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Eliran Assa

Zoom CEO Eric Yuan with Cisco veteran and Neat chairman OJ Winge

Zoom CEO Eric Yuan, left, announced a Zoom-backed hardware business catering to Zoom's video conferencing, Neat, alongside Neat chairman and Cisco veteran OJ Winge.

Zoom Video Communications

Zoom CEO Eric Yuan built a video conferencing juggernaut used for more than five billion meetings minutes a month – and carrying a public market capitalization of about $19 billion – by focusing on doing one thing better than the competition: software. Now, through an investment in a new startup called Neat, Zoom’s dipping its toes in the side of the business it has long kept at a distance – hardware.

Zoom announced on Tuesday at its user conference that it had invested in Neat, an Oslo-based startup founded in early 2019 that makes hardware solutions to complement Zoom’s cloud-based meetings. Neat has about 50 employees, the startup says, and has raised $20 million overall. Zoom declined to disclose how much it had invested, but both companies say it did not take a controlling stake.

Neat comes from a team led by OJ Winge, who formerly led the collaboration business unit at Cisco in charge of WebEx. Winge previously helped sell two businesses to Cisco: Acano, an online meetings startup acquired in 2016 at which he served as CEO, and Tandberg, a teleconferencing company acquired in 2010, where Winge was an executive vice president. In an interview, Winge said he met the Neat team at the beginning of 2019. He’d already been in touch with Yuan, whom he’d known from their shared Cisco backgrounds, about hardware possibilities. “Eric almost tempted me to get back to this industry,” says Winge. “Watching what Eric was doing with Zoom, democratizing video in a way that had never been done before, was very inspiring from the sideline.”

Winge and longtime business partner Fredrik Halvorsen, Tandberg’s former CEO, invested in Neat through a financial firm they operate, Ubon Partners, and Winge joined as chairman. Neat’s plan for the foreseeable future is to sell exclusively to the Zoom customer base as an out-of-the-box solution for running Zoom meetings in conference rooms. Its solution to work with existing screens like televisions, Neat Bar, is now available for pre-order at $2,500. A second product, Neat Board, including its own screen hasn’t yet settled on pricing and will be available for pre-order in January 2020.

For Zoom, the investment in Neat raises the question of why Zoom would change its long-time strategy of remaining fully hands-off and device-agnostic in its relationship with hardware. Until now, Zoom customers have only used true third-party vendors such as Dell and Logitech. “Zoom is the Switzerland of your communications platform,” says Bernstein analyst Zane Chrane. By investing in Neat – and maintaining an option for Yuan to take a board director seat in the future – Zoom has committed resources and engineers to get involved in the manufacturing of hardware directly for the first time.

That comes at risk, warns analyst Dan Romanoff at Morningstar. “Show me a hardware company that earns better margins than a software company. You can’t,” he says. Zoom’s level of commitment – undisclosed, but less than $20 million, given that represents all of Neat’s funding overall – can be taken as a “flyer” for now. But were that commitment to grow, Zoom’s profit margins would bear the brunt of the additional spend. “If [Zoom ends up investing] $250 million, there’d be a lot of hands going up and asking questions,” he says.

In an interview, Yuan says that Zoom’s investment is more about signaling its commitment and good intentions than a desire to eventually own the hardware itself. “We know customers need the best hardware and software combination, but that’s not our strength,” Yuan says. By supporting Neat as a standalone business, Neat can move faster and spend more on research and development, Yuan says. Another benefit: with the higher financial upside of a startup to dangle, Neat can attract higher-quality employees than it might were it part of a large business, Winge says.

At Five9, a San Ramon, Calif.-based call center startup, employees have been testing a Neat device in one conference room, which CEO Rowan Trollope says has become the most popular in the office because of the ease of Neat’s on-screen meeting controls. Trollope’s not unbiased – he’s a former Cisco colleague of Winge’s and a personal investor in Neat – but he says that Five9 has operated every one of the major video conferencing tools as part of its testing, and that a Zoom and Neat combination is the closest the industry has experienced to an iPod-launch-like moment. “If Apple decided to build a conference system for the world, this is what they’d build,” Trollope says.

Yuan compares Zoom’s potential with Neat to a different Apple product blending hardware and software, the iPhone, and the relationship between Zoom and Neat to Google, with its Android software, and how it partners with hardware makers like Samsung (confusing the comparison: Google also makes its own phones). Both executives trot out a 2018 statistic from Frost & Sullivan, that less than 5% of global conference rooms were video-enabled at the time, as proof of the market opportunity.

To Romanoff, the analyst, the move could be more about Zoom’s effort to better monetize small business customers. He notes that Zoom reported during its September earnings call that 466 customers spent at least $100,000 on Zoom in the previous 12 months, while Zoom counts more than 66,000 customers with at least 10 employees. “There’s a giant chasm of paid vs. unpaid,” he says. That represents up-sell opportunity for Zoom – and likely a large number of businesses with smaller budgets that could benefit from a relatively cheap offering like Neat. (Winge says Neat can be plugged in right out of the box, no IT support required.)

Shares of Zoom were down 1.5% in afternoon trading on the first day of its user conference on Tuesday. While still trading at nearly double its April IPO list price and above its closing first-day price of $62, shares are still trading down a quarter off their peak value of $107.34 from June.

For an in-depth look at Yuan and Zoom’s rapid journey to IPO, check Forbes’ print feature from April 2019, Zoom, Zoom, Zoom! The Exclusive Inside Story Of The New Billionaire Behind Tech’s Hottest IPO.

