Vimeo: Going Beyond the Screen
By: Rohan Kumar
The Ivey Business Review is a student publication conceived, designed and managed by Honors Business Administration students at the Ivey Business School.
A Preview
Vimeo is a video sharing platform where content creators can live-stream, customize, and publish their videos. Vimeo initially sought to differentiate itself through better editing and uploading tools, as well as being the first to support high-definition video. However, it was soon outpaced by YouTube in user count, causing Vimeo’s parent company, InterActiveCorp (IAC), to spend many years experimenting with alternative video-based markets and solutions. Vimeo has since transitioned into a one-stop video platform that offers a variety of features including video templates, editing tools, and live streaming capabilities. Individual creators can select from four monthly-paid plans and a free option while large enterprises are offered more customized solutions. Vimeo’s revenues largely stem from the latter, which boasts an average revenue per user one-hundred times larger than individual users.
Lagging Behind
Vimeo has experienced impressive growth in recent years, with revenue increasing 38.3 percent in 2021 and a projected five-year revenue CAGR of 30 percent. However, management has quickly scaled back its 2022 projections for revenue growth to approximately 17 percent, representing significantly lower growth than the previous two years. Management attributed this slowdown in growth to adjustments in its monetization model, which is now based on user count, and the difficulty of predicting demand with small to mid-sized clients in a post-COVID environment. This has contributed to a loss in investor confidence, suggesting Vimeo’s quick COVID-19 growth spurt may end sooner than expected.
The firm’s competitive response has largely focused on research and development, customer acquisition, and new corporate partnerships. In 2020, R&D and sales & marketing expenses equated to 60 percent of total revenues. Interestingly, enterprise customers are Vimeo’s smallest but fastest-growing customer segment, with revenue growth of 89 percent in 2020, over double its self-serve customers. Vimeo is simplifying the video creation process, creating better virtual event capabilities, and forming strategic partnerships to build a well-connected ecosystem. Vimeo’s recent partnership with Shopify is an illustrative example. Integrations have enabled Shopify vendors to easily publish their videos on the Vimeo platform. These efforts seemed to have had a positive impact on Vimeo’s gross margin, which improved from 69 percent to 74 percent from 2020 to 2021 due to an expanded customer base from 1.27M to 1.53M global subscribers.
Despite Vimeo’s higher enterprise average revenue per user (ARPU) and subscriber growth rate, only 7,000 of Vimeo’s roughly 1.7 million customers are large enterprises. While almost 90 percent of Fortune 500 companies have a Vimeo account, the vast majority of them still pay $100 or less per month. This price disparity among its different sized users suggests management is not fully capturing the full value from its largest enterprise companies.
Vimeo’s growing margins and extensive marketing efforts have not been enough to save it from consistent losses and negative return on equity. Beyond pleasing shareholders, Vimeo’s self-serve customers also have gripes with the firm — they are unhappy being pushed to pay higher fees as Vimeo cements its position as a B2B firm.
Watching at Half Speed
A surge in demand for teleconferencing and video solutions caused by COVID-19 resulted in Vimeo’s impressive 2020 growth. However, this growth is evidently unsustainable as the pandemic wanes. To combat declining growth, Vimeo heavily invested in R&D and marketing, but has largely been unsuccessful in spurring growth. Ultimately, Vimeo seeks to provide an end-to-end video solution, but it lacks a targeted value proposition and has to compete with both video creation and video conferencing companies. Large competitors among these verticals have far more resources to create better and more-integrated platforms, such as Microsoft Teams. Vimeo must therefore offer a unique value proposition that competitors cannot.
Exploring a New Vime-dium
Vimeo’s lack of a clear value proposition while operating in a highly consolidated market has driven its continuously low market share. Fortunately, it can turn to its fastest growing and high-profitability enterprise customer segment for a solution. Vimeo’s enterprise customers come from multiple industries, and primarily utilize its services for internally-generated content, such as training videos and town halls, as well as public and consumer-focused content.
Many of these client firms have been exploring the use and benefits of Extended Reality (XR), which encompasses Virtual Reality (VR), Augmented Reality (AR), and Mixed Reality. The XR market is growing annually at a rate of 45.7 percent due to its productivity-related benefits and declining technology costs, among other factors. The XR market is valued at $33 billion, and is predicted to grow to $125.2 billion by 2026 at a CAGR of 30.6 percent. Some firms such as Spacial, who specializes in VR video conferencing, have seen a 1,000 percent increase in usage. Currently, 27 percent of mid and enterprise- level organizations are currently using or seriously evaluating XR. The XR market will very likely thrive beyond the pandemic due to its benefits in productivity and firm costs.
Lights, Camera, Action!
Common uses of XR, such as training, meetings, and customer service, align with enterprise customers’ reasons for using Vimeo. With many of Vimeo’s customers embracing alternative work arrangements, XR technology serves as an effective tool to to facilitate virtual working conditions Notably, 40 percent of small businesses — which make up a significant segment of Vimeo’s existing customer base — are considering piloting XR to boost their ARPU.
Many of Vimeo’s largest competitors, such as Microsoft Teams, are already investing heavily into XR-based teleconference solutions. However, the market for XR-backed corporate training solutions is quickly growing. For example, Accenture bought 60,000 Oculus headsets for professional development purposes in the past year — enough for one in every ten employees. Apart from creating a more immersive training experience, XR solutions are viable since they can help firms cut down training costs by 30 to 40 percent. This indicates a clear opportunity for XR-based enterprise video solutions for non-teleconferencing needs.
STRIVR-ing for Success
STRIVR is a California-based technology company founded in 2015, with over $51 million in total funding from notable investment firms such as Georgian Partners and Franklin Templeton. The company was originally founded by current CEO Derek Belch as a project in Stanford University’s Virtual Human Interaction Lab (VHIL). Its core offering revolves around virtual reality and provides companies with creator tools to make immersive training programs. In addition, STRIVR’s supplemental revenue streams offer professional services to help clients with on-site implementation and hardware management. STRIVR has been hugely successful in the past, having acquired a note-worthy client list including Verizon, BMW, JetBlue, Fidelity, and GE’s FieldCore. Arguably, its most notable partnership was with Walmart in 2017. Walmart tapped into STRIVR’s resources to create a training program for retail employees to practice loading a new online in-store order pickup (called Pickup Tower) before they were installed in-stores.
XR for X-Ponential Growth
Given Vimeo’s lack of experience with XR software development and weak growth outlook, it should acquire STRIVR. Vimeo can leverage STRIVR’s technology with its own growing customer base–which includes nearly all Fortune 500 firms–to establish itself as a one-stop XR training solution platform in this untapped market.
Specializing in the workplace training industry would be a great way for Vimeo to refine its core product offering. In 2020, the global training industry reached a market size of $357.7B, a decrease from the 2019 market size of $370B. The shrinkage can be attributed to the COVID 19 pandemic