and task collaboration.And file sharing purposes.
If the downstream partner does not have a Slack account, the customer is even willing to purchase a Slack account for it.When the downstream also recognizes the value of the product during use, it may be promoted to other departments or management. In this way, Slack can use the network effect of Shared Channels to obtain new customers for free, thereby reducing sales costs.
This new feature involves many considerations in product architecture, rights management, and security.It was not until Q1 that the product was allowed to upgrade from one-to-one sharing to “group chat” for up to 20 companies.Only two months ago, the product optimized the invitation link sent to non-Slack users so that non-registered users could use the functions in Channel.
In my opinion, these updates come too slowly.Because as stated by the management, customer feedback on this feature is very good:
90% of customers who have contributed more than US$100,000 a year are already using it;
A total of 41,000 paying users are using it, an increase of 10,000 from the previous quarter;
Network effects are being generated from 250,000 clients (endpoints).
This is the third-largest goal set by Slack this year, but it takes the most time to test, at least a full fiscal year.
The management did not detail the sales funnel and conversion that may be formed due to the network effect on the conference call, including the new customers brought by this function, the level of activity and the conversion of payment.
Finally, to build a brand new “digital office”, it needs to be more open and integrated than Zoom.Although the CEO said verbally, “We don’t want to integrate all applications”, but the body is very honest.
The following is a list of SaaS companies invested by the Slack Fund jointly launched by Slack and Silicon Valley top VCs such as Accel, A16Z, Index and KPCB. Their important commonality is: office software based on the Slack API or better service developers.
(Source: Slack Fund official website)
In addition to the marriage between Slack and AWS, Yuan Zheng also expressed his gratitude for the support of AWS in a special period at the conference call.This kind of ambiguity is no accident. At present, the two “back waves” basically do not constitute a competition, but they are facing the same threat of a large “front wave”-Microsoft.
After Microsoft integrated Skype for Business video calls into Teams, this enlarged version of “Slack+Zoom” showed terrible growth during the outbreak:
In July last year, it claimed that the number of daily active users reached 13 million;
In early March, before the outbreak of foreign diseases, the daily work reached 32 million;
A week later, the daily activity rose to 44 million;
At the end of April, CEO Nadella announced that daily activity had surged to 75 million, accounting for nearly 30% of Office 365 paying users.
The front wave is still awesome.
For Slack, the current task is to grow efficiently and focus on acquiring large customers.They have found in the usage behavior of the top 50 customers that 75% of customers are using Office 365 and Slack at the same time.
For Zoom, you need to focus on continuing to digest the surge of 183,000 enterprise-level customers with more than ten people, while also retaining as much as possible the “producer” group (Prosumer, refers to companies or individuals with less than ten people).
In fact, Phone is to Zoom, Shared Channels is to Slack, and the two CEOs are preparing for the next step of growth before going public.
The epidemic disrupted the pace of development of all companies, but through the previous analysis we found:
This “second curve” strategy formulated in advance played a vital role during the epidemic and became one of the main drivers of growth.
It is almost certain that this year we will also witness the new record of annual sales of SaaS companies breaking through one billion US dollars fastest after being listed.Slack’s revenue guidance is close to $870 million, an annual increase of 30%.
You know, the revenue of the two companies last year was 630 million US dollars, and I was distressed by Slack for a minute.
The book “Dramatic Change” says: Crisis is a critical moment, a turning point.
The challenges brought about by this epidemic are not only inspiring people to use new methods to deal with problems that have never been encountered before, but sometimes they also test how to respond to the changes with the same.
Finding a way to grow and stick to it is a new moat for young Zoom and Slack.