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Zoom CEO Eric Yuan constructed a video conferencing juggernaut made use of for far more than 5 billion meetings minutes a month – and carrying a public market place capitalization of about $19 billion – by focusing on performing one particular factor greater than the competitors: software program. Now, by way of an investment in a new startup known as Neat, Zoom’s dipping its toes in the side of the small business it has extended kept at a distance – hardware.

Zoom announced on Tuesday at its user conference that it had invested in Neat, an Oslo-primarily based startup founded in early 2019 that tends to make hardware options to complement Zoom’s cloud-primarily based meetings. Neat has about 50 staff, the startup says, and has raised $20 million general. Zoom declined to disclose how a lot it had invested, but each organizations say it did not take a controlling stake.

Neat comes from a group led by OJ Winge, who formerly led the collaboration small business unit at Cisco in charge of WebEx. Winge previously helped sell two organizations to Cisco: Acano, an on the net meetings startup acquired in 2016 at which he served as CEO, and Tandberg, a teleconferencing firm acquired in 2010, exactly where Winge was an executive vice president. In an interview, Winge stated he met the Neat group at the starting of 2019. He’d currently been in touch with Yuan, whom he’d recognized from their shared Cisco backgrounds, about hardware possibilities. “Eric nearly tempted me to get back to this market,” says Winge. “Watching what Eric was performing with Zoom, democratizing video in a way that had under no circumstances been performed prior to, was quite inspiring from the sideline.”

Winge and longtime small business companion Fredrik Halvorsen, Tandberg’s former CEO, invested in Neat by way of a economic firm they operate, Ubon Partners, and Winge joined as chairman. Neat’s program for the foreseeable future is to sell exclusively to the Zoom consumer base as an out-of-the-box option for operating Zoom meetings in conference rooms. Its option to perform with current screens like televisions, Neat Bar, is now accessible for pre-order at $two,500. A second solution, Neat Board, which includes its personal screen hasn’t however settled on pricing and will be accessible for pre-order in January 2020.

For Zoom, the investment in Neat raises the query of why Zoom would modify its extended-time approach of remaining totally hands-off and device-agnostic in its connection with hardware. Till now, Zoom consumers have only made use of accurate third-celebration vendors such as Dell and Logitech. “Zoom is the Switzerland of your communications platform,” says Bernstein analyst Zane Chrane. By investing in Neat – and keeping an alternative for Yuan to take a board director seat in the future – Zoom has committed sources and engineers to get involved in the manufacturing of hardware straight for the 1st time.

That comes at danger, warns analyst Dan Romanoff at Morningstar. “Show me a hardware firm that earns greater margins than a software program firm. You can not,” he says. Zoom’s level of commitment – undisclosed, but much less than $20 million, offered that represents all of Neat’s funding general – can be taken as a “flyer” for now. But had been that commitment to develop, Zoom’s profit margins would bear the brunt of the added invest. “If [Zoom ends up investing] $250 million, there’d be a lot of hands going up and asking inquiries,” he says.

In an interview, Yuan says that Zoom’s investment is far more about signaling its commitment and very good intentions than a want to ultimately personal the hardware itself. “We know consumers want the greatest hardware and software program mixture, but that is not our strength,” Yuan says. By supporting Neat as a standalone small business, Neat can move more rapidly and invest far more on study and improvement, Yuan says. A different advantage: with the greater economic upside of a startup to dangle, Neat can attract greater-top quality staff than it may well had been it component of a big small business, Winge says.

At Five9, a San Ramon, Calif.-primarily based get in touch with center startup, staff have been testing a Neat device in one particular conference area, which CEO Rowan Trollope says has turn into the most well-liked in the workplace since of the ease of Neat’s on-screen meeting controls. Trollope’s not unbiased – he’s a former Cisco colleague of Winge’s and a private investor in Neat – but he says that Five9 has operated just about every one particular of the big video conferencing tools as component of its testing, and that a Zoom and Neat mixture is the closest the market has seasoned to an iPod-launch-like moment. “If Apple decided to create a conference method for the globe, this is what they’d create,” Trollope says.

Yuan compares Zoom’s prospective with Neat to a diverse Apple solution blending hardware and software program, the iPhone, and the connection among Zoom and Neat to Google, with its Android software program, and how it partners with hardware makers like Samsung (confusing the comparison: Google also tends to make its personal phones). Each executives trot out a 2018 statistic from Frost & Sullivan, that much less than five% of worldwide conference rooms had been video-enabled at the time, as proof of the market place chance.

To Romanoff, the analyst, the move could be far more about Zoom’s work to greater monetize little small business consumers. He notes that Zoom reported for the duration of its September earnings get in touch with that 466 consumers spent at least $100,000 on Zoom in the earlier 12 months, when Zoom counts far more than 66,000 consumers with at least 10 staff. “There’s a giant chasm of paid vs. unpaid,” he says. That represents up-sell chance for Zoom – and most likely a big quantity of organizations with smaller sized budgets that could advantage from a somewhat low-priced supplying like Neat. (Winge says Neat can be plugged in proper out of the box, no IT assistance needed.)

Shares of Zoom had been down 1.five% in afternoon trading on the 1st day of its user conference on Tuesday. Though nonetheless trading at almost double its April IPO list price tag and above its closing 1st-day price tag of $62, shares are nonetheless trading down a quarter off their peak worth of $107.34 from June.

For an in-depth appear at Yuan and Zoom’s speedy journey to IPO, verify Forbes’ print function from April 2019, Zoom, Zoom, Zoom! The Exclusive Inside Story Of The New Billionaire Behind Tech’s Hottest IPO.

Eliran Assa

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