Video conferencing provider Zoom announced its IPO offering price range of between $28 and $32 a share on April 16, 2019. At the price cap, the company would have a market capitalization of more than $8.2 billion after the Nasdaq IPO. With D-round financing in 2017, Zoom's market capitalization was only $1 billion.

Zoom is a multi-person cloud video conferencing software that supports 25 free HD video calls and is currently the leading mobile video conferencing tool. After the birth of Zoom, it has replaced the old video conference systems such as cisco, webex and skype in just a few years and become the most popular video conference brand in North America.

Yuan Zheng, CEO of Chinese

Zoom is a Silicon Valley company born and raised, but it has a long history with China.Its founder and soul, EricYuan (Yuan Zheng), is not just Chinese. He grew up in China and went to the United States after work. Until now, his ties with China are not unfamiliar to some extent.

In 2018, Yuan Zheng beat out Silicon Valley giants to become the best CEO in the United States on the job search website Glassdoor. This is the first time that a non-white CEO has topped the list. The man who counterattacked all the way, from an ordinary math and computer science graduate in the 1990s to Silicon Valley CEO, who counterattacked to become a communications giant, also led Zoom in WebEx,AppleFacetime andAlphabet Inc-CL CIn the fierce competition of giants such as Hangout, they counterattacked all the way out of the siege.

Yuan Zheng didn't go to the United States until the early 1990s, when he was acutely aware of the rise of global Internet technology and boldly made an amazing decision to look for a job in the United States. Yuan Zheng has been applying for a US visa from 1995 to 1997. After eight refusals, Yuan Zheng did not succeed until the ninth time. When he first arrived in the United States, he didn't even speak English and entered WebEx, a small software service company at the time, by writing code.

From 1997 to 2011, Yuan Zheng arrived at the post an hour and a half earlier than local employees every day. He worked hard day and night, and the wind and rain remained unchanged for 14 years.。"I knew I had to work hard, so I did what I wanted," Yuan said.At the same time, I was also very paranoid. I said to myself that I had to work harder. That's the only thing I know better than my competitors. " Thanks to his efforts, Yuan Zheng was promoted to an ordinary programmerCisco SystemsVice President of Engineers in the WebEx department under CiscoSystem (WebEx was later acquired by Cisco Systems) and led the department's income from 0 to more than 800 million US dollars.

The Miracle of Zoom

In 2011, Yuan Zheng left WebEx, where he had worked for 14 years, with 40 engineers and founded Zoom. Yuan Zheng left because he found that WebEx spent a lot of time revamping the technology, but did not care about the needs of customers, customer satisfaction is not high.

Zoom is mainly engaged in the business of ToB, providing customers with enterprise cloud video conferencing solutions. Its products include Zoom, providing high-definition video, audio, collaboration and chat systems; ZoomRooms, providing video conference room functions; ZoomWebinar, webinar functions; ZoomH323/SIP, providing access to H323 devices such as Cisco, Polycom, Huawei, etc.; Zoom integrated development, responsible for hybrid cloud, private cloud, API and SDK development; Audio voice, enterprise multi-party teleconference system to create a multiple video communication platform.

When Zoom was founded, there were many competitors in the market. In addition to the WebEx of Cisco Systems, where Yuan Zheng used to work, there are alsoMicrosoft Corp、Adobe IncWhile several established companies including Citrix, Citrix and Polycom, and startups including Highfive, Join.Me, BlueJeansNetwork and Vidyo, Zoom has only just completed its resume, it is very difficult to break through from good competitors. But Yuan Zheng believes that creating the best products can work miracles.

To create the best products is to firmly grasp the needs of customers.NickChong, head of product marketing at Zoom, says Zoom is committed to building products with the best user experience and spends a lot of time listening to customers. In most cases, the Zoom team collects feedback through Zoom videoconferencing, continuously collects customer feedback and adjusts based on customer feedback. ZOOM also regularly monitors its net recommended value (NPS), which currently leads the industry with a score of 69.

The way Zoom provides and sells products is also customer experience-oriented-ZOOM's video conferencing function is available to everyone for no more than 40 minutes, and the free value-added model, coupled with a satisfactory user experience, has become the main driving force for Zoom customers to buy.

Zoom can break through by being customer-oriented. According to data provided by Zoom, as of 2017, the company had 700000 business customers, and more than 50% of the Fortune 50 companies are its customers; in addition to enterprises, more than 6900 educational institutions are also Zoom customers, and China includes more than 90% of TOP200 universities in the United States. Obviously, the value of Zoom has been recognized by the market.

The growth rate of the business is also reflected in the change in the size of revenue. Zoom's revenues for the fiscal years ended January 31, 2017, January 31, 2018 and January 31, 2019 were $60.8 million, $151.5 million and $333.5 million, respectively.

Revenue for fiscal 2018 increased by $90.7 million year-on-year, or 149 per cent, respectively. This growth is mainly due to further purchases by stock customers (about 55% of the growth) and an increase in new customers (about 45% of the growth). Revenue in fiscal year 2019 increased by US $179 million, or 118 per cent, with an increase of about 56 per cent of the growth of stock customers and 44 per cent of the increase of new customers.

