We're just delighted to have Kelly joining us, from Zoom. Selfishly, so we'll do the how's business and all that. Selfishly, I was thinking that we would use today to really drill down on some of the products I don't understand that well.
Okay.
Right? You know.
Great.
I think it'll, you know.
You know a lot.
You have a ton of these meetings, right?
Yeah.
It's the end of the day. Like, actually truly understand. We'll do contact center a little bit, but I think people kinda get that one.
Yeah.
Right? Like, IQ for Sales.
Yeah.
Right?
Great.
Right. We'll just go through some of the…
Yeah, sure.
Some of the newer things.
Sure, sure.
Also I wanna talk about what you can do with online, 'cause I felt like there was this whole thing around consumer for online. There's this whole marketplace thing, and I kinda wonder where it went.
Yeah.
We'll get to that.
We can talk about that.
Okay.
Yeah.
Starting at the top.
Okay.
How's business, Kelly? What would you say?
I'm sure you all, I hope most of you at least, watched earnings last Monday, so you got a view of the outlook for this year. I think what you probably gathered from that is we've taken feedback from a lot of you around questions that we had around, you know, I think the three questions I kept getting from investors were around online, when's that gonna stabilize?
When are the margins going to stabilize? You know, what's the sustainable growth rate? We've made a lot of progress in online. One of the new disclosures we gave, of course, is the monthly churn number for online, which has stabilized now in the, you know, 3.1 in Q3, 3.4 in Q4, so really happy about that. We made a concerted effort in Q4 to reduce expenses.
That was a big focus on kind of third-party expenses one time, and then unfortunately made the very difficult decision to do a reduction in Q1. We overachieved against our operating margin in Q4 by 20% at 36% and, you know, guided full year to in that same range. I think we've really made a lot of progress in those areas. Then, of course, focusing on reinvesting where there are opportunities to improve top line growth.
Bottom line is how's business? Would you say good, great, okay?
Yeah. I would say it's good. You know, we have some things internally that we are focused on, which is ramping these new products, which we're gonna talk more about. I think Phone is doing phenomenally well.
We announced in Q4, you know, 5.5 million seats, which is super exciting. Meetings doing well internationally. We had some, you know, our largest deal in Q4 was international. Largest Contact Center deal was international, so lots of opportunity there. You know, the challenges we're facing internationally certainly are our currency. That's been hard for us. Europe certainly is having its own issues as well.
Yeah. Things internally you're focused on, one was Phone. What were the other ones?
Phone. I would say we are doing executing on the go-to-market teams. That's what I would also say. We, in addition to the restructuring, sorry, the reduction, we are doing a restructuring of the sales organization at the same time.
This is really to prioritize our resources and focus them upmarket. Our Zoom Phone overlay team, which has been a great team helping sell Zoom Phone for the last couple of years, are now fully quota carrying.
What that gives us is really seasoned reps that have a little bit of a ramp, but much less if they were coming from outside. We are also working on. Right today, the line size for where we encourage customers to self-serve is 10, one to 10 employees. We are moving that up to 50.
Oh, that's interesting.
Yeah. With one to 50 employees, really encouraging them to self-serve online, which I think makes total sense. The platform has really improved. It's gotten much easier for them to self-serve, and many times customers prefer it. They'd rather just be able to go online and take care of what they want rather than having to talk to a sales rep.
I do.
Yeah. I know.
Right? I mean, as long as it works, as long as it's easy and...
Yeah.
Yeah, for sure.
Yeah, exactly.
For sure. I do think that maybe we should drill down a little bit or explain a little bit. You're talking about the Zoom Phone was an overlay team, but now they have full quota. Okay, what does that mean?
That means..
What's an overlay team, for starters?
Yeah. This has been the plan all along. The Zoom Phone team started probably four years ago when the product was launched, as experts that were hired with experience in selling Zoom Phone for, you know, hired from our competitors to come in and really help the account executive sell Zoom Phone.
The reason for that was because it's a much more technical product, much more technical sale than Meetings, Webinars, or Rooms. They have done that very, very well. You know, they've gotten us to this point.
