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Zendesk’s IPO Plans

Posted on Friday, Apr 12th 2013

Today there is a growing need for a helpdesk support system that is able to address multiple modes of communication that a consumer may have with organizations. According to NMincite, nearly 47% of all social media users have used social networks such as Facebook and Twitter to send in customer service requests. Another report by Forrester showed that in the last three years, use of the Web self-service option grew 12%, live chat and social media usage increased by nearly 25% each as options to submit customer service requests. This trend has led to the creation of SaaS-based help desk systems that address these multiple channels for organizations.

Zendesk’s Financials
Copenhagen, Denmark–born Zendesk is one such player that is expected to file for an IPO before the end of this year. Zendesk was founded in 2007 by Mikkel Svane, Alexander Aghassipour, and Morten Primdahl who wanted to create a web-based offering that would help companies offer customer support. The product was launched soon after and received positive reviews from initial customers. The reviews convinced Svane to quit his job as a consultant and concentrate on growing Zendesk.

Since then, Zendesk has improved their product to become a Software-as-a-Service (SaaS) application that offers web-based help desk support and ticketing applications so that organizations can manage customer requests. They have added features such as mobile apps and Twitter and Facebook integration with their products. They have more than 25,000 organizations as customers, with their support reaching more than 70 million end consumers across 140 countries worldwide. Their customer list includes names like Twitter, Pinterest and Tumblr. They also shifted their headquarters and are now based out of San Francisco, California.

Zendesk offers its services through a subscription model based on the number of agents required by their customers. For smaller organizations, options begin at $288 per agent per year and include multi-channel ticket management and a self-service knowledge base. For bigger organizations, plans range from $588 per year to $1,188 per year and include features such as multi-brand support platform with enhanced compliance, security, and administration. The Enterprise edition also allows organizations to customize their help desk and make use of Zendesk’s reporting and analytics tools.

Zendesk’s detailed financials are not public. But according to some reports, they brought in $30 million in revenues in 2011. Revenues are projected to grow to $70 million by this year and to cross the $100 million milestone by 2014.

Zendesk is working on expanding their product offerings. Earlier this year, they released their first iPad app. It has been designed keeping in mind that some functions such as advanced analytics and administrative functions are best conducted on a web-based environment. The app thus offers a simple dashboard with only basic reporting dashboard, a ticket history for the consumer and features such as a task list that shows the queue that an agent is working on.

To date, Zendesk has raised $85 million in venture funding from investors including seed money from Christoph Janz followed by funding from Charles River Ventures, Benchmark, Matrix Partners, Redpoint Ventures, GGV Capital, Goldman Sachs and Index Ventures. They were valued at $159 million in 2010 and since then, their valuation is expected to have increased significantly. Zendesk‘s bigger competitors, such as Workday and ServiceNow, have listed at valuations at revenue multiples of more than 22 times. At such multiples, Zendesk could well be valued at more than $1.5 billion by the end of this year.

I would like to refer to our Million Dollar Club member, Freshdesk, which offers similar services at a much more affordable price and has managed to show strong growth with significantly lower funding requirements. Freshdesk has raised $6 million in venture funding compared with Zendesk‘s $85 million. Their customer base of over 3,000 organizations spread across 70 countries is also a much smaller footprint than that of Zendesk. But, despite their size, Freshdesk has managed to make a mark in the market by offering services similar to that of Zendesk at a fraction of the price. Their most inexpensive option starts at no cost with free service for up to 3 agents. The price tier begins at $15 per agent per month thereafter. The most expensive option is priced at $480 per agent per year and includes most services that Zendesk offers.

It would be interesting to watch the competition play out in the years to come.

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