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Billion Dollar Unicorns: Zendesk Targets the Live Chat Market

Posted on Friday, May 22nd 2015

According to a RnRMarketResearch report, the global customer experience management market is estimated to grow 17% annually over the period 2014 through 2019 to be worth $8.39 billion in 2019. The industry was estimated to be worth $3.77 billion in 2014. Billion Dollar Unicorn club member Zendesk is a leading player in the industry.

Zendesk’s Offerings

San Francisco-based Zendesk (NYSE: ZEN) was founded in Copenhagen in 2007 by three friends Mikkel Svane, Alexander Aghassipour, and Morten Primdahl. The three wanted to create a web-based service that would help companies offer customer support. They claimed that they wanted to create a product that would bring some order into the customer support segment while ensuring that it was easy to use and nice to look at. They soon launched their platform and received enough positive reviews from customers to convince them to quit their jobs and grow Zendesk.

Today Zendesk provides an integrated on-demand helpdesk through a customer support portal solution. Their platform provides seamless integration of the back-end helpdesk SaaS to a company’s online customer-facing web presence, including hosted support email-ticket integration, online forums, RSS, and widgets. It streamlines support with time-saving tools like ticket views, triggers, and automation.

Last year, Zendesk acquired a Singapore-based live chat provider Zopim. Recently, they introduced a new option called Live Chat to leverage the acquisition. According to a Forrester research report, an increasing number of users in the US are shifting to online chat for product and service support. Forrester’s report reveals that chat adoption has increased from 38% in 2009 to 58% in 2014. Zendesk is targeting this rapidly growing market through their latest product Zopim Premium. Zopim Premium is a live chat software for larger teams that also offers improved workforce management tools to track the performance and productivity of their chat agents and multiple departments.

Besides their growth, Zendesk has been in the news for their fierce rivalry with another SaaS customer support player Freshdesk. Freshdesk owes its beginnings to Zendesk as it was a price hike by Zendesk that led to the idea behind Freshdesk. But Zendesk believes that they are more than mere inspiration for Freshdesk. Last year, Zendesk publicly announced that Freshdesk was a “A Freaking-RIP-OFF” of their products. Freshdesk has defended their position by showcasing their products and offerings. My point of view is that coming to market with a better, faster, cheaper product is perfectly game business strategy, and Zendesk needs to stop whining about Freshdesk following that strategy!

Zendesk’s Financials

Zendesk earns revenues through a subscription-based model that is based on the number of agents that their system supports for the organization. The basic package starts at $1 per agent per month and comes with the basic features of email ticketing, access to knowledge base, and the ability to use over 140 pre-built apps. Premium options start from $25 per agent per month and go as high as $195 per agent per month. They come with features such as the ability to offer customer satisfaction surveys, customizable domain, multi-brand support, customized reports and dashboards, product training, and committed SLAs.

Zendesk recently reported their first quarter results for the year. Revenues improved 68% over the year to $42.2 million, surpassing market expectations of $40.5 million. Loss of $0.10 per share was also better than the Street’s forecast of a loss of $0.13 per share.

For the current quarter, Zendesk forecast revenues of $45 million-$47 million with a non-GAAP operating loss of $8.5 million-$9.5 million. The market was forecasting revenues of $44.4 million for the quarter. Zendesk expects to end the year with revenues of $192 million-$195 million, ahead of the Street’s forecast of $188.6 million.

In May 2014, Zendesk went public. Prior to listing, they had raised $85.5 million in funding from GGV Capital, Matrix Partners, Redpoint Ventures, Goldman Sachs, CRV, and Benchmark. Their stock is trading at $22.55 with a market capitalization of $1.94 billion. It touched a high of $28.20 in October last year. The stock had listed at $9 in May last year.

More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns. Unicorns will also be discussed with some special guests during our 1M/1M Roundtable programs over the next few weeks. To be a part of the conversation, please register here. The term Unicorn was coined in a TechCrunch article by Aileen Lee of Cowboy Ventures.

This segment is a part in the series : Billion Dollar Unicorns


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. Gaurav Dhillon, Founder of Informatica and SnapLogic (Part 1)
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. Gaurav Dhillon, Founder of Informatica and SnapLogic (Part 2)
. Gaurav Dhillon, Founder of Informatica and SnapLogic (Part 3)
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