The expectation now is that the, over the last few years, the account executives have had the chance to get certified in selling Zoom Phone as well. Now, rather than having another layer that's there to be the Zoom Phone ninjas, they're gonna carry quota.
They're gonna have territories, they're gonna have named accounts, and that's great because it does two things. It immediately increases the sales capacity, and it also eliminates a layer of expense that we, you know, we're popping them on for deals where they assisted.
Is Ryan Roskovensky in here?
Do you know Ryan, Kelly?
No.
His recruiting firm, all they do is software sales. That's it. He's been doing it for 20 years. He used to work here. What is the challenge, Ryan, when you take your overlay reps, and you make them real reps?
They're not hunters, typically.
Yeah. I mean, it's, I think I hear you. That's fair. What I would counter with is they were hunters before they came to us. They were selling, you know.
Wherever they were.
Wherever they were. They were quota carrying, and this has always been the plan. I don't know. We can check in in a year, Ryan, and see who was right in this situation.
Are they selling more than the phone?
Yeah. They're expected to sell everything.
Oh, they're selling everything. That's the other challenge, right? They know phone really well, but they don't know..
Yeah.
Whatever the other. Okay, you guys think you got it?
Yeah.
Okay. All right. Cool.
Again, this is not a surprise.
Right.
This has been the plan forever and forever? For the last four years. It's not something that anybody in the organization, it was unexpected to them.
Okay. I'm trying to divide $400 million by $5.5 million.
Oh. Are you getting our Zoom Phone?
Yeah, it wasn't working out there. If you did four, you did $4.4 billion in revenue last year, let's assume. You said you're getting close to having to break out the phone.
Yeah.
Let's just say it's $400 million of phone.
Yep.
There are 5.5 million phone lines. What's it per month? Do you know off of your head or do I have to do the math?
I don't know off the top of my head.
My God. Okay, hold on.
What? It's gonna be...
it's 400 divided by 5.5.
$767, something like that.
Divided by 12. That can't be right.
That can't be.
That's 15.
No.
Yeah.
The list price is $15
Yeah
Or unlimited calling, $10 if you have metered. Then, of course, there are standard discounts in place for volume, for, you know, willingness to commit to multiple months, pay up front, et cetera. So.
$6.
Okay.
That's what it works out to.
Yeah.
Is that enough or do you need to find a way to charge more? 'Cause, you know, $5.5 million seems like a lot of phone numbers.
Yeah.
Right?
Yeah, it is.
$400 million is a lot, but you guys are a big company.
Yep.
You know? Can it really move the needle or do you need to do more?
It absolutely can move the needle.
Yeah.
There's a couple of things. You know, we are really focused on taking market share, which is what we want. Phone for us is very strategic because it's much more retentive than just having Meetings alone. You know, remember, we're selling into existing install base, so you're layering that on top.
Yeah.
There is going to, at some point, be a little bit of step-up for any customer that has free periods attached to it, which is. Remember, the way that the rev rec works, if you have free months attached, is that the revenue for the paid periods gets amortized over the free and paid periods combined.
If you give one month free, three months paid, you take that three months of revenue and you amortize it over four months. When those customers, as they come up for renewal, you don't have that...
They have one month still.
Yes, exactly.
When does that start happening?
It's probably already happening now because, you know, we have customers that probably signed one-year agreements and had a few months free in, you know, and that just keep depending on their term. Over time, It's not gonna be like a massive step function.
Yeah
Cause no, it's not gonna all happen at once, but over time, you're gonna see that start to increment.
The $6 will be going up and the, but you'll just have some natural growth in the $400 million.
Yes.
That's cool.
Yeah.
That is cool. What should we do first? Can we do Zoom IQ for Sales?
Sure.
Yeah. All right.
Yeah
What is the history of this product?
Yeah. Zoom IQ.
Well, actually, let me ask you this first. Can it move the needle? Is it worth talking about or can it not really move the needle?
You know, I think that Zoom IQ for Sales is. It absolutely will be a top-line contributor. Absolutely.
There, you know, are competitive products in this space that you probably all know. Someone said to me recently, "Hey, you know, so and so just built a whole business based on your data, right?" They don't mean our data, but they mean the data of existing Zoom customers.
