Good morning, everyone. I'm Tom McCallum. I'm the Head of Investor Relations for Zoom. Welcome today to our analyst meeting at Zoomtopia. Welcome to everybody in the room here and everybody who is on the Zoom webinar. We appreciate all the time you guys are putting in today. I'll just do a few quick housekeeping items, then I'll turn it over to Kelly. First, our agenda. Kelly's going to come up in a few minutes and talk about our growth strategy. We're going to follow it up with an update from Graeme on Zoom Phone. We're going to take a short break and have lunch available right out here, drinks as well. If you guys can all come back in about 5:05, that would be great. We'll have a little quick customer video, then the afternoon session will start.
We're going to have Oded come in. He's going to do a strategy update on our technology, as well as some of the announcements. Eric's going to come over and join Kelly for a Q&A. We will have some Q&A in between for the Zoom Phone and for Oded, if you want to ask them questions, but hold off on the Kelly questions until that session, if you wouldn't mind. We're lucky to have Ryan, our new head of sales, our Chief Revenue Officer, coming in, and he's going to have two CIOs with him, one from Ciena and the other from Autodesk. We've got a full schedule. We're going to end promptly at 1:45. Again, appreciate all the time. We are going to show some non-GAAP financial metrics, just so you all know.
Just make sure you see the reconciliation in the back of the presentation, which is available online on the IR site. Please familiarize yourself with our safe harbor statement. I know it's a bit of an eye chart at this point, but it again, is going to be in the presentation. With that, let me bring up Kelly.
Thank you, Tom. Good morning, everybody. Welcome to our second annual Investor and Equity Analyst Day. How many of you were here with me last year? Okay, we have quadrupled our attendance. I think we even beat Zoomtopia. For those of you that were here last year, we were across the street in a little room without a sign. We really made it to the big time this year. Thank you all for coming. Everything that we do at Zoom is focused on delivering happiness to our customers and our employees. This is evidenced in a few metrics that are showing up here. Our Net Promoter Score of 70+, as compared to the industry average of approximately 20, as well as a CSAT score of 95%.
I think even more importantly, it's evidenced by what we hear from our customers, which is video usage increases 85% when they adopt Zoom as compared to their legacy providers. This has led to a current annual run rate of minutes of over 80 billion. 80 billion minutes we're providing to people on an annual basis today. I think that's amazing, and also up double at least year-over-year. This has culminated in a unique financial profile. Year-to-date, these are all year-to-date numbers for the first half. We made it through Q2 with $268 million of revenue, up 99% year-over-year. We have a non-GAAP operating income of $29 million, up over 680%, and our free cash flow of $32 million year-to-date.
While we're really excited and proud of these numbers and our performance to date, there is a lot more opportunity ahead. IDC estimates the TAM for this space to be over $43 billion. There's over 200 million businesses and 1 billion knowledge workers in this world that have the need for potentially using Zoom. There are 90 million conference rooms in the world. You guys, if you heard the keynote, you heard Eric address this. He talked about the penetration. I'm going to give you the number in a minute, but it's only 4%. 4% of those conference rooms are video-enabled today. There's 480 million desktop phones around the globe and 195 countries in the world, and Zoom has the solutions to address the needs of all of these. The growth strategy for Zoom started about six years ago when Zoom Meetings became GA.
One product really focused on SMB. Our growth strategy today has evolved to focus on these four pillars. Expansion into the upmarket. We hired our first enterprise leader at AE, Jeff Schwartz, two and a half years ago. We've made lots of progress in this area to date, as evidenced by our largest initial deal land we announced last quarter of HSBC. We're going to talk a little more about one of the amazing cases we also have in the enterprise in a moment. International. We also opened our first two international offices two and a half years ago in London and Sydney. Today, the number of offices has quadrupled, and we're super excited that also our largest initial deal also just happened to be an international deal as well. Zoom Phone.
Really excited about Zoom Phone, which became GA in Canada and the U.S. in January, and in the U.K. and Australia in March. You guys heard some really cool announcements this morning. I'm excited that we're going to have Graeme come up in just a few minutes and tell you more about that. Of course, Zoom Rooms. This is really our key to winning in the conference rooms. You guys heard some really great announcements this morning about how we're simplifying that and really making it easier and easy for adoption, especially in the upmarket. Okay. Stepping through each of these pillars. Expansion in the upmarket. In Q2, we ended with a customer count of over 66,000 customers with greater than 10 employees.
The metric that we're going to provide on a quarterly basis to help you understand the progress we're making in the upmarket, though, is customers with greater than $100,000 of trailing 12 months revenue. We ended Q2 with 466 of those customers, growing 104% year-over-year. Really exciting to see that that base of our customer, that group of our customers is growing even more quickly than our broader customer base, which grew 78% year-over-year. Another way you can measure how we're making progress in the upmarket is through our net dollar expansion rate. We ended Q2 with a trailing 12-month number of greater than 130%. This can be due to either the sale of more licenses or additional products like Zoom Phone. I want to walk you through an example of how this works in one of our customers.
This is a new case study that we haven't shared before. This is a large retailer that many of you probably know and love, and like most of our sales cycles, it started purely organically. You can see that in the first quarter that we were in this customer, we grew to almost 300 licenses, purely organically. Then we had the opportunity to go in and do a pilot of our Zoom Meetings product. You can see in that quarter then it grew to 6,000 host licenses. Fast-forward basically three quarters. They decided to do an initial purchase of 150,000 Zoom Meetings licenses. Super exciting to see that tremendous growth. Then you keep going. Now they decided to expand into Zoom Rooms. In Q3 of FY 2019, they bought 2,000 Zoom Rooms licenses.
In Q2 of FY 2020, further expansion, again, pushing them to the very top of our largest customer list today, buying another 30,000 meeting licenses and almost more excitingly, 10,000 Zoom Phone licenses. Today, this customer has three of our product lines and a total of 192,000 licenses deployed. This is not unique. Some of you probably have seen the previous case study we were showing, which was a financial services company. It had a very similar trajectory, which is what's witnessed in our net dollar expansion of 130%. Come on up, guys. There's space up here. Welcome. There remains tremendous opportunity in the upmarket, and we're really excited about this. You can see here in the Fortune 500, 55% of them have at least one paid host license, but only 5% of them actually have revenue today of greater than $100,000.
That means there's a tremendous opportunity for us to continue to make meaningful progress in the Fortune 500. I'm excited to share with you a never-seen-before metric, which is the number of accounts we have today with greater than $1 million of ARR. You can see that at FY 2020 Q2, we ended with 27 accounts, greater than $1 million of ARR, up 286% year-over-year. Just to manage expectations, this is a metric we're going to only disclose here at the Zoomtopia Analyst Day. We invite you all to come again next year to hear this lovely metric. All right. In terms of international expansion, this is a really important part of our growth strategy. On the left-hand side of this slide, you see our top 10 markets by revenue share.
Two of the top three are the U.K. and Australia, which again, as a reminder, were the first two offices we opened. This highlights that our investments there are really taking hold and paying off today. We have eight international sales offices around the globe today. Year to date, our international revenue has grown at a rate of 120%, in contrast to our domestic revenue, which grew at 94%. This highlights that our investments in international are really helping accelerate our revenue growth at this point. With international representing 20% of our total revenue year to date, there is tremendous room for expansion in this area. Zoom Phone, the man himself, Graeme, just entered the room. He's going to give you an update on this in a minute. There are many exciting aspects about the progress that we're making in Zoom Phone.
I think the most exciting one to me, and frankly, the most surprising one, is I think we all expected this to be a product that resonated well in the SMB, yet we have seen tremendous uptake in the upmarket space as well. You can see here that our exit ARR as of Q2, 41% of that was within upmarket customers, and that's for us defined as customers with greater than 1,000 employees. As I mentioned again, our largest deployment to date is 10,000 Zoom Phone licenses. As you can imagine, many of the early adopters for Zoom Phone were in the technology space. As you can see here, 24% of our ARR, but also some really nice representation across other verticals, including retail, manufacturing, professional services, and communications. A really nice broad base of Zoom Phone customers already to date. All right.
In terms of Zoom Rooms. Again, this 90 million number you've heard a few times this morning, that's the number of conference rooms around the globe. As of 2018, it's estimated only 4% of them are technology-enabled. That number, though, is expected to triple by 2023, in the next five years. That means there are 10 million rooms up for sale to become Zoom Rooms, and we are laser-focused on converting these to Zoom customers at this point. Even within our existing customer base, though, there's also a lot of opportunity. If you look at our up-market customer base today, the attach rate currently is 37%. That means we have lots of room to continue expanding and growing in our existing customer base as well, as the goal for that number is certainly to have it be 100%. Okay. How are we going to do all that?
Every day, we are focused on continuing to build and enable a team that scales and provides happiness to our customers while carrying our culture. The culture of delivering happiness to our customers and employees is probably the most important thing and key to our success at Zoom. Aligned with that is our maniacal focus on continuing to innovate around our products. As you heard, lots of really cool, exciting announcements this morning. We will continue to invest in that, as it's a super important part of our strategy. Our partnership ecosystem, helping us expand around the globe is really important. You guys heard some really key announcements this morning as well. In Q2, we also announced the Verizon partnership. Customer happiness is at the core of everything we do every single day, and that's not going to change, no matter how much we grow.
All right. With that, I'm going to turn this over to Graeme and let him talk to you about Zoom Phone.
Thanks, Kelly. Perfect. Welcome, everyone. Just by way of introduction, my name's Graeme Geddes, and I recently joined Zoom last quarter to lead the Zoom Phone efforts. Prior to Zoom, I spent the last 15 years at Cisco Systems, so I've been in the collaboration space for quite some time. Really getting into it, I want to cover probably one of the most common questions I've gotten since coming to Zoom is, what exactly is Zoom Phone? Really to answer that question is it's really a logical extension of what Eric and team have built with the platform, right? If you think about it in its most simplest form, it's just a video meeting and you turn off your camera, right?
The capability is part of that platform, so it's that same underlying scalable platform that we're leveraging for telephony, but we're adding some of the more common telephony feature set to that to provide a modern cloud PBX or, as you may have heard from Eric's keynote, a video-first PBX. From that, expanding out the capabilities to say what is it from a video-first PBX perspective. It is a full-fledged modern phone solution hosted in the cloud, so everything that you could expect to come with that, full-fledged. That same centralized dashboard and management capability that our admins have come accustomed to as part of the platform on the meetings side, they now get that same advantage for managing their phone system. That's where Kelly had alluded to.
The focus for Zoom has always been on simplifying ease of use. That's not just for our end users, but it's also for the administrators. Giving them that single place to administrate both is important. Obviously the last comment here about it being secure and reliable, it's that same architecture that we use for meetings, just extending into the telephony space. With that said, we were here 12 months ago, and we kind of introduced to the world Zoom Phone, and my, what a busy 12 months it's been. We have just some amazing results to share. Since last year, we went GA in January. We've had a couple of major releases here, so five about every other month, expanding into seven countries. We'll get into that in a little bit.
