The Six Five team discusses the announcement that Zoom acquired Five9.
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Patrick Moorhead: Topic number one, Zoom is acquiring Five9, just when you thought Zoom was going to be building everything in-house, they go off and do a pretty big acquisition.
Daniel Newman: Yeah. Pat, I’m going to go ahead and introduce that one again because I’m the host in the show. I’m just kidding, but-
Patrick Moorhead: Oh, that’s right.
Daniel Newman: You are on fire, man. You know what I love about you is I know if I was on stage holding the microphone and your favorite song came on, you would take the mic right out of my hand and you would just rock and roll. All is good, brother. Like I said, as long as we get what we need to say out there, it doesn’t really matter who’s driving. I’ll ride or drive what do they say? Anytime. All right. So yeah, over the weekend, Pat, Sunday night, I was just settling in to my hotel room because I’m living out of a suitcase while I figure out my situation for the next few weeks. But that didn’t stop me from getting the news.
Breaking news came across both of our desks that Zoom had struck a deal to buy cloud software provider and cloud contact center leader Five9 in a transaction that was valued at almost $15 billion. Big deal, Pat. Well, first and foremost, I just want to call out in a Business Insider exposé that went out several weeks ago, looking at companies Zoom might acquire, I believe both of us, ironically, without any coordination, put Five9 out there into the ether as a company that Zoom could possibly acquire. And guess what? I love it when there’s documentation of us getting it right.
But let’s talk about why this is happening. First of all, Zoom over the pandemic had an exponential growth, 300-plus percent growth and multiple quarters its stock price went through the roof, but a lot of I’m starting to wonder what is next for Zoom? It is a video platform for communication. Companies use it for point-to-point and small group meetings very successfully. What else? Over the past several months you’ve seen webinars become a bigger part of the company. You’ve also seen digital events become part of the company’s platform and it’s something they’re going to be putting more and more energy into as we go more hybrid.
But still, not enough. Lots of video platforms out there. And if you’ve listened to CEOs like Satya Nadella and Mark Benioff talk about their future, well their future is focused on this operating system for business. It’s a full vertical integration stack and horizontal. It’s taking cloud to core to collaboration and all the way across verticals, integrations into ERP CRMs, and of course the collab platform acts as the center of the knowledge worker, and in some cases, frontline worker’s existence. Well, Zoom didn’t have that. Doesn’t have those features. It has a chat, but it hasn’t been pervasively picked up in any enterprise. It really has been a point-to-point solution. Well Five9 breaks that free and Eric Yuan CEO has talked a lot about the platform, a lot about making the platform more extensible.
Contact center is very logical. It actually puts Five9 on a plane to have a fairly consistent product subset as Cisco in the WebEx platform. You’ve got a chat, you’ve got video, you’ve got messaging, you’ve got now contact center. Now, Cisco is more comprehensive, made more acquisitions, there’s a little bit more width, but both of these two companies in the collaboration space right now do not have that full productivity integration and CRM integration that is what Salesforce and Microsoft are going for.
So I’m going to just say one more thing. I’m going to pass the baton so you can have at least a little oxygen left, because I’m sure there’s a lot of different things here to cover. The deal size represents, I believe, I looked at it, it was aggressive, it was 34 times revenue and revenue is growing about 30 something percent. This is the same size deal as the tap below deal that Salesforce, a lot of people thought it was very large.
In my mind, it’s something that seems clearly saw synergistic, clearly saw the 435 million in revenue that was created last year by Rowan Trollope and the team as a great opportunity to extend the platform and really show their intent to be more than just a video company.
Patrick Moorhead: Yeah. Good analysis, Daniel. Whether it’s Cisco, whether it’s 8X8, whether it’s Mitel, Genesys, combining probably call it personal communications, employee communications and call center communications is the thing to do now. Not only is the backend technology very similar, but because of remote work, the requirement to better manage and understand how your employees are interacting is becoming a lot more important. And if I can apply AI or ML to what my employees are discussing or chatting about or talking about that same type of ML and apply it to customers, to understand when they’re getting aggravated or maybe they’re looking for something and pull up information, this is the future of this industry.
I mentioned this when I mistakenly turned into the host, but I was surprised that they didn’t build it on their own because the company is a very do-it-yourself, and I think they took advantage of their massive valuation increase from pre-COVID to where it is right now. Sure, it has lowered a little bit since the peak, but they did the right funding and this is the right thing to do because they could do it.
Daniel Newman: Yeah. Definitely speeding up growth, Pat, and I think a lot of integration getting tied closer to that data, that customer experience. Overall, I like it.