Zoom: SMBs Can Be Fickle

So Zoom could never grow forever at the truly insane rates it grew the past 2 years.  If it did, it would exhaust the entire planet Earth of customers 🙂

Its incredible journey from $1B to $4B in ARR in record time may never be seen again in SaaS.  But now we’re on the other side of it, and we’re in the New Normal, where folks are back meeting together, more than ever.  It won’t be the same as before, and Zoom is still part of the fabric of all our lives now.  But it’s now a hybrid office and a hyrid workplace we’re in.  Not one solely in cyberspace any longer.

With that, Zoom in its latest quarter found that … SMBs can be fickle.   The overall business remains on fire, crossing $4B in ARR and a stunning $2B run-rate for free cash flow!  Wow!   Half of every dollar paid to Zoom drops to the bottom line.   And even with that, Zoom grew 55% year-over-year.

But its SMBs didn’t.  The total customer count shrank for the first, and likely last, time.  Enterprise customers were up 35% to 191,000.  But the overall 10+ seat customer count dropped slightly from 512,000 to 509,800.  So the smallest customers … shrank.  While the largest grew.

It makes sense. It’s not like these SMBs left for a competitor, or stopped using Zoom at all.  It’s just … the Free version of Zoom is so, so good.  And many of the smallest businesses are back to IRL workplaces.  Yoga studios are open again, tutors are back to in-person learnings, and much more.  Free is probably plenty good enough for many of them.

Now, Zoom’s SMB count likely will grow again materially in the future as the New New World gets settled, but not for a while.  Zoom is predicting 20%+ growth for enterprise, but flat revenue for “online” or SMBs.

It’s just a reminder that SMBs are great.  They close faster.  They are more viral, and more PLG.  They are your brand ambassadors.  But they’re also fickle.  If they don’t see enough value for your paid product every single month, they’ll cancel,  At least — for now.  And I’m proud of Zoom for making it easier to go.  For not playing games, and making it hard to cancel.  That works in the short term, but it damages you in the long-term.

And it’s a reminder that for SMBs — you have to do even more to keep them, not less.  Even though they pay less.  That’s the conundrum for many of us.

And a great discussion on how Zoom built its enterprise sales team in record time here:

(fickle image from here)