Supporting over 50 different hardware devices from some of our hardware partners. A lot of people, when they think Zoom Phone, they just think of it as a software, but it is a full-fledged phone system inclusive of support for hard phones. We're already processing millions of minutes of voice per month. Definitely a lot of customers that have already jumped on with us that we're excited about. You see some names here, and we can share some details, but I actually believe we have the team from Ciena, so Craig will be here sharing a little bit about their journey, and the expansion with Zoom Phone later this afternoon. I talked about how busy we've been. I think the key thing here is really it's not just any one core PBX feature set, but it's really about the speed of innovation.
Not only is it just a rapid pace of innovation at Zoom, which has been amazing to see, I've just been really impressed by, but it's the rate at which the teams are even speeding up, really excited about the progress that we've made. You see here, for the second half, a number of features that we've already delivered, then those asterisks are the ones that we intend to deliver on the roadmap for the remainder of the calendar year. Rounding out the announcements that we have for you all this week, the first is we're really expanding our contact center partnerships. Previously, we partnered with Five9 and Twilio, we're expanding this with announcing partnerships with Genesys, NICE inContact, and Talkdesk.
Really rounding out the who's who from a cloud contact center perspective, and giving our customers that flexibility, and ultimately knowing that we're going to have the solution that's going to meet their needs in the cloud. Next is the announcement of our Bring Your Own Carrier direct peering partnerships. Just to level set and recap, back in the June timeframe, we announced Bring Your Own Carrier or BYOC for short. Ultimately what this does is it allows our customers to get a fully managed cloud PBX from Zoom in the cloud while maintaining their existing telco relationships that they might have from a premise perspective, giving them a lot of flexibility. Maybe they have a long-term commitment with that vendor, for whatever reason, giving them a lot more flexibility with deployment.
With this new model that we're talking about, that peering relationship rather than that routing through the customer premise, we're actually going to do that directly between the Zoom cloud and the service provider cloud, really alleviating some of the challenges, and making it a lot more flexible for our customers. We're really excited about this. We have a lot of customer interest, and we're going to be expanding upon this as well. The last one is our aggressive expansion internationally. This week we are announcing that we will be expanding beyond our current markets of the U.S., Canada, U.K., and Australia. We're adding New Zealand, Ireland, and Puerto Rico from a GA perspective, and then announcing beta of 11 different European countries that you see there. Really getting aggressive in that international expansion, and that's for a native Zoom Phone.
With that's the quick overview.
We're ahead.
I think we have time for Q&A.
Yes. Can you use the mic, please?
We'll start here.
Hi. Sterling Auty with JP Morgan. One of the most frequent questions we get from investors is to understand, you laid out the timeline, even with the stuff that's coming in the second half, where do you think you are in terms of feature parity vis-a-vis like a RingCentral 8x8 in terms of a full-blown capability on this front?
Yeah. From a feature parity perspective, we have global multinational companies that are moving forward and moving on board. I'd say we have a very robust feature set today to meet the needs of customers. I would say we're there today. I think you heard from Eric in the keynote where he said, for customers that hadn't taken a look, now's the time to jump on board. Bless you. We're just going to be getting even more aggressive. What I would say is, the one thing I just want to mention is from a development perspective, we're not just looking at it of feature sets. It's not just, hey, here's a list of features that have been on my on-premise PBX that were there and developed 50 years ago. It's about what are the use cases that our customer is trying to solve.
How can we partner with the customer in a more modern way to solve those needs? It's not just a typical punch down list of capabilities. I hope that answers your question.
We have one back here.
Okay.
Hi. Pat from JMP. What's the main reason that customers pick it, right? I'm going to combine two things with that. Do they save money, and also do I still have a telecom contract after this, or does it go away?
Yeah. A two-part question. I would say the most common thread that I see from customers is it's a natural upsell to our base. Our customers that are already Zoom Meetings customers, many of them, they have Zoom, it's a cloud solution for video, and they've moved other workloads to the cloud, and frankly, their PBX is the last thing that remains in their data center. They've come to us and said, "Hey, look, Eric and team, can you help me solve this challenge of migrating this workload?" It's just the ease of use of having that as a natural extension of a platform and an app that the teams are already using for every single meeting throughout their day. It's really that simplicity as the cause and the reason.
To answer the second question as far as the telco relationship, the answer is it depends. In the markets where we offer native service, you saw on the previous slide. Actually, I can go back. Where we offer native service, we would be a one-stop shop from that perspective. In the areas where either we don't have service or you want to do something like Bring Your Own Carrier, you would get your cloud PBX from Zoom, and that would be part of that contract, and then you would maintain your telco contract with that service provider. Dual role there. Number one is because of that relationship, we now get the footprint that that SP owns. Wherever they can provide you telco service, frankly, we are now operating in, so dramatically expanding where we can offer service.
We see an equal mix of customers that say, "Look, I want the simplicity of native full one-stop shop," or others where they say, "Look, for whatever reason, I already have a partnership with my carrier, and I want to go that model." Next question.
Thanks. Meta Marshall from Morgan Stanley. Just maybe a question on, do you envision these being multi-vendor evaluations or just a kind of add-on where they may not evaluate others in that? Maybe are there any number one of these features that you've added since originally going GA that you feel like that was the hurdle to getting more people to take a look? Was there any one feature that got added that you feel like could cascade results? Thanks.
Yeah. To answer the first question, I think it's actually the first question around. Oh, wait, I'm sorry. I was thinking about the second question.
The first question is if it's going to be multi-vendor.
Yeah. On the first question, it's both. We have seen, I would say, there are a lot of customers that are just very happy with Zoom and the relationship, it's just the natural extension we're seeing upsell. That's not to discount the fact that we have had customers that have done an extensive kind of side-by-side evaluation, and ultimately chose Zoom Phone as kind of the phone system of choice for them. Does that answer the question? The second question was?
The second question was there any one feature
Oh, any one feature. I would say it wasn't any one feature. It's hard for me to pinpoint, right, because we lump so much into each release. I would say that our latest release in the September timeframe was really where we kind of knocked out a lot of what I would call the core telephony feature set. We've kind of seen a dramatic ramp in interest.
Okay, great. Thanks, Jonathan K ees, Summit Insights. Just curious in terms of margins for the phone, especially if you're offering Bring Your Own Carrier, you have to share the revenues, you're using their network, with the carrier. With the carriers they usually have lower gross margins. Just curious how the profile is for phones. Second question, it sounds more like this is more of a confirmation. It sounds like your partnership with RingCentral doesn't restrict you from approaching customers with a phone-first solution directly.
Yeah. You saw Kelly step up on stage. The good news is from a margin and all that perspective, that is out of my hands.
You can go ahead. Do you want to?
and into Kelly's.
No.
No, I will defer.
From a gross margin perspective, when we model Zoom Phone on a standalone basis, it does have 3 to 4 points lower gross margin. Today, you're not seeing any impact, though, due to the overall minimal contribution we're seeing from a revenue perspective. The goal is by the time that Zoom Phone is a much more meaningful contributor to our revenue, that we've had a chance to negotiate further and further with those carriers to start to minimize that overall impact.
Yep.
Just confirmation, I guess the partnership with RingCentral doesn't restrict you from approaching customers first with a phone solution. Yeah. It sounds like that's the case.
Yeah. I'd just say that Ring's a strategic partner for Zoom. I don't believe there's a contractual restriction. There's tons of market out there, tons of TAM. For us, right now the primary focus is on the natural upsell to the customers that we already have on board with Zoom.
Hey, Matt Stotler from William Blair. You mentioned a lot of the innovation here being use case driven. What are some of the most popular use cases you're seeing that's driving adoption here?
I actually think that if you guys had the opportunity of attending the keynote, one of the demos that we did on stage was not just a demo, right? It was actually use cases that customers were coming to us and saying, "Hey, could you potentially solve this?" Just to recap for those that might not been able to attend, you have the ability where a telephone call can originate and then terminate on a hardline phone, on my app, on my Zoom app, on my desktop, or even on my mobile. It's the ability to change those modalities, right, and intermix between those three all while on a live call, inclusive of a Zoom Room. Right?
You think of the video that was shown where a user, today's proliferation of common space areas where I start with a telephone call on my mobile or even on my desktop app, right. I put that on hold, transfer that to my mobile, seamlessly go into a conference room and have that, and then I escalate that into video. As I shared earlier, I've been in this space for a long time, right. I was, for the past 15 years, and I've seen a lot of people have this vision of, we talked about what unified communications is. It's been a vision, right. Frankly, it's been more like loosely coupled communications, and we've put the onus and the burden on the customer to kind of stitch and bolt things together.
What's been amazing about Zoom and Zoom Phone is it is a single architecture which allows us to really deliver these use cases and the switch between modalities, in a way that other people haven't, right? They've obfuscated that. They've said it's simple, but it's different stacks on the back end. You can't see it. It's a single wrapper, but it's not a true single architecture. Sorry, just to share a little bit about that. That's the really exciting stuff that we can deliver for our customers that we've heard real use cases for that I think is really fun.
More internal collaboration versus customer-facing applications at this point?
No. It would be both, right? The question was more internal collaboration versus customer-facing. That potentially, that meeting or that talk track of who's on the other end could be an external participant, it could be an internal participant as well. Right. The ability to seamlessly ebb and flow between video and just traditional telephony, I think is what's really, really powerful. Frankly, I think it's going to be the differentiator that you're going to see become more and more important in the future. If we think about it, if you just ask yourself, is video going to be more or less important to an organization five, 10 years out? I think it's a no-brainer to say yes. The idea of buying based on a video-first system that also supports telephony is going to be the way to go.
Just a quick time check, because I do know I have a customer meeting.
You have about five minutes.
Okay. Yeah, we'll just take probably two more questions.
Ryan MacWilliams from Stephens. Zoom Meetings, Zoom will allow new customers to use Meetings for free for the duration of their existing contract with a previous vendor, provided they sign an additional contract with Zoom after. Is there a similar dynamic in place with Zoom Phone?
Yeah. The question as far as Zoom getting aggressive by saying, "Hey, we'll give you service throughout the remainder of your contract." Zoom Phone's an add-on. By natural extension of that, we do have the ability to co-ride on those types of offers. I would say to date, we haven't done a ton of that. Frankly, a lot of customers have just fully signed up. Yes, the answer is we will have that flexibility to do that as well. Last and final question.
Actually, one question.
The winner of the day with two questions.
One question, one follow-up, if I could.
Yeah.
The first one is, you mentioned the upsell, in those situations where a customer decided not to go with Zoom Phone but went with one of the other competitors, is there a common thread in terms of why they decided not to go with Zoom Phone?
I would say, primarily, it's just how aggressively we can get into those additional markets internationally. One of the reasons why we're pushing so aggressively on expanding the service availability. That's probably the primary one.
Is there special permissions that you need to get live in those countries? The beta countries, are you all set from a regulatory standpoint?
Yeah. As far as that process, there's, I would say, two or three. Each country is unique in its own right, whether it be regulatory challenges, product capabilities that we need in order to be able to address those regulatory challenges. We treat each one individually. Yes, we're expanding those, but each one is evaluated independently. The beta ones are the ones that we've already made through that regulatory progress. Now it's just about doing that testing with a customer just to make sure that we're delivering on that customer happiness.
