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Zendesk and Freshdesk Continue to Grow their CRM Offerings

Posted on Wednesday, Oct 8th 2014

According to a recent Gartner report, the global customer relationship management (CRM) software market is estimated to have grown 13.7% in 2013 to $20.4 billion. The growth was attributed to the increased investment in digital marketing and customer experience initiatives. The industry was dominated by SaaS-based offerings, which accounted for 41% of the total market. Gartner also estimates digital initiatives to continue to be the driving force for CRM in the years to come.

Zendesk’s Financials
San Francisco-based customer service support platform provider Zendesk (NYSE: ZEN) recently announced their first quarterly results since they went public in May this year. Zendesk operates on a subscription-based revenue model and for the second quarter, revenues grew 80% over the year and 18% over the quarter to $29.5 million. They continued to report losses. Non-GAAP net loss of $0.16 per share compared with $0.07 per share reported a year ago. The market was looking for revenues of $25.9 million with a loss of $0.18 per share.

The increased losses were attributed to investments in Sales and Marketing and R&D efforts. During the quarter, Zendesk’s R&D expenses increased 197% to $10.5 million while sales and marketing expenses grew 148% to $20.3 million.

For the current quarter, Zendesk expects revenues of $30 million-$32 million with non-GAAP loss of $11 million-$12 million. The Street was forecasting revenues of $28.2 million for the quarter with a loss of $0.14 per share. They expect to end the year with revenues of $118 million-$122 million and non-GAAP losses of $40 million-$42 million.

Zendesk’s Enterprise Focus
Zendesk’s increased revenues have been attributed to the increased adoption of their services by smaller scale organizations. But Zendesk is looking to change that perception and is increasing focus on offerings for larger enterprises. Last month, they announced the expansion of their enterprise offering by releasing an upgraded Enterprise Elite pricing plan. The new plan will provide enterprises with access to dedicated support, service-level guarantees, and enterprise-specific product features. Additionally, Zendesk also deployed a dedicated enterprise team that will be devoted to this segment for direct, round-the-clock email, phone, and chat access.

Zendesk’s stock is trading at $23.61 with a market capitalization of $1.69 billion. It touched a high of $28.05 last month. The stock is trading at significantly higher values than the $9 that it was listed at in May this year.

Freshdesk’s Offerings
[Freshdesk has moved HQ to San Francisco] Meanwhile, India’s offering in the space, Freshdesk, continues to do well. Chennai, India-based Freshdesk is a SaaS company that provides customer support software. It integrates a back-end helpdesk system used in ticketing and knowledge management with an online social customer portal on the front end to provide a communication channel across multiple media. Launched in 2010, Freshdesk  is a proud flag bearer of India’s presence in the global cloud CRM space. They target their offerings to small and medium sized businesses and differentiate themselves by making the customer handling process interesting for the customer service representatives. The platform gamifies the process by awarding points and trophies to the representatives based on their problem solving skills.

The company is now also expanding their mobile initiatives and is working on Freshdesk apps for iOS and Android devices. Their latest app in beta-testing is the app for their new cloud-based service desk for IT.

Freshdesk’s Financials
Freshdesk earns revenues by charging their customers a monthly fee based on the number of agents their platform supports and the level of service their customer needs. The basic plan is free and caters to organizations requiring support of up to three agents and provides them with email and phone support along with access to Freshdesk’s knowledge base. Premium plans are priced from as low as $16 per agent per month to as high as $70 per agent per month and provide services ranging from social support, community forums, and gamification to enterprise reports and custom email servers.

Within two years of their product being launched, Freshdesk had earned more than $1 million in revenues. They are estimated to have recorded revenues of $10 million in 2013.

The company remains venture funded with $45 million in funding from investors including Google Capital, Accel Partners, and Tiger Global Management. Their last round of funding was held in June this year when they raised $31 million in a round that was led by Tiger Global Management and that introduced Google Capital to the venture. The last funding round valued them at $250 million. As of now, their IPO plans are still distant and they don’t expect to go public before 2017.

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