Net losses for the fiscal years ended 2017 and 2018 were $3.8 million and $3.8 million, respectively, and net income for the fiscal year to 2019 was $7.6 million, reflecting that Zoom has been able to break even and has made a profit in the past fiscal year.

In fiscal year 2017, fiscal year 2018 and fiscal year 2019, Zoom's operating cash flow was $9.4 million, $19.4 million and $51.3 million, respectively, more than doubling its rapid growth for two consecutive years.

Key factors of Zoom profitabilityEngineer bonus under Chinese style 996

The reason for Zoom's success is that it can hold on to customers' hearts, keep listening to customers' opinions and make immediate adjustments. ZOOM needs to provide about 20% of its engineering capacity each year to meet customer update needs-an average of 200 new or enhanced features are released by Zoom each year. On the other hand, ZOOM continues to expand its product portfolio and has formed a relatively complete product matrix. Zoom needs very high R & D efficiency to support such a large development demand.

But surprisingly, Zoom's R & D spending in FY2018 and FY19 accounted for only about 10% of that year's revenue, well below the industry average and even less than half of the industry's median R & D spending. For example, Atlassian's R & D costs account for more than 40% of revenue, while small companies such as Zendesk and Hubspot account for more than 20%, twice as much as Zoom. Compared with sales and management costs, R & D costs are negligible. In fiscal year 2019, Zoom spent 56 per cent of its sales on sales and management, doubling revenue from a year earlier to $330 million. Extremely low R & D spending is one of the most important drivers of ZOOM's profitability.

There is a contradiction between high R & D efficiency and low R & D expenditure on the one hand, except for squeezing the value of R & D personnel.However, it is well known that Silicon Valley engineers are generally paid better, and it is impossible to implement the 996 system to reduce wages in disguise. Although Yuan Zheng himself OT every day, he adheres to the principle of voluntary overtime for employees at Zoom and never forces employees to work overtime. For voluntary overtime employees, the leadership should also take the initiative to offer additional bonuses, and labor costs cannot be reduced. But Yuan Zheng found a solution outside Silicon Valley--Yuan Zheng found room for labor market arbitrage in China.

ZOOM's large engineering team is located in low-cost areas dominated by China.Zoom employs more than 500 people in several research and development centres in China, accounting for about 30 per cent of its total staff.The average salary of a Chinese team is much lower than that of the United States. According to Glassdoor, the average annual salary for entry-level software engineers in China is about $34350, about 1/3 of that of their American counterparts (such as $110000 in San Jose).

"our product development team is mainly in China, and personnel costs are cheaper than in many other jurisdictions. If we move our product development team from China to another jurisdiction, we may encounter higher operating expenses, which will have a negative impact on our operating profits. " Zoom wrote in the regulatory filing.

The engineer dividend, on the one hand, benefits from the rapid accumulation of highly educated population in the past, but the current industrial structure is unable to absorb such high-quality talents. There is an oversupply of engineers in the market, so the price of engineers is very low compared with foreign countries. On the other handThe Chinese-style 996 system is very popular, and the actual salary calculated by the hour is even lower than the nominal salary by 1/3, which is a huge gap compared with the salary of foreign engineers.

Zoom may not require the direct implementation of the 996 system, but it does enjoy the engineer dividend brought by the Chinese-style 996. The hourly wage of Chinese engineers is generally on the low side, so Zoom can carry out arbitrage in the labor market, build a large-scale R & D center in China, maintain low R & D expenditure and rapidly reflect development needs in the United States, and collect higher income from American users through low labor costs for Chinese engineers.

The engineer bonus brought by Chinese-style 996 is only a small microcosm of the miracle created on Zoom.In the past 20 years or so, the engineer bonus has created too many miracles. From the Internet era to the mobile Internet era, the engineer dividend of Chinese 996 supports the rapid rise of Chinese science and technology enterprises. Whether it is the Internet technology giant of the BAT giant or China's mature mobile phone industry chain, the success behind is inseparable from the important factor of engineer bonus.

The Huawei enterprise with wolf nature culture has profoundly practiced the 996 culture and harvested the dividend profoundly.Under the same R & D cost, Huawei's engineer value may even be as high as ten times that of Apple Inc. The low cost of research and development makes Huawei develop rapidly at an eye-catching speed, and finally become the world's leading technology giant.

Conclusion

Chinese-style 996 overtime culture, although it shows that the labor system is not sound, corporate culture is not people-centered, has been widely criticized. But it is undeniable that to some extent, it is the embodiment of the hard-working spirit of the Chinese people. It has created too many miracles, only in China in the past, and now even supports the miracles of American companies.

Like Zoom, many technology companies in Europe and the United States have begun to transfer jobs to cheap areas to arbitrage labor, which will bring profound changes to China and the world, which will be a win-win situation. But Zoom will not be the last such company, when other companies follow suit, can Zoom maintain its core competitiveness?

Disclaimer: the content is for reference only. Readers are requested to make investment decisions according to this.