That makes sense. Just to follow up, and I'm sure Kelly will go into it later as well, but with the announcement of the partnership between RingCentral and Avaya, is there any sense, is there any initial reaction that you've seen in the marketplace from customers and any thoughts that you can give us on that front?
It's a meaty topic. I would say I'd defer most of it. This afternoon, I know you're going to be sitting down with our new CRO, so Ryan Azus, so I'd definitely ping him for his thoughts. I would just tell you my initial takes, having been in this space for a long time, especially having a lot of experience on-prem. I would say that if there was ever a question whether or not the cloud was the future or if they're going to live simultaneously or how is that going to play out, I think it just really illustrates that prem is going away, right, and the future is the cloud. I view it as a very welcome sign, a very welcome thing that the future is the cloud.
We're here, we're seeing a lot of customer interest, and we can help solve customers' pain points around that migration. If that answers the question. Yes.
One more question?
Yes. One last question.
Great. Thank you.
Make it a good one.
I'll do a two-parter then. Yeah. Will Power with Baird. Thanks, Graeme, for all the color here. I guess first, this is a bit of a follow-up to Sterling, but thinking about as you move upmarket, you talked a little bit about international and the need to add capabilities there. Are there other key features or product sets that customers are asking for, that you're getting pushback for not having, that you have a roadmap for? Secondly, I wonder if you could talk about distribution and the importance of the channel, because most of the UCaaS providers have relied on the channel. There are a lot of great relationships there. How is Zoom thinking about opening that up for distribution?
A great question. To answer the first part, my background having come from 15 years at Cisco's really thought of as an enterprise company. I have a relationship as far as, I understand the needs and the use cases of what it takes to deliver there. The questions we're getting from customers is, "I believe in the vision, I believe in the capabilities. This is all amazing stuff. How do I get from point A to point B?" What we're really spending a lot of time doing is sitting down with those customers and kind of about how we do that migration. That's a key capability, I guess, as it were.
It's not a feature set that would ring on a punch down list, but of those migration opportunities of how do we allow a customer to maintain their existing dial plan and transition seamlessly onto the Zoom service. Those are things that we're absolutely focused on. That rings true of when you look at the bellwethers from a premise perspective, or not even a premise perspective, but from an enterprise perspective, the Ciscos and the Avayas of the world that have that share. We have customers of both that have already done the migrations, and we're partnering with. Great, last question. Sorry, the last, you had two parts.
Yeah, the second part was just about the importance of the channel and how you're thinking about-
Yes
developing relationships there to
Further accelerate your opportunity.
Yeah. I apologize if I didn't see it, but Kelly probably mentioned as far as the distribution today, Zoom has historically been a very direct kind of vendor. That will be expanding to what level, which I know that Kelly and Ryan have a focus on. Ryan, having come from his background, you can ask him this afternoon, historically being very channel-focused. Cisco doing roughly 90% of the revenue through channels. I think you were Hello? Starting that are very comfortable with the channel model. I think you'll see that expand. To what level, which I'll kind of leave for Ryan and Kelly. Appreciate the time. I have to run to a customer engagement, and I just want to say, full disclosure, that if I ask you to repeat your question, it's not because I'm hard of hearing.
I had a baby four days ago, so I've slept probably three hours in the last four days. yeah.
Well, we're thrilled to have him, but Graeme got subbed in about an hour ago.
Yes.
I think. Thank you. You did an amazing job. Thank you so much.
Thank you, Graeme.
Okay, we're going to take a quick break, and grab a lunchbox and something to drink, then we're going to come back and have some other special guests with Oded and Eric and Ryan. We'll see you guys back here in 20 minutes, please.
I'm Harvey Jones. I look after all the global collaboration at Atlassian. I'm the global collaboration lead. We have a really heavy video-first culture at Atlassian. Every week on a Friday morning in Sydney time and Thursday afternoon in the U.S. time, we join all our global town halls together. Our leadership presents on strategy, on various other aspects of what's going on in the company. It's been a really powerful way for us to share that culture and that message across the organization globally. We've been able to consolidate our VC platforms quite significantly. We were previously using a number of different bridges, a number of different endpoint technologies. We've now standardized on Zoom, both for our meetings and our webinars. We've been able to retrofit a number of our smaller rooms, which previously didn't have video conferencing technology, with very cost-effective software-based Zoom Rooms.
I'm at Atlassian. I'm a senior product marketing manager working on the Jira Service Desk product. The most useful Zoom feature that we see customers love is the fact that you can just by one click, immediately start a Zoom conversation within the ticket without ever having to leave Jira Service Desk. You can get back to resolve the issue quickly and get back to what you were doing straight away. A lot of our customers are globally dispersed IT teams, and to be able to walk someone through share screens, troubleshoot really quickly in a matter of minutes, rather than going back and forth on email, is hugely beneficial to them.
We really love Zoom touchscreen. A lot of our project at the moment is in the design development phase. We are always ideating over drawings that we put up on the Zoom touchscreen, and someone, generally at our end in our Sydney office, will mark up a drawing to highlight an area on that drawing that might need to be changed or shifted, or to highlight an area that we need to zoom in on as well.
Our staff love the recording and transcription technologies. We're quite geographically dispersed, it's been very handy to be able to record meetings, share them with people out of the time zone.
I love Zoom because it makes communication so accessible, so fast, and I never have to leave the environment that I'm already working in. You just can't beat face-to-face communication. It's critical for our customers.
Thank you. I'd like to bring up Oded, who's going to talk a little bit about the technology strategy. Thanks, Oded.
The clicker. Where's the clicker? Hi, everyone. Just to know who did see the keynote, can you raise your hand if you watched the keynote? Okay. Not everyone. What I'll do today, mostly go over what I spoke about in the keynote. I'll give an overview for those of you who haven't been there. People who were there, feel free to ask questions if you want to understand more. I think we just to give overall how we see the product and how it ties with different aspects that we spoke about in the keynote. You can see the core different products that we have for meetings up to the phone. At the bottom, we have the integration layer. Between them, of course, there is a layer of APIs that we either use ourselves from the other services, and they use on the other side.
Really the idea is to provide that flexibility for our customers to use us in multiple fronts in terms of the whole suite of unified communications, or if they want to choose the best of breed approach, they can kind of mix and match however they want their services to be. What we started talking about today is the new technologies level that is on top of our services. Allows us to introduce new capabilities into the product that make it more seamless and more automated. The idea is really to make communication really easier to use, but do it in an automatic way. We have demonstrated some of the things we're doing. It's the first step for us, but this is a direction we will double down on.
The other aspect of it, to be able to do that, we also have the data, the usage data aspect of it, so that we analyze the usage data, of course, in a private way and in a way that our customers appreciate, because we will be able to share with them that data so that they can get insights about how they use our product and overall, how their organization is run. Any questions on this slide? Let's move forward with the demos. One of the things that really helps us with the bottom part of that diagram I'll show you is the marketplace, where there are basically 3 levels of integrations. One integration is the ones we build ourselves, what Zoom builds using our API. There is another level, which is partners and third-party developers that build with the marketplace.
The third level is customers. We actually have customers like Walmart building their own chatbots or their own integrations into their own applications, their custom application that they have themselves. The marketplace is really the tool to provide that. What we announced today is what we call the pitch competition for developers on the marketplace. For us, it's not about having more and more apps, it's having the right apps. That's why it's a competition for a single app that will be the best. We're going for quality data rather than quantity. Really excited about this competition so that we get more innovation and really support the startup community. Any question on the competition? Okay. You can see also our investors really pitched in and very supportive.
We always talk about the secret sauce behind our service, and the network of data centers is really what makes everything work seamlessly together. I spoke about it too, in terms of why people say about us, "It just works." One aspect is the why, and the other aspect is how the media is routed across all those data centers. Of course, you know we have a team of very experienced engineers, and that's what they do. They live and breathe this network, make sure it's up and running. They monitor it constantly across the 24 hours. They provide this unique architecture that we have. When people ask, "Okay, what makes you different? Why is Zoom different than other services?" One of the reasons is this network.
Because it really requires a lot of attention and focus, experienced people, to make it so reliable, to make it high performance. This is not like a network of web servers. This is a network of real-time communication servers that need to work all the time, 24 hours, in high performance. It's hard work, this really separates us, this network. About 16 data centers right now, we keep adding. Last year we had 11, by now we have 16. We keep adding based on usage, based on our sales program and how we want to extend to other countries, that's the current situation. Any questions? Moving on. Virtual background is a feature that we were surprised about. Initially, it was something that was an Eric feature.
He was really trying to be engaged with the customers he was meeting, really wanted to have that engagement through customizing his appearance when he met those customers. Then we kind of shared that idea with a few customers, and we found out that this is really exciting for a lot of them. It was really adopted very fast with so many customers, especially now that you don't need to have a green screen behind you. Any computer, you can just turn it on without pre-preparation. It does a lot of things for our customers.
One is that kind of personalized experience where you can personalize your appearance, but it's also a security feature because you can actually hide whatever is behind you if you don't want to show a whiteboard or if you are in a place where you have other people that you don't want, you know how it is when you sit in an open space and people are walking behind you. Sometimes you don't want to show who is behind you. If I walk around someone who's walking in an open space and they're meeting with one of the partners, maybe I don't want them to know that I'm in the office, for example. I know that those people in the open space use visual background so that it's hidden. Now, we also keep improving it.
One improvement that we showed is that now you can see it before you join. We actually added the preview window, which allows you to prepare yourself for the meeting, and now you can also prepare the virtual background. The other aspect that we added is really the video. Now you can upload a video. It's not just a still image, and I think the demo showed it very nicely how it makes it feel real. Now, like you're on the beach, having fun, but you're actually in the office. The virtual background for PowerPoint is something we had customers asking for. This is an example on how we take a feedback to the market, and we enhance it based on customer feedback.
People were using our virtual background and were manually uploading images of PowerPoint presentation and switching it themselves using our existing virtual background. Let's make it easier for those. Now you can just simply upload the presentation, and it will automatically show up as your virtual background instead of doing it manually in multiple steps. This is a really good example how we take a basic feature to market. We enhance it over time based on how people will use it and how people envision it moving forward. Raise your hand if you use our virtual background ever. Yeah. Good. Yeah. See? It's very powerful, very useful. Before I go, there was one more feature on the virtual background. Now it's also available in Zoom Rooms. Back to the story of how we have a suite of products that work seamlessly together.
You can do it on a Zoom Room. The Zoom Room use case is more of a studio use case, where, for example, we run our earning calls over Zoom. We're the first company. Hopefully, we'll productize it and will not be the only ones. The idea is that when Kelly sits with Eric and Tom, they put the virtual background even when they're in a conference room, not just individually. That allows them to personalize their earning call and provide some kind of relevant information to the earning call using the room, not just a personal PC. We had a set of use cases that we described. This one I feel is the most compelling. We actually had this competition, about two months before Zoomtopia, we sent a note to our customers.
Please send us videos about how you use us in a unique way." Those two professors from University of Otago in New Zealand sent us an amazing video where they were actually on board this ship that is in the middle of the Pacific Ocean. It is the furthest point away from land on Earth. They showed us on their video how they run a lab with all the results of the lab, taking soil off the ground, taking water samples, and they were showing it to a classroom in New Zealand live using our product just through a cell connection. Actually, you can see the videos. It actually works very well, very engaging, and it's exciting to see all those use cases by our customers. Moving on with other features, really based to how we make the product work more seamlessly using new technologies.
These are great examples on how we plan to do that. We really will make it more and more engaging for our customers to the point where at some point it will be better to be on a Zoom Meeting than meet face-to-face. We're not saying it's every time, in some situations, you will want that. For example, you will get the live transcript, and that's especially for international teams and especially for accessibility reasons, this is groundbreaking in the sense that today to do closed captioning, it's very expensive. You have to have special person sit down and type in. We support that for a while, it's only being used in very limited situations. It's available to everyone. It just works using backend machine learning technology from our partner, Otter.ai. That's like a big thing. The other one is the live or the simultaneous interpretation.
In that, if you have any questions about the live transcript before I continue with the other features? If you've seen the simultaneous interpretation, a lot of people say, "Okay, but you still need to have those human beings interpret the language. What's the big deal?" Actually, it is a big deal because if you want to run such an event today, you have to go to some kind of another service that will work for each language separately.
If you want to participate, you want to send an email invitation that is different for each language, and you have to set it up in a way that you know which people have which language, send them the different invitation, have that separate service work, have the capability live working together, and tell people, "Hey, instead of using this audio bridge, you need to use a different audio bridge with that language." It's really complicated both to set it up and for the end user. We had one of our employees who came from another company who just did such an event, and they had eight people support this whole setup.
Here, what we did here is it just limited to the interpreters, so you didn't need to worry about human interpreters. But the interface itself for the end user and for the admin is much more easy because if you know Zoom, you can do this. What we do with the live interpretation is you have the participants as a special role, the interpreters, and when they speak the language that the actual original presenter speaks goes down to 20% of the volume, and the interpreters goes to the 80%. You can still listen, you can still hear the intonations of the person who speaks in the original language, but then hear louder the interpreter. I don't know if you noticed in the meeting, it actually was working. This was a live demo with real people interpreting the people who were speaking in the original languages.
The last one is really our first deep into the automation aspect of meetings and taking not just the in-meeting experience and making it better, but also in this case, the post-meeting experience, where think about yourselves trying to concentrate and run meeting notes and action items during the meeting instead of listening to the people who speak. With this, you'll be able to focus more on connecting with the people in the meeting so that the action items are extracted automatically. That's the idea. Now, it will take time for us to get to be really completely bulletproof and efficient because the way machine learning works, you start running the service, and you learn from it, and you improve over time, and keeps improving as more people use it.
If you use it now, it will still be not as accurate, but over time, it will get more and more accurate and will be really efficient. That's the idea. The idea is to all of those features, the idea is to make it seamless, easier to use, using new technologies, and really, we call it empowered communication. In a sense, we empower people to accomplish more with our product. What we showed here also on the Zoom client side, if you've seen the demos, what we wanted to convey, really, it's been a year since we announced it and nine months since we launched it, but it's a fully featured product. It has everything and more than that. We have the core capabilities, and we added the ability to do things that other services cannot do.
You've seen how you can transition from a phone call on your desk phone to your mobile phone, and then you walk around with a mobile phone, you find a room, and you start a phone call in the room, and then you have a button in the conference room to upgrade it to video. Everything works seamlessly. Because we have this full product suite, we can really control the experience end-to-end and provide that transition from one modality to the other, from one device to the other. Again, the value is having that single client. You've seen also, if you've seen the presentation, we showed several points where you have the Chat, very useful, and our Chat capability is really getting stronger and stronger. I shown the way we are planning to add reactions and comments to our group Chat.
That's coming by the end of the year. We showed also how you can have services integrated with our chat. We have ServiceNow supporting our chat. If you have a case or an incident, it will send you a report in chat, and then you can go back to the ServiceNow, and ServiceNow is integrated with the Zoom Room, so you get the alerts from the Zoom Rooms directly. Everything kind of working seamlessly together. One of the things we are noticing is really, so far, we kind of played down the chat capabilities and work very closely with Slack. They are a great partner.
What we see really moving forward is as soon as you have the phone, then people expect to have Chat with the phone functionality, and that's really showing our Chat is becoming more and more popular, especially with our phone customers. Any questions?
What is that, like, so Zoom Phone users, how many of them have Slack using something else for chat versus chat?
I can't share the exact numbers. What I can tell you is that Slack on our marketplace is the number one integration. It's extremely popular. On the Zoom Phone side, we can share several names in terms of who are those customers. I can tell you that the majority of the customers who are on Zoom Phone use our Zoom Chat.
I had a question on the previous slide.
Mics for questions.
Here we go.
Thank you.
Thanks. A couple questions. First of all, the live transcription that you're doing, is this your engine that you're using or using Google for this?
We are not using Google. We are using a company called Otter.ai.
Okay. You pay a third party to do this?
Yes.
Do you think that's a technology you need to own, or do you think it's a technology you need?
I think right now they have really a specialty in live transcription, in speech-to-text that we leverage their capabilities. At some point, we may take it and have it alone. We are building teams around NLP, so that can be something we'll do in the future. For now, we're very happy with the way it works. It's very accurate. We took the technology, and we actually run it on our own hardware, so it's not running separately outside of our cloud. It's inside our own network. It doesn't go out of our network.
Got it. I guess follow-up to that, to pick up on the interpretation side.
Yes
Tying it into transcription, do you have live translation in transcription?
We actually took a good look into that, and what we saw that if you combine the speech-to-text and the text translation, it becomes inaccurate to the point it's not good enough for a business meeting. We're kind of right now doing it more manually. As soon as technology will be faster and more accurate, we'll be able to switch it to fully automated.
Is the transcription a feature that everyone gets, or there's an extra payment for that?
We're still running the beta. We'll see based on the beta, we'll decide how it will be rolled out. We haven't decided yet.
Okay. Thanks.
Okay.
Several times.
Yeah, I think the Zoom Rooms is for me the biggest news announcement. It's really groundbreaking. A few of you maybe know me for my past work. It was always a challenge to get really tight experiences between the best service and the best device in the room. Now with those two partnership with Poly and with Neat, we provide the best experience overall. This is like a dream come true for me. If you know Poly, really, they have this brand name for conferencing devices, great channel, go-to market on one side, and we have Neat on the other side, a group of people from Norway who are experts in building room systems. This is the team that built the Tandberg devices and then built all of the Cisco devices so far. That team is actually working with us now.
If you think about it, when I was at Webex, I was the product manager who built the integration between TelePresence and Webex, first phase of it. Until today, it actually doesn't work as well as Zoom works with TelePresence, and that was a challenge. Now we have an opportunity to fix it and really build the best experience out there with the best teams. Zoom providing their best software and service, with Poly and Neat providing the best devices. Really exciting. I don't know if you guys know OJ. Okay, please raise your hand if you know who OJ is. Just give you some background, okay? OJ, he was the Chief Operating Officer for Tandberg, the company that Cisco acquired for the room systems. He was probably number 2 after Fredrik, who was the CEO.
After moving to Cisco, he was the general manager for the room systems business at Cisco. He left and built a startup called Acano that worked both on conferencing solution and endpoints. That company was acquired again by Cisco. He went back to Cisco to have the same general manager role and built all those devices that are available today, the Webex Kit, the Webex Board, all those advanced beautiful devices that are designed in Norway, Scandinavia. Think about it, that team is moving to work with us. It's very simple. We'll have the best solution very soon, as soon as this product comes out, and they add a suite of products. This is really great news for us as a company.
I think I did speak about the evolution and how we kind of improved the Zoom Rooms over time, really for the devices that still run on the Windows operating system. We lock it down with Windows IoT. We build into interop, and that's also something that will come in the next few months, where it really work well. You can call from a Zoom Room into a Teams meeting or a Webex meeting. We provide that. We actually will work closely with companies like Microsoft and Google in the future to make it even more and more seamless. That will be the new interop of video conferencing, and expect more news on that in the future. Device management. I think OJ mentioned that the device that they have built will fully be managed by Zoom.
You go to the same back end, same capabilities that we have today to manage all your users and all the phone devices. The room system devices are also managed by the same single pane of glass for the IT. That's huge if you want to scale. If you think about Uber, who's running about 3,000 room systems, Zoom Rooms today. How do they manage 3,000 devices? You need to have all of that back end in place to be able to do that. The last piece is really we think about the experience, not just in meeting itself, but overall the meeting experience. How do you find a room? How do you see a map of all the rooms? Which ones are available? We'll take that map, we'll put it on your mobile application.
We'll also take that map that we have with availability, we put it on a digital signage screen, so you can go through the corridor and see which rooms are available. Again, that suite of products across the different.
modalities will be so beneficial for our users because you really need that end-to-end experience. I spoke a little about the appliances. These are images of the three vendors that are working with us. You can see on the left, that's the Neat product. You can see on the right, the Poly. The controller is part of the same devices. You buy it together and for $2,500 list price. The price is groundbreaking. I think a Cisco device like that will cost you about $4,000. This is much cheaper, affordable, but better quality because it runs our software and it runs Neat hardware, which comes from the same factory as the Cisco devices conceptually. The Poly, you have options. The last one is the board from DTEN.
Now instead of working on a Windows operating system, it will use the same embedded system, and it will run as an appliance. Really moving on with options for our customers. Either use the open system that we already have today that people love and use, or you can choose to use more of an appliance system that we announced today.
Thank you, Oded. Really appreciate it.
Sure.
I'm going to bring up Kelly and Eric now for a Q&A for about the next 30 minutes. Thank you.
Thank you, Oded.
Thank you, Oded.
Thank you for joining us, Eric. We are really excited to have you. We have an audience full of our investors and also equity research analysts. We don't have any prepared remarks. Since you guys haven't had the opportunity to have time like this with Eric before, we thought we would just, yep, start rolling. Itai, you want to take it away?
First question in the second investor day. Thanks for the event today. It was very interesting. Fantastic to see all the progress on the technology side. I did want to ask about your mass market. It is very clear where you are trying to move up market.
Yeah.
The opportunity is massive and largely untapped. I completely understand the investment there. What I want to make sure, though, that you don't drop the ball on the core. A lot of companies that try to move up market, somewhere, somehow, things catch up to them, and they find out that they underinvested in mass market. Help me understand. Clearly, a lot of the incremental investment from this point going forward is aimed at the upmarket, but how do you still target the mass market? What are still some undiscovered opportunities in mass market? How do you make sure you don't lose or drop the ball in that part of the business, which is still the majority of your business?
Yeah, first of all, good afternoon, everyone. My name is DM, okay? Thank you. I'm not Eric anymore. I think it's a good question. I think your advice is right on. As we move up to other new market opportunities, don't lose our focus to our core technology. Today, look at our core R&D spending. I think most of the engineer resources are still working on our core technology. That's still the video conferencing, but the phone is part of that. We truly believe video and a phone are the same, the opportunity is the same market. I think we just spend more time with our customers. If they all talk about how to migrate their existing video conferencing solution or phone system to us, we do it.
Whenever we see the new opportunities, for sure, we are going to allocate resources because we really want to build something for the future. Even if we become number one leader in video in the world, what's next? That's why I mentioned, to 2035, a lot of innovation will happen. We have to invest now. I think that's our focus.
Remember, the amazing thing about the product is it works whether you're an individual sole proprietor all the way up to a large enterprise. It's the same product and the same infrastructure that it's running on, whether it's an SMB or large customers. In terms of a go-to-market approach, we are continuing to invest across all segments of our sales organization. Ryan will be up here a little bit later. You can talk to him about that as well.
By the way, my first investor, Bill Tai, is here.
I know.
Thank you.
This is Sterling Auty with JP Morgan. In the demonstration, both in the keynote and here, you had the language interpreters as part of that. Are you actually hiring interpreters to be behind the scenes, to be live and on-demand, and is that going to be something that's an upcharge for users?
Yeah. We would like to focus on the technology side. Quite often, those big, large enterprise customers, they already engage with those live translation company. They already have staff already, but they just do not have the technology. From our perspective, just offer this feature to our customers. They are going to engage with whoever is going to help them. We do not offer that live translation service. It's free. We don't want to charge customers.
Hi, Tom Roderick with Stifel. Eric, I'll take the other tack because there's one question on mass market before, and I want to talk about going upstream a little bit. As you move upstreamRegardless of all the features that customers love, talk a little bit about how customers are demanding additional security features. That's always a hot topic with big enterprises. You've won some big customers like HSBC and some others. Can you just talk about what they're asking for from security and how you're evolving that strategy? Thanks.
Yeah. That's a good question. I think, I came from Webex, right? When we built Webex, we never realized we needed to add those security features. We just built all the features. Later on, we never received a report about any vulnerability issues. We try to fix the security problem. I learned a hard lesson. That's why when I built Zoom, on day one, security is already built in from each layer. What's the security interface? I think if you look at our product today, from a security feature perspective, I think we pretty much already offer a lot of security features, some features very unique, better than any other vendors. Like, hey, I share a PowerPoint, it's a very sensitive meeting. If you want to take a picture, it cannot, because we can add your name as a watermark, right? A lot of unique features there already.
Today, I think if you look at security, mainly if you talk with a lot of enterprise customer, mainly from a data compliance perspective, right? We have customers from Europe, China, from other countries, make sure we follow the local regulations. That's one. Another thing is more like customer data privacy is very important, and customer use our cloud recording the meetings. Maybe they pay with their credit card. We need to make sure, show customer those layers, what we can do to have customer privacy. Most of the time, other customer look at our security white paper, they do not have lots of questions about security features. Just mainly data privacy and compliance. Yeah, on that front.
Hi, Jonathan Kees , Summit Insights again. Thanks for this event, and really enjoying the disclosure and information here. Wanted to ask about, I guess this is more for you, Eric, your vision of in terms of how this company is headed. You talked about this morning keynote, 2025 or what, 2050, whatever, when you retire, Zoom is going to offer all this. I guess before you retire, especially with such a large cash flow, what could be possible areas to fill out your product offerings? Part of what the product presentation was all these features to bring your phones up to parity with what your UCaaS peers are providing. Your UCaaS peers are going out and buying CPaaS providers, contact centers, and other stuff. Just curious, where would you see some other product fits with Zoom Video?
Yeah. That's a good question. Yeah. Kelly, feel free to chime in.
Yep.
I think if you look at total addressable market for the unified communications by 2022, I think it is a 30, 43-
$43 billion.
$43 billion market, right? We truly believe video and voice indeed are just one market. Today, it's two separate product, two separate product experience. I think that'll be gone. Video is a new voice. That's still our focus. If you look at it from customer perspective, when they deploy our PBX system, they really enjoy video conferencing already. Just add one more tab where you can use Zoom for the phone call. However, customer also ask about a contact center solution. That's why we have wonderful partnership with Rowen, Five9, with others as well, because that's not our company DNA. We really want to partner with others and together build a seamless integration to serve our customers. Other market, I do not think we're totally ready, but seriously, we are working very hard. Really.
The reason why I share with you our vision in 2035, that's exactly something we think that will happen in the next 5 to 10 years. We are going to allocate resources, right, to focus on technology now. More like we, 80 years ago, we built our platform. Now you see the application because our early investment into the platform.
The biggest opportunity, I think, at this point for Zoom Phone is the international expansion, as Graeme touched on this morning. We have lots of requests for even U.S.-based multinationals who would love to buy the product but need it to be able to use it around the globe.
Yeah.
We're working as quickly as we can to clear those hurdles, to be able to sell it. There's a list of 30 prioritized countries we're working on today.
Also, you look at a lot of large enterprise customers, quite often they're still using on-prem phone system, IP-based phone like a Cisco Call Manager or Avaya system. I do not believe they are going to migrate to existing cloud-based PBX. They are going to migrate to Zoom PBX. That's a cloud-based video PBX. Otherwise, if we migrate to other cloud-based PBX, they still use Zoom or maybe Webex or other solution. It's still two separate solutions. You look at the phone business, over the past 20 years, all the innovations were on the back end side, from on-prem to the cloud. From an end-user perspective, there's not any innovation whatsoever. I call your phone number, that's it. I cannot do anything. If you deploy Zoom phone system, it's very different.
I call your phone number, one more click, I can share content, I can launch the streaming video as well. That's a totally different experience. That's what customer ask about.
If I may, one more question. Speaking of international, you're currently offshoring a lot of your R&D overseas, and just curious, in terms of intellectual property protection, IP protection, are you continuing your standard NDAs, that kind of stuff?
With the overseas locations?
I'm sorry?
NDAs, non-disclosure agreements.
Yeah.
Yeah.
For the researchers and engineers working on your IP overseas.
Approximately actually 20% of our engineering team is here in San Jose, with the balance of it being in China. All of the IP is owned here in the U.S., Eric, if you want to talk about the way the team is structured in China. The team that's here are really the team leads and the thought leaders who work very closely with the product team and then help lay out the work plan for the team that's in China. As I understand, the way the team in China is structured, right, Eric, is that nobody has access to all of the code.
Yeah. Two things I think really important. All the core technologies are still developed here, just across the street in our headquarters. If any engineers become very critical in terms of understanding our core technology, normally, we bring them here, either through the H-1B visa or other visa. They can join us here. That's why I can sleep very well. In China side, engineers more like I inherited that from Webex time, and focused on the UI, QA, non-core technologies. Plus, we have a three side, no single side, they understand everything. As Kelly mentioned, nobody can access entire source code. Another thing, compared to 20 years ago, you get your source code. Let's say worst case, somebody got the entire source code.
Today, in the software-as-a-service era, even if you get all the source code, what can you do? 50% of software, 50% you need to run a service, seven by 24 reliable. That's also is a lot of innovations. That's why I learned this when I build a team in the end of 1999, when we established a team in China for Webex. 20 years experience, we have high confidence how to protect our IP and how to make sure there's no any impact.
Yeah.
It's not that easy, though. If you start a company, I highly recommend don't do that.
Ryan MacWilliams from Stephens. Impressive growth of customers over the last year with over $1 million in annual recurring revenue. Are there any key factors you attribute to this growth? What percentage of these customers pay for additional Zoom Phone products outside of Zoom Meetings?
Eric, we disclosed this morning that we have 27 customers with greater than $1 million of ARR ending Q2, and that was up from seven a year ago. The growth is due to the focus and the continued expansion of our enterprise team. Again, that team started about two and a half years ago, and in the last year has approximately doubled. It's also due to the continued focus on the product features and requests that these types of customers are asking for. In terms of Zoom Phone and that customer base, off the top of my head, I think there's probably two customers in there that are using.
Large corporate, yeah.
Yeah.
Large corporate.
Yeah. That are in there.
More and more, I think enterprise customers will deploy Zoom Phone system, because, on the one hand, our phone system architecture user experience is much better. On the other hand, I think if we knew that we should've become a public company last year, because this brand recognition really helped us a lot.
Yeah.
Yeah.
Meta Marshall from Morgan Stanley. Just a question on competitive landscape and just how you embrace Microsoft getting more aggressive with Teams and where your insertion point is in that and if Cisco kind of refreshes some of their products next year, just how to capitalize on them transitioning some of their video solutions?
That's great question. I really love Morgan Stanley. I'm a huge fan of Morgan Stanley. The reason why your IT team is so awesome, they tested everything, they still use Zoom. They do not use Microsoft Teams for video. I think the reason why is I truly believe millennials, they played a very big role for our success. The reason why used to be CIO will make a decision. You like it or not, we do not care. Just go, "Hey, I just want to deploy one solution for one company." That's it. For now, because of one-third of our workforce today in the U.S. are millennials, they want to use the best-of-breed service . That's why they have huge influence to the IT decision-making process.
That's why when for every IT team, when they try to evaluate every solution, they want to find the best breed of service. We focus on the real-time communication service. Microsoft Teams is great, more like for file sharing, for IM, and more like a collaboration platform. When it comes real-time communication like video, customers still want to deploy Zoom solution. Sometimes some enterprise customer, we complement to Microsoft Teams solution and coexist. I do not think they will catch up, because we are working even harder than them. That's why I think the best breed of service is why we're well. We do it integrated with Microsoft Teams very well. By the way, I forgot to mention one thing. Today, our IT team, they're also very smart. If you deploy the solution for one company, I just made it up.
See, video, voice, chat, everything, let's say from Microsoft. What if, say, video does not work? What can you do? You're stuck. You need to wait for Microsoft or any other vendors. You cannot go with any other service anymore. The beautiful part of the software service is that if you do not like any vendor solution, you can go with any other vendor. That's why this is the reason why software service will win.
Eric, it's Sterling. Just two thoughts, maybe just an extension on that with Microsoft, maybe highlight, I think one of the big benefits, versus like a Skype or et cetera, is when you had intercompany communication was so difficult on their platform versus Zoom. Has that changed with Teams or is that still a big part of the competitive advantage of Zoom?
Yeah, that's a good question. I think for sure Skype, does not work when you talk about Skype anymore. Microsoft, I think, you got to give credit to Satya. He's a product CEO. He really understands how important this market is. That's why they decided to retire Skype. However, when they started building the team, you know the history, right? They tried to buy Slack. There was a lot of conversation. Finally, they decided to build their own solution. Because their time to market pressure, they built a solution just to focus on Slack competition. After that, they realized they also need video and voice. However, how to migrate that real-time video and voice architecture into the Teams architecture, that's not that easy. We write a lot of native code to optimize. See in our iPhone, why we write assembly language code.
For Teams, as a different architecture, I think when they started to focus on within the company, the intranet communication as in the team to team. Now they also want to expand it to the intercompany communication. I think they're not there yet, but they are going to get it there, but still from messaging perspective. For real-time communication, I don't think they understand that well. Otherwise, why their Skype not successful? Why their LinkedIn not successful? You need a totally brand-new architecture and a stack. Yeah.
I want to revisit the question around China and hit it from this angle. One of the questions we get from investors is just because of the uncertainty, trade negotiations, and the rest of it, I think they understand that the IP is owned here and your leadership and technology is here. One of the increasing questions I get is, "Well, geez, if there's all that development that's happening in China, with everything that's happened with Huawei, is there any concern in terms of something being put into the code that could allow access?" Anything you could comment to in terms of code reviews or other things that, and frankly, do you get pushback from any potential enterprise customers around just the-
Yeah.
the development side? Thanks.
That's a good question. That's why if you start a company, don't do that. It's very tricky. I have more than 20 years experience. I really know how to manage that. First of all, core technology got to be developed here. The second thing is, for every code checking, you needed to have another person to review. That's our process. You cannot check in the code by yourself. The code review and also with the automation tools as well to review the code. Also another thing is very important is because we keep everything open, transparent to our enterprise customer. Take Wells Fargo, for example, our customer. Once every year, they send one or two, last time, three people to come to our office to review our source code. We offer this service to most of our large enterprise customer.
If you do not feel safe, if you do not feel comfortable, and you can come to our office, we show you all the source code. Plus, today, look at the top security company worldwide, except for Cisco, all those security companies, they already use Zoom. Reason why, before they deploy our service, they already focus on all the penetration testing. With the penetration testing and plus source code review from a customer side, from internal tools, and also another peer to review the code, we feel very comfortable. I also understand the code. You cannot check in any bad code to our source code system.
Kelly, Eric, we've got about five minutes left, and I've got a question right here.
Okay.
Great. Thanks. Yeah, Eric, yeah, Will Power with Baird. I guess this morning at the keynote, pretty significant focus on Zoom Rooms, some of the technology partnerships. You announced product announcements there. We had a stat earlier today that I think suggested that something like 37% of your up-market customers subscribe to a Zoom Room today. Do you now have all the pieces in place? Are there additional friction points to getting that number to 100%? Really, how do we think about the size of that opportunity, given the base of customers you have with meetings today?
Yeah. In terms of the conference room opportunity, I think that's huge, because the reason why, because that's a trend. If you look at, if you visit Facebook, even see Microsoft, they do not have office. I think that's a trend. In the future, almost every company, open space. I'm sorry, my mic-
Now it's back.
on the Skype.
Yeah. Okay.
Not as reliable as the Zoom service. In the future, no offices anymore. Everybody will use open space cube, but we will have more and more conference rooms. That's why that number is growing. 90 million could be 180 million. That's why we need to have a solution. You look at a traditional conferencing room solution, is on-prem software, customized hardware, only focused on video conferencing. You look at what we are doing. We completely changed that landscape. Cloud software, commodity hardware, not only for video conferencing but also wireless screen sharing, digital signage, meeting scheduler, and project recording studio as well. Everything built in, and there's no extra charge. Also, after they have a solution built for the business conference room space, think about today as another trend.
There are a lot of remote workers, and we are going to have a smaller scale world and to focus on the remote workers as well, home. Because today, if you look at the home use case, I do not think there's any good solution available. I think we want to be the first one to come up with something specifically designed for home, for remote workers, and based on our Zoom Rooms technology. I think that's huge opportunity and also very sticky, right? Customers, they like one click. They use like Uber, really like Zoom experience. It's really hard for you to switch to any other solutions. That's our core opportunity, the core focus, yeah.
Do I answer to that question well?
Yeah. No, I think that's helpful. I guess the broader question is just thinking about the market size and how big of a business that can become for you.
Yeah. Thank you. Yeah.
Time for one more question.
Thanks, guys. It's Bhavin Shah from Crowdsource. I think part of the messaging on Zoom and Zoom Phone is being able to seamlessly move a conversation to video. Can you just provide any stats, qualitatively or quantitative information, on how often customers are using that value prop?
You mean the chat?
The moving from phone to video, upgrading a call from that.
I think that today, especially, for those young generation, they are using FaceTime. Make a phone call, one click, turn on the video, they really like that experience. Similar experience will happen in the business environment as well. Especially because, before we demonstrated our phone system, customers say, "Oh, what's the difference?" They did not see that. After they demonstrated the same front-end user experience, the same back-end architecture, and with one unified client, and one click, wow, you see the video, share the screen, customer really like it. As long as we demonstrate that feature, I think we'll win the deal.
Okay. Thank you, Eric. We really appreciate you being here with us today.
Thank you. Appreciate for your time. Thank you.
Thank you, Eric Yuan.
Okay.
We're going to bring up our customers and Ryan. If everybody could just sit tight for a minute so we can just swap out some mics. Thank you. All right. First off, thank you everyone. My name's Ryan Azus. I'm the new Chief Revenue Officer here at Zoom. I see a few familiar faces from my past life out there. With me, I'm really lucky to have two distinguished guests that are here with us. We have Craig Williams, the CIO of Ciena, and also Prakash Kota, the CIO of Autodesk. What we'll do is I'll drive them through some questions, then we'll also, of course, open it up and let you ask some questions, too. Just for starters, first off, thank you for taking the time. I understand you both have very busy schedules.
I guess start with just your background, your company, just to help us get a baseline.
My background, well, I feel like I've done everything and nothing at all in a sense. Really started in the DoD space, moved to then Cisco and then to LinkedIn, around IT there, and Red Hat for a little bit. Now I'm the CIO at Ciena. We've been using now Zoom for about a year and a half, two years probably, at Ciena. Ciena, just for you to know, in case you haven't heard of us, we're about 6,500 people, probably about 70 locations across the world. Fairly sized, probably a good medium-sized business.
Cool. Awesome. How about you, Prakash?
Cool. I'm Prakash Kota. I'm CIO for Autodesk. I've been with the company for over 14 years. For those who don't know Autodesk, we make software so that our customers can make anything. We've gone through a huge business model transformation, taking all of our desktop products to the cloud. For us, creating frictionless experience to our customers, whether it's end users, partners, or employees, is one of the big goals as a corporation. That's where Zoom also fits in, where about two years back when we decided how do we take the friction away from the collaboration tools if we want to start creating radical collaboration between our employees worldwide. That's how we became a Zoom customer. We celebrated two years anniversary right before Labor Day weekend, we are one of those happy customers.
We like removing friction. Talk to us even about that journey, like the initial landing, if you can remember back. You're both fairly deployed, and we'll talk about that. When you got started, how does something like Zoom get started? Do you remember where that got going?
Yeah. Just like any other enterprise companies, we used to have lot of collaboration tools. One of the biggest challenge that we were trying to look to solve was, as I mentioned, how do we remove friction away? Especially when we have global teams. It's a solution that needs to work every single time. It's not like, it worked in fluke. We didn't want any users to be stressed out before going to the meeting about whether the tool will work or not. That was one thing that was my responsibility, because I want them to be really focused on being productive in what they are going to the meeting for, and not whether the tool will start working or whether will I get the required help. Sometimes it's in front of customers and whatnot.
The challenge was how do we get one tool that gives them that aha experience consistently every single time? While we are evaluating several tools, Zoom was one of them, and then we brought Zoom in and we started doing pilot. We wanted to do pilot for about 200 users worldwide, over a course of three months. One month later, I get to know that there are 2,000 people in the pilot. I'm like, "How did that happen? We never marketed any of these things." It's the word of mouth, that something starts working, everybody starts getting hopping onto the tool. It made it very simple for us to hop onto Zoom because it just worked. That was our journey.
I like it. How about Craig, on your side?
Yeah.
Pilot similar, or?
Actually, a little funny. We had such a bad experience on video before that the company kind of scoffed at any time we tried to use the video solutions that we had. Not a whole lot of resistance, it's just a lot of people giving you the stink eye all the time over like, "This ain't going to work here." It's not the company culture, if you will. We did a bake-off, and I was bound and determined to challenge status quo with it. We selected Zoom after the bake-off, rolled it out across the company, and I want to say within four months, we had probably 90% adoption because we didn't have to train anyone. It was very easy to consume. Hit the button, it works.
The only challenge I really had, I think I've told you this before, that was to get people to turn the camera on. We're in a company culture where.
Yeah
they never used it. That was the biggest challenge I had. I often challenge them, like, "I wouldn't sit in a room with you and close my eyes. I'm sitting here talking to you, why don't you flip your camera on and you look just fine," right? That was basically the challenge we had rolling it out. From there, it's just been an easy adoption level. Very high adoption levels, and then that led us over to Zoom Phone.
Cool
eventually too.
Awesome. Hopefully virtual backgrounds can help even more.
Virtual backgrounds are awesome. If you haven't tried that, everyone needs to try virtual background. In fact, it's gotten so funny at our company now that we are now a video company. We weren't before. Now people are really bold about picking a pretty crazy background just to kind of throw it in your face a little bit.
Exactly. Internal competition. How about some of the use cases? Is it salespeople helping sell? Is it all internal? Is it helping drive the culture you're trying to drive in the company? What are some of those internal use cases?
For us, everything's from recruiting. We do all of our recruiting over Zoom now. A lot of times we don't even need to fly people in anymore because we have very high def experience with the candidates via video. All of our internal meetings, all hands, I host a regular all hands with my staff, and we have two or 300 people on it, to sales and customers as well. We usually let them pick what they want to use, but a lot of times they also choose to use ours, which is Zoom.
Cool. How about Prakash? I know your company is one of the best companies to work for, usually on a lot of those lists on Fortune all the time.
No, I think we have very similar processes Craig was mentioning. Like, we use it from recruiting standpoint for employee retention. Our field operations team also leverage it when they're out there in the field or when we're talking to prospective customers, doing demos, and sharing our products from there to between with our partners, employees across the board, everywhere I would say.
Cool. There's been a lot of discussion here at Zoomtopia about Zoom Rooms. I know you're both fairly deployed. The numbers I got are roughly right, I think over at least over 100 rooms.
Yeah
on your side.
growing, yeah.
six to 800 maybe even on your side. Talk to us about the Zoom Rooms experience, how that's different from other things that you've used before.
Yes. The biggest challenge I have with Zoom Rooms is everybody wants a Zoom Room. That's my challenge as CIO, especially when we have multiple locations, like we're talking about 90 plus locations worldwide. When will my side get the Zoom Room? How did you prioritize this room to be a Zoom Room than this room? Those are some of the challenges that we are running into because everybody wants a Zoom Room. Naturally, it works. It's one click to start a meeting, and you don't need to really start working about the second click is if you want to turn the camera on. We do have the culture of doing video collaboration wherever we have. That also helps us making sure we have an inclusive environment.
When we have global teams over 90 locations, people feel like they are in the same room with immersive experience that Zoom gives, that they don't need to be in that location to contribute to any of these conversations. We have been big into Zoom deployment. Just this year alone, I think we have crossed over or getting close to 400 Zoom Rooms deployments, and we have a big roadmap for next year too, continuing to increase Zoom Rooms worldwide.
Okay. Awesome. How about on your end?
For us, yeah, we only have a little over 100 right now.
Yeah.
