What you really need to know about the Zendesk IPO
A couple of weeks ago Zendesk filed its S1 outlining a $150M floatation on the New York Stock Exchange. The Nordic Web took a look beyond the headline numbers with a deeper look at what the IPO and the future will hold for Zendesk.
The importance of the Zopim acquisition should not be underestimated.
Simultaneously to the the S1 filing, Zendesk announced that they had acquired Zopim technologies; a Singapore based SaaS live chat service. Zendesk state that they will integrate it within their customer service platform, but will also sell it as a standalone chat service.
The acquisitions importance should not be underestimated, with it proving to be a critical point of the S1 proposal, due to the importance of closing the deal before filing the form and the fact that they have put a lot of eggs in one basket in terms of the success of them selling it as a standalone service, something which they freely admit to not being experienced in.
There is also concern that users may object to this as previously the chat was available within the product and came as part of the product cost, but the intention is to now charge a separate fee per chat-enabled agent, so there will be a very big challenge ahead in terms of keeping users happy.
“Live chat” is used as much as “Customer service platform” within the document when referring to business critical matters, so there is no hiding from the fact that the Zopim acquisition will be pivotal to the future health of the company.
There is also an expectation that they will be able to sell Zopim live-chat as a standalone product, but there is concern that their users may object to this as previously the chat was available within the product and came as part of the product cost, but the intention is to now charge a separate fee per chat-enabled agent.
The Zopim acquisition will not be the last.
Zendesk expect their growth rate to decline over the years and warn that they may not be able to achieve profitability due to their costs also rising. The main reason given for this is due to ongoing investment in their customer service platform and their technology infrastructure.
Most notably, when referring to the investment in the customer service platform, “acquisition of new products” is stated as to where the money may go. Of course, it is not uncommon for companies who IPO to employ an “acquire and hire” strategy, but what is interesting is that they would appear to have already identified targets as they explicitly state that the customer service platform will be where they will look, indicating a clear strategy in this area (and also indicating that Zopim will be their sole purchase in live chat for now) so don’t be surprised for others to follow Zopim sooner rather than later.
The battle for talent is as important as the battle for customers.
Another major investment will come in the form of staff, and in particular sales personnel. Zendesk will look to make a “significant expansion of their direct sales organisation” as a priority.
This would suggest a big change in strategy towards acquiring bigger enterprise clients to be the main focus. Currently 70% of customers are gained organically, but these are typically SME’s and essentially low-hanging fruit. Therefore the big investment in the sales team would surely be put to use to further the “land and expand” strategy on enterprise customers currently being deployed by the Zendesk sales team.
With this investment, the acquisition of these larger customers will prove to be pivotal to the future, and the employees that do come in on the sales staff expansion will have to be of the highest quality in order to win the desired level of customer, so not only will the battle for customers have to be won it will also be a battle of talent that Zendesk will have to win in order to succeed in this business critical area.
This post was originally published as an article in The Nordic Web; the number one source for content and data on Nordic technology and startups.