"Why aren't you doing that?" I'm like, "We are. We have Zoom IQ for Sales. That's what we have." What you're gonna see, the reason that the use case is focused on sales first is because it's the space that is already known.
What it does is it analyzes the data of a meeting. You can do it in real time, you can do it after the fact, it helps... We use it internally for our training reps, for example, to say, "Did you say Zoom Contact Center enough? Are you listening enough?
Did you ask enough questions? Are you using too many filler words?" It's very, very powerful to have that analytics after the fact or even during the meeting to help train your sales team. I mean, I could use it on our earnings calls.
There are many opportunities for that. I think what you're gonna see is it start to expand into, say, contact center. That's where you'll have more and more of these use cases that extend beyond, because it could just be called Zoom IQ for any meeting that you're using. We all probably could benefit on the ability to communicate better, and that's what it can do for us.
Really, it's Zoom IQ for Meetings. It just happens we're starting with sales.
Exactly.
Okay.
That's exactly right.
The idea is it's transcribing, right? All that goes into some repository.
You run analytics against it.
What, yeah.
Yeah. That's exactly right.
Yeah. I don't know, what's like the best use case for it? How much can you charge?
Yeah, I mean, the best use case for it, like is, I think, the one we're using right now, but it's training. Again, we're using it for sales reps, but you could easily use it for contact center reps. We're charging $79 per license per month. It's a very differentiated price point than Meetings or Phone.
Yeah. How much is Meetings?
Meetings, list price is $15.
Yeah
Per license per month. Contact Center is $70 per license...
Yeah
Per month. You start to see these little value add.
Wow. Yeah. It basically doubles the Contact Center. You guys had a Contact Center deal last quarter you were really happy with, right?
Yeah.
Like a 2,000 seat.
Yeah, 2,000 seat.
Oh, do you have it? Is it out yet for Contact Center?
We don't.
Zoom IQ? No. How far away are we from having it?
It's not. It's not even officially, I don't think, on the roadmap, but it's really not even..
It doesn't sound like it'd be that hard.
No, it's not. It's not. It's not really a roadmapping. It's more of a positioning and go-to-market approach than even a product thing.
How long do you think we have to wait for Zoom IQ for Contact Center?
I don't know. I don't actually even know where it is on the roadmap, but I wouldn't be surprised if it was sometime this year. Don't quote me 'cause I don't own the product roadmap.
Sometime this year. We're on the webcast.
Yeah.
Don't quote her. Okay. Alright so, how do we think about the entire Zoom IQ area and what it can do for a $4 billion company?
Well, it certainly, as we continue to expand more and more, it can have some contribution to revenue. I mean, we'll have some contribution to revenue. Just you're not gonna see that in FY 2024. I think it'll start to move the needle a little bit in FY 2025. Equally important is how it helps retention. It really becomes one of those value add that organizations see and don't want to move off of.
Yeah.
I think that's what's really important.
That makes a lot harder to switch to something else.
Yes, exactly right.
For the new product. Yeah.
Yeah.
I can totally see that. Okay, what are you most excited about in terms of new products?
I'm really excited about Contact Center.
Yeah.
I know you said everybody knows what it's about, but if I can just talk about.
No, go for it.
The deal in Q4 for a minute. You know, we won this 2,000-seat deal. First of all, it was international, which is really exciting to see. It was a competitive situation against a very well-known, well-established cloud contact center provider.
Did you just meet the chairman?
No.
No? Okay.
I did not.
Not that one. Okay.
Not that one.
All right.
Another one. You know, now you have 50/50 odds of guessing which one.
Yeah.
It was really exciting. The reason that Zoom Contact Center won is because not only do they get the reliability and the ease of use that they come to expect on the Zoom platform, but it came to the configuration of the voice response system and the agent flows, they realized that it was simple enough for them to do it themselves rather than having to pay for expensive third-party services, which is what the other provider was gonna have to have.
When you think about, again, Zoom's approach of being price disruptive, we just talked about all those price points that are, you know, a third to a half of what everybody else in the space is charging. The fact that when you look at the cost to configure and maintain these systems is even cheaper. That total cost of ownership value proposition just continues to become that much greater for Zoom.