The interesting thing for us was when we deployed Zoom, our real estate strategy started to change. We started realizing we could work anywhere and be anywhere, anytime, any device even. The need for office space started to kind of go down. Our real estate strategy has changed significantly since we rolled it out. For the rooms that we do have it in, very easy experience. It's very similar experience in every room. You don't have to fight over the configurations. It's just one touch and you go.
Awesome. We're seeing a lot of that.
Yeah
trend towards more like huddle type rooms.
For sure.
less offices.
Yeah.
Of course, always still having the boardroom, but lots of informal collaboration rooms you might call them.
Yeah. In fact, I would say that all of our conference rooms at some point will be Zoom Rooms. It's just a matter of getting to them all. When we don't have it, everyone just brings their laptop, flips open the camera, and has the experience. They're just all in a room, if you will.
Cool. Also there's been discussion, of course, here at Zoomtopia about Zoom Phone. I know for you, Craig, you happen to be a customer.
Yeah
Deployed. Talk to us about that whole experience, I guess. What's it been like so far? What did you have? What drove you to Zoom Phone, and what's that like?
I think in the industry, you look at the video world and you go, "No one's really captured that market." Zoom went in and took it because you guys made it frictionless. It's easy to consume, and it integrates with whatever collaboration tools you have. On the voice side, the phone side, it's like, well, it's always worked. I've always had dial tone. Why would I change that out? If you really think about it, the video solution paved the way for voice. If you want to transform that space, that's exactly where you go next, and for us, it was easy. We already got everyone on video, and if I could do that, we could do the Zoom Phone rollout. We now have about 3,500 or so on Zoom Phone, and we're going as fast as you guys make it globally available.
Yeah.
A very logical next step. From a disruption perspective, no one's really touched that market to disrupt it, and I think that's where you guys have really come into it.
Cool. What kind of feedback are you getting from your end users?
On the phone?
Yeah.
It works. It's simple. The great thing that I think for them is that they can now use it on their mobile phone. They will have their own personal mobile phone number, but they can also have their work number ring on it, too. They can use their laptop. They can use a handset if they want. They got a lot more flexibility. I think the biggest thing for us is then for the network operators, where they can now make better network decisions about their routing patterns, circuits that they need to have, which before you really didn't have the data. You have such good quality data, and I often say, for us, we use Zoom as probably the best network software to analyze the health of your network because of all the analytics it gives you back.
We use it to a lot of other ways than just phone or video.
Analysts are now writing Zooms in the network analyst business.
Yeah.
Be careful.
It's true.
We do have a really cool application to really let you see how your usage is and, of course, analyze your network, and ironically, it wasn't built for that but ends up being used to troubleshoot.
Oh, for sure.
networks, especially when you have lots of locations and divisions and things like that. On your side, I know we're not there yet today, talk about what you're using for PBX and how you think about that.
Yeah, no, that's a topic we're exploring with Zoom, looking at all options. We definitely want to go to soft EV with phones, too. We want to go away from the desk phones as such. That's part of our roadmap for next year, and Zoom is one of the companies or vendors that we are working with, and it makes it easy because employees or workforce are already using Zoom on their phones. We don't want to introduce one more tool along with so many other tools. If it works, and looks like it does work from Craig's.
Call view
thing. We are in early stages, and we're exploring, but we do want to get to a soft phone way of handling things.
Cool. There was a question earlier, Craig, about phone call to video.
Yeah.
Any experience with that, or can you talk about that for your organization?
Yeah. I think it opens up the door of being able to do that type of thing. Quite frankly, too, it's like there's so much voice demand out there still.
Yeah
that you don't have to make that your imperative. Like for us, video just works, and let's make that work. We've got a lot of people who still use traditional voice for what they do, and they need that flexibility. The great thing is that you can swap between, and you can pick what you want to do that day. For us, it was just another option for employees, and they could totally mesh the two together. In fact, when we rolled out Phone, we got rid of, I think, 90-plus% of the handsets, and half of those people chose to use the soft phone capabilities. They still wanted a number, but now they have the flexibility of just having it ring their mobile phone.
Was that hard to change management through that or was that different?
At first, yeah. In fact, if anything, we went through the first set and educated them. A lot of them were like, "This is my handset. I don't want to let it go." When they did, now we have analytics to say, "Look, you're not even using it now, so let's take that next step and get rid of the phone." You have that normal change management paradigm shift you have to go through, but you don't have to force people. You can take that next decision after the people, the laggards, if you will, come around.
Yeah. Good. Prakash, how about just what surprised you the most in the journey with Zoom so far?
The surprising thing was the adoption, I would say. It went very fast, very viral. Typically, we have a change management process to onboard users to have them start using tools when we launch anything as a service, but this one, through the word of mouth, went really viral, and that's the credit to you guys. When it consistently works, the users are also looking for tools, and we don't need to really push them to adopt. There's nothing like FAQ document or process on how to use. People figured it out, and that's the other aspect. Keeping it simple to the core of what the value should be and then delivering that consistently is what was critical. Once you guys started delivering all of that, people started using it. We never tried to push this tool to anyone out there.
While there were so many other collaboration tools, there was gravity around it, and people started coming and started consuming it.
Viral adoption.
Yeah.
How about you, Craig?
Yeah, I would echo the same. I think once it becomes so easy to consume, you start opening up the ideas of what you can do. For us, being anywhere, it doesn't matter where you're at, what time you're at, what device you're on, whatever. Whether it's the all-hands that we do in the company or mine, we introduce people in my team and ask them to lead with a talent. Like, people can play piano, or they can sing and that sort of thing, and over video, it's so easy, and it feels like you're right there. It's just the natural extension of how do you better use your time? I was saying earlier that time is the only real thing we all have, right? How do you better leverage the time we have together in different and unique ways? Just video kind of opened that door for us.
Cool. Then what about adoption? You talked a lot about that. Any trigger event for either of you? I think you're both fairly deployed, at least on the meeting side, the room side. We're in that process, definitely in Flefning, maybe not yet. Just especially on the meetings where you went from like, "This is a pilot" to "This is going to like, we're all in." Any specific trigger events or anything that you remember in that journey?
For me, it was when we did the bake off with you and a few others. It was, "What are you waiting for? Why are you taking so long to get all the other input? Isn't this obvious?" It really was that way for us. Once that happened, it was just that what I mentioned, it was the culture change that you have to be a zealot over and make people maybe turn their video on.
Something's that easy to use and it fits into something that's been missing for years in this industry, it just fills a void, and it's not something of an adoption problem. We have well over 90% using it on a daily basis here, I didn't have to train them.
Awesome.
Yeah. For us, too, right, the pilot was supposed to be 250 users, but it ended up close to 2,000 to 2,500. There's no way to go back now. We had no option. Actually, in a good way because people all started consuming and started using it as an enterprise service because us rolling it out. It was now how do we make sure that it met all the criteria and other things, checking all the stuff that we need to check from an enterprise standpoint, and then making sure it was rolled out globally now as a standard, was the only step we had to do. Pretty much the users just started adopting.
Cool. How about kind of usage trend? Like what do you see? Even now that you're adopted, is it still growing? What do you see on your end? ROI, which is probably somewhat related. How do you look at the ROI for these types of services, hard costs, soft costs, and is that something you still keep your eye on?
When I was coming over here, I was looking at the metrics in general of the number of minutes that we are consuming. Like this fiscal year, we're close to three-quarters completion of this fiscal year. We've consumed as an organization or a company, 87 million minutes in three quarters, which is about 25% more than what we consumed last year. We have about 650,000 minutes, and there are about 13,000 workforce, including our employees, contractors, and everybody collaborating on this platform consistently. Having radical collaboration in this frictionless experience is a big goal that we had as a corporation for continuous employee engagement and to get the most value across the globe.
Clearly, with that spike in usage and continuous growth year-over-year in the number of meetings and the meetings that we're having with our customers, partners, and internally, I think the trends show that the value that the product is bringing.
And I mentioned-
Yeah
the adoption is like 10 million meeting minutes a month, and that's for about 6,500 global users. That's high for us. I didn't think we'd ever get half of that. When we rolled it out, I think from an ROI perspective, we saved in the order of 30%-40% by doing this with video and then another 30%-ish, if not more, on the phone side because that was less circuits we needed. It was licenses we could recoup back. We actually paid for it really, in many ways. It wasn't just a great service to have. It actually paid for itself.
What do you do with all that extra money?
I don't always have that budget, to tell you the truth.
That's why I didn't answer that question. No, ROI, right? I think it's more about than hard savings, it's the productivity impact that you probably cannot give a hard calculation to.
Yeah.
The employee engagement is significant. Those are like you cannot measure them, and you start putting dollars associated to it will be big. Naturally, there was some tool consolidation that has happened as part of this whole effort so that we don't have now four different tools. We were able to shut down all of those tools that naturally brought some savings that we were able to divert to use for this and some other things, and to also add more Zoom Rooms.
Okay
That we get more infrastructure put in. Naturally, it is the uncalculated hard savings is what I'm more interested in, the employee engagement, productivity gains that we are having. People are happy in general, ability to collaborate across the globe. Those are things that are super important, too.
Thank you. I guess one last question before we head it over to the crowd. What, from your seat, differentiates Zoom from other vendors? In your types of roles, let's be fair, you're buying, using all kinds of software, hardware, you name it. You work with lots of partners, lots of vendors. What would you say is different and unique about Zoom?
For me, it's like consistency in what your core is. You may add features every week and every month, but your core video collaboration, as an example of a Zoom platform, consistently works every single time. Of course, naturally, I know Eric also very well. He's approachable as a humble leader, and he's brought in that culture across the company as well. You can totally see it when you interact with the team members and when you collaborate and when you bring up any problem or anything. They have a complete empathy towards what we are trying to get done and trying to solve the problem to make customer really happy.
I don't think that he just says it, that he wants to see customers happy. I have seen that in experience, which has given me a lot of belief that the culture that he's trying to bring is important, and we want to be associated with good partners. That makes it unique.
Yeah. I'd echo that. I would say that the customer happiness thing is not just a marketing thing. It's actually real. In this space, you really don't have that. When you have a vendor or partner really who comes in and says, "I want to make you happy and your company happy with us," it's weird. It's weird. It's cool. On top of that, the technology really works. The thing is, I don't have to train. What I used to do is I had to train a bunch of people to run the tools, and the systems, and the backends, and all this stuff. I really don't have to do much of that. It's some admin stuff you have to learn, but it's not the deep level of knowledge that you used to have years ago.
Fair. I share your sentiment. I've only been here maybe two and a half months or not even, and I'm already a happy person, but I'm even happier.
Yeah
being here. Part of that is just working with such great customers. When you're spending time with folks like yourself that are so positive, how do you not enjoy your day? So it's definitely a great place to be. With that, Tom, why don't we open it up to some different questions for them?
Sure. Great. Thanks for sharing your experiences and adding to Zoom's story. I guess this question is more for Craig. I want to dig deeper into your bake-off. I was just curious, the other vendors, were they more legacy? You talked about just now, your experiences with Zoom versus the other vendors. Just back then before you experienced the full happiness, and also the benefit of less training, I guess, what were the factors that you found between Zoom versus the other vendors? Did any of them try to come back on price?
Oh, yeah. You can make something free and not want to roll it out, first of all. There is always a price point where you'll pay for something and it might even be expensive, but let's roll that out because everyone's going to love it. I saved money by going to Zoom because of all the legacy infrastructure and the systems that I had. I've had experience running, whether it was BlueJeans or Webex and Skype and all that stuff, and they usually hit you up on licensing costs or the complexity of the infrastructure you have to run, or the people that you have to send to training to make this stuff work. Really what we touched on earlier was I really didn't know why it was choppy video.
Really, if you ever have that, there's a network problem you need to go take care of in your infrastructure. I can now use Zoom and the analytics that come with it to go find those issues and go fix them. It's just a total different paradigm shift to just video. By the way, it's so easy to consume, and you've got to look at it. If you have a background in the history of all the different vendors and solutions that are out there, you would definitely want to pick Zoom if only for that reason.
If I can just add one more for you, Craig.
Yeah.
You're also a phones customer. I'm surprised, at Ciena, you didn't get executive persuasion to go with your two largest customers, AT&T or Verizon, in terms of their business services.
Any persuasion with them.
In other words.
to pick their solutions?
In order to pick-
Yeah
yeah, to go with someone else with phones.
Yeah. At first, we did. It was very obvious that the solutions that they had, quite frankly, are legacy solutions, and they're just reselling, whether it was Cisco's TelePresence or Webex and the such. For us, it wasn't a big deal. When it came to voice, moving off of legacy, whether it's PBX infrastructures or AT&T, Verizon, Sprint type of systems and stuff, it's really not much of a conversation for us because I don't think it was really on anyone's radar for them that it was such a big deal for them in terms of cost or revenue for them. For us, it was just a natural progression from video to voice. I don't think many people even noticed, quite frankly.
Quick one for Prakash. You mentioned already the growth in minutes or usage. If you're at liberty to say how that translates into growth and spend, it's clearly not going to be one to one, but how do you look at what the incremental spend is relative to incremental usage?
I think our licensing is not based on the usage of minutes or whatnot. It's based on the number of users we have. When we first joined about two years back, at least for all the employee base that we subscribed to, it was not based on the number of minutes. That doesn't have an impact. That's the other thing. We're not watching over people or restricting them from using it.
That's the way that typically we would want to partner with companies where we are not always trying to have a usage-based consumption model where it becomes challenging. If people are not using it, we'll start challenging people. "Why do you need to use it?" That goes in a very wrong direction of where we don't want to go. Our licensing with Zoom is not based on usage.
It takes total number of people every new employee.
It's a cost on the number of licenses and number of users. As we grow as a company, we buy for those number of users.
Yeah, that for us was very different. One of your biggest competitors, they try to lock you in, and so if you did grow and the adoption went crazy, then you're stuck. Actually, with Zoom, what they did is they said, "Hey, it's going to go crazy, and we're going to cap it at this so you know, so you understand that up front." That was the difference for us.
How did you evaluate employee privacy? Some of the analytics features or meeting transcription, some of the more advanced analytics features and which ones you're using or which ones have run into employee privacy?
We are not looking at any data specifically. The host, whoever is running the meeting, has the ability to record meetings, and the recording goes in the cloud and link goes to them, whoever is hosting. It's not publicly available as an admin portal or even for the IT teams. We are not listening into any meetings, or we don't have transcripts for all the meetings or whatever data. Naturally, we do collect analytics of the performance. Like if you're in a Zoom call, you sometimes get a message saying that your network connection is bad, or you get hints, clues that the video quality may have issues and whatnot because of network quality. Those kind of data is what we are looking for, and especially for VIPs, VPs and above, we track those to make sure that their quality of service is not impacted.
We are not tracking, as such, what is going on in the meeting. From a privacy standpoint, we are not getting into any of the actual content of those meetings. Correct. That's what we are setting it up.
Yeah, same thing. They know they're being recorded, and that's about it.
Question over here. How are you guys thinking about chat-based collaboration? I know it's not something that Zoom has emphasized today, but think about a couple of years into the future, if the product is more fully featured, does it make sense to have that as part of the unified suite, in your opinion, chat?
Today, we have Slack. We use Slack for chat, and especially for the set of engineering community, they like that tool, and we're not planning to really disrupt that equation today. As Zoom evolves or other companies, whatever we get, and Zoom also has an integration with Slack, as such, if you look at it. If people are chatting and then you want to start a video call, you can do that through that integration. From a user-based standpoint, we have articulated to the teams what to use from an enterprise standpoint, what do we recommend for them to use for chat, what do we recommend them for video collaboration, for phone or instant chat, whatnot. We have given those for the existing tools so that our employees are not confused.
Oh, which one do I use to what?" There is naturally this correlation that will happen eventually when Zoom also starts increasing their capabilities on chat, or everybody starts chatting on those things. We will need to figure out and watch this market, how it evolves. Today, in our environment, Slack is predominantly used for chat purposes.
We're a Teams shop ourselves, and we have Slack.
Slack.
Slack for use case for engineers and stuff. We turned off Zoom Chat for the wide company. We leave it on for the meetings themselves, which is a really important feature to have within the meeting because there's tons of questions and things that come up during the meeting. People place them there or a hyperlink out to something that you're talking about. The good thing is you can choose. You don't have to be all in on something. You can pick certain parts of things that you like, which is hard to say that about other companies, at least a lot of companies, I would say.
That's how we look at the market. We have perfect examples, right? Companies that are on Slack, and it's great. They're happy. Companies that are on Slack for part of their workforce, companies that have Teams, and part of that's integrating into all those products and services as much as possible, and then also offering our own application for those that choose to do it that way.
Thanks for the time today, guys. Given your current customers today, but just curious, out of all the new features that were announced today, what would have made you the most excited to potentially adopt Zoom? Actually, I'll take that question first.
We have high adoption, so assuming you're not a new customer, and if I heard that, I think I would explore the Zoom Rooms ideas of the one box. What was it called? What was it called?
Yeah.
Neat? Nope.
Meet.
Meet.
Yeah.
Neat sounds nice.
Yeah.
I would explore that because that's a real tough challenge to actually make it that simple to work. We typically have 50 different types of vendors to choose from. They all have pros and cons. In fact, I'm personally going to take that one back with my team to see what they think of it.
For me, it's like any new capabilities in Zoom Rooms, especially when we have 400-plus Zoom Rooms. It adds more capability. That's a plus win. Also Zoom Phones, which we have not explored yet. They have it already there, but we are still exploring with them. That's still something of interest for me.
Got it. Kind of follow up to me, and actually, it's to your answer. Do you have any concerns with sort of consolidating down to one vendor like Zoom at all, just from keeping every vendor honest in this space? Would you be willing to go completely Zoom only?
I asked him to ask that question, you know.
At least we have not so far seen that kind of behavior from Zoom, where we feel like we'll end up getting choked. As long as there is value. Because when we had so many vendors, overnight, almost within a quarter, we shifted to Zoom. If over time things change, then we would not be hesitant to make the change. All vendors, including Zoom, also realize that, because technology changes are happening very fast, and companies are coming and disrupting. As long as there's continuous value that is coming out, there will be partnership. Then tomorrow somebody else comes and disrupts, then we will be looking for those trends. I'm sure Zoom are disrupting themselves, too, to continuously give that value.
That particular thought, especially based on how Zoom works with their customers, has not come, at least for me or my team so far, having that concern of we are closing down everything to one vendor. Teams are asking us to consolidate platforms. Otherwise, they feel like, "I'm confused," when you have four tools. I was traveling here from S.F. this afternoon with my VP of Investor Relations, Abhi. We both were talking during our drive here. We have these three, four tools, any plans to consolidate? The users are asking for consolidation, if you look at it, than really having more than one tool, because that makes their life easier and simple to operate. From that standpoint, I don't have any concerns really locking down to one user, as long as there is value that is coming up.
I think the other part to that, Ian, you are right, because you want consolidation in this space, at least for your company, so you guys can all use the same thing. Otherwise, you got 20 different tools out there to try to video conference, which would kill you. The one thing that is really important is to have the integrations available so that if you choose to use Slack, Chat, or Teams, you can have the integrations right into the video solution you choose. No concerns, at least from my perspective, on having too much control, if you will, with one company like Zoom.
Maybe one last question.
There we go.
Thanks. On Zoom Phone, for both of you guys perhaps, what else have you looked at, maybe for Craig first?
For phone?
Yeah, what made you choose Zoom?
Yeah.
For Prakash, I think you mentioned next year you're going to look at, maybe give us a little bit of background. What do you currently have as your PBX solution, and what will be the determining factors for that decision next year?
Okay. On the voice side, it's pretty much like PBX, right? As opposed to the house, you might have different choices for how you get your dial tone, if you will. In the corporate world, there's not a whole lot of choice out there. There are some. Really historically, I think the demand has been around soft phone. How can I get soft phone capabilities so I can take my office calls in the hotel, if you will? When we did Zoom video, it just opened up the next logical discussion about why don't you just extend that to voice.
You don't really need to do much of a bake-off at that point because it's so easy that people were consuming the video, and now we're just giving them a phone number, and they can have it within the same software. It really was that easy for us to make that determination. Of course, I mentioned the cost. It paid for itself.
You had Avaya, is that right, before?
Yeah. Our CEO was on their board at that time, too. Don't say that. Yeah, it was an easy choice for us.
Yeah. For us, right, it's like there used to be days when you used to have desktops, and you come to work to work at your desktop. Now you don't need to come to work to be productive. We are all always connected and engaged wherever we are. In the phone space, too, I think that's the next wave that we're looking at. Today we have some soft phones in certain countries. Again, we have locations, global locations, 90 different locations worldwide. We need to have soft phone capability across all of those locations. That's why we are exploring. We are a big Avaya PBX shop today. My goal is to get away from desk phones to get to the phones where the phone travels along with you, the work phone, too, wherever you are.
You don't need to be in your work location to have that capability. It's a capability, and I don't know about you guys, but I never turn on the volume of my. I don't have a desk phone. Even for my soft phone, I never turn on because most of the calls go to my admin. I don't pick up my phones on the desk. The number of people that are using that real desk phone has changed drastically, unless your roles require them to use. That's why we need to really make sure that the capabilities are. We're not introducing one more tool for the sake of giving them. Rather, combine it with the tools that they already use so that there is value and usage for those tools.
With that in mind is where we are exploring how could Zoom come and play in that space.
Okay. All right. Thank you.
Thank you so much.
These are a wonderful kind of people.
Thank you.
Thank you.
Thank you, guys. Thank you so much. Thanks, Ryan. Appreciate it. Thank you so much, Prakash. Okay, everybody. Thank you. This concludes all of our prepared remarks and presentations for today. We thank you all for coming and for all your support. Secondly, I want to announce, I'm very happy to say, we survived the lockup release today. In case you guys have been watching the stock, we actually closed up. Thank you all. We appreciate your support that got us through this day today. We unfortunately do have to clear the room because there is a big customer delegate coming in after this. If you guys have questions, Tom and I will be around. We're happy to see you all and spend time with you this afternoon. Thank you again.