Yeah, just try to get the words right, 'cause telecom is not my strength. Is the cost to configure what?
The IVR's.
Yeah.
The Agent Flows.
Okay, what does that mean?
The voice response. You know, when you call any contact center, and it's like, "Press one for to talk to Pat. Press two to talk to his lovely wife, Samantha." You know, that's how you do it.
Okay, that's the IVR part.
Yeah.
The Agent Flow is what?
The Agent Flow is what, like, what do they see on their screens? Like, when they open up, which, you know, is varying depending on the customer themselves. Like, what do they wanna see, and, like, how does that then pull in customer data or interface with the knowledge base? Those are the types of flows that we're talking about.
Okay. is self-serve? I mean, self-serve sounds a little strong for that. It sounds like..
It's self-serve. I mean, I think I'm sure that it's an IT organization or someone with some expertise in this. They still felt confident they could do it in-house rather than having to pay third parties too.
Yeah. That's a big TAM, right? There's still a lot of growth there. Like, I was reading the Gartner report for unified communications. Did you see what Gartner's projecting for unified communications growth for this year?
No, haven't seen it.
1.5%. How can that be?
Yeah. That seems very, very small.
It's crazy.
That seems crazy.
Okay.
I don't know. I mean, unless they're somehow configuring in or figuring in contraction because of reductions. I don't know. That doesn't make sense to me.
Yeah. Yeah. Okay, contact center, big TAM, product's differentiated. What do you guys need to do to make it so it can move the needle?
Yep. Yeah. There's a couple things. Out of the box today, Zoom Contact Center is integrated with voice, video, and SMS. The things that we need to do to really get it, I would say, enterprise grade ready is it needs to interface with email and social. That's coming. That's on the roadmap for the first half of this year. The other thing is.
Right now it's voice, SMS, what was the third thing?
Video.
Video.
Yep.
Okay.
It needs email and social.
When you say integrated with, does that mean that it's integrated with third-party vendors in that space? What do you mean?
Yeah. Well, you obviously Zoom.
Yeah.
Also other third-party vendors.
Yeah.
Yes.
For email and social, it's like Microsoft and Gmail? Is that where you're going?
It will.
Yeah.
It will.
How hard is that to do? That doesn't seem like it should be so hard to do.
They're not hard.
Yeah.
You know, it's just remember, this product is really brand new.
Yeah.
It hasn't even been out for a year. Part of this is, you know, launching the product so everybody knows it's out there and that it's ready, and then having the features and functionality very, very quickly follow.
Yeah.
The other area along those same lines are the API integrations. On average, agent desktop has integrations with four-five other systems. Some of the things we just talked about, right? The CRM, where all the customer data is housed, the knowledge database, where the answers to all the questions are, the workforce management that manages all the queues.
Any contact center solution needs to have Ideally, out of the box integrations with all of those, so that as they're doing the implementation, they don't have to do a bunch of customizations.
Yeah.
That's also in the roadmap for the first half of this year.
Yeah.
Also we just in January announced we launched Zoom Virtual Agent, which is another party that then you can buy to coincide with contact center. This was accelerated as a result of our Solvvy acquisition. This is our AI chatbot. You know, we already have some customers using this for, you know, really simple cases like resetting passwords, where you can just talk to a chatbot.
Yeah.
Get it done really simply. Excited about that.
And are these the whole ChatGPT large language models? I'll tell you a funny story. You know, one of our kids is a data scientist, right? We were at dinner, and Gigi, the freshman, was asking, "Yeah, why are all the teachers at Redwood High School freaking out about this ChatGPT thing?
One of the teachers saw, in one of her classes, that one of the kids was using ChatGPT and sent him to the principal's office. Gigi's like, "Why?" Zach goes, "Gigi, what's something you're studying right now?" She's like, "Global warming.
" He goes, "No, you hadn't heard it." He says, "Type in, 'Write me a five-paragraph effort, essay on global warming.'" This is the key part, "That is appropriate for a tenth-grader." Right? Not too good, right? Good, but not too good. It comes out, and she's like, "Oh, my God, this is great. I could never write this." You know, because it was really good.
Yeah.
It was like.
Yeah.
What causes global warming, how we can fix it, something else, conclusions. It was great.
Yes. That's amazing.
Even better, he goes next. Samantha, so my wife teaches a class, and Kelly has been a guest on it a couple of times, right?
Yeah.
She had the female founder of a video game company as her next guest. Zach goes, "Create a set of interview questions for," the woman's name.
Oh, wow.
Right? No, it gets even better. In the tone of Samantha Parent Walravens, 'cause she's had enough stuff written on the web..
Wow.
That ChatGPT can imitate her tone. Then you read the questions, you know, she has a pretty strong point of view on all this.
Yeah.
The strong point of view comes out, and you're like, "This is freaking incredible," right?
Wow. Yeah.
What can this do?
Yeah.
If anything, for you guys?
Yeah. We have been developing and using AI for a long time at Zoom. If you think about some of the early features and functionality we had, even with Zoom Meetings like transcription and translation, that leverages our own models..
Yeah.
That we have built internally. There are also some newer capabilities that have been built on meetings, including something called Smart Recording, which breaks the recordings into chapters. If you haven't been participating in the meeting, but you wanna go back and look at it, you can start to get some context around what is most applicable to you or what you're looking for. That specific capability was actually developed in partnership with ChatGPT.
Oh, really?
Yeah. We have been working with OpenAI for a while. I think what you're gonna see, and you're probably gonna see this across all different industries, is a balance of areas that we're leveraging our models and areas that we partner with them.
You know, we get a lot of questions about PII, you know, and what makes sense, and we do collect data with consent from our customers that is anonymized, and that's what gets leveraged in our machine learning models.
Yeah. It says at the bottom, "This is being recorded.
Yeah.
Right? Yeah. I wanna understand this chapters thing. What does it do?
So it takes a meeting..
Yeah.
It summarizes it, like, into chapters so that what. You know, if you think about a meeting, an hour meeting, like here.
An hour meeting.
We're having our meeting, like we've covered, you know.
I guess it's been going on forever. It's always like, yeah.
Five different topics.
Yeah.
If you only wanna hear the part that talked about Zoom Virtual Agent.
Yeah.
You know, it helps you give you that context, so you can go right to where you need to be.
Does it take it from different parts or it tries its best to summarize this, like, You know what I mean?
I think it tries to..
zero to five minutes.
I actually don't know very specifically.
Okay.
I think what it's trying to do is summarize and bring it together in context that makes sense.
All right. Super cool. We have one minute and 47 seconds, I should have left more time. Any questions from our audience?
Yeah. Yeah.
Yeah. So we...
Can you repeat it for me?
Yeah. Yeah. The question is about a price increase. We did a price increase. We announced it 30 days in advance, but it was effective March 1st. The monthly customers who buy online went from $14.99 to $15.99. The question was, how many of our online customers are monthly versus annual, and it's about half of them, split pretty evenly.
What do we expect the impact on churn to be? When we announced the price increase, what we saw was a step up in annual contracts, which is great, because we did not raise the price there. Customers are locking in their value by buying annual contracts, which we love, because the lifetime value of those customers is much greater.
Even whenever the first was that it went into place, we saw a similar reaction. We have seen an uptick in churn, which is to be expected, and we modeled as such. I think we'll see when we get to the end of Q1 what impact that's had, but it hasn't been out of bounds of what we were expecting.
That's basically a 7% increase on $1 billion in revenue. Rough numbers. Yeah.
Yeah.
Is there really uptick in churn from going from $14.99 to $15.99?
Yeah.
It surprises me.
I mean, there is, right? There are people that are very highly price sensitive.
Yeah. Yeah.
I mean, the other thing that could happen, you know, they haven't paid attention, like, "Oh, wait, I forgot about that." Whatever, you know. We don't want people, of course, paying for the subscription if they're not using it. I think the more interesting aspect of that is the uptick in annual, which just shows they value it.
Yeah.
If it's a momentum to get or a motivation rather to get them to sign up for a year, that's great. We love it.
Kelly, it's always great to have you here. Thank you so much.
Thank you, Pat.
Appreciate it.
Good to see you.
Yeah.
Thank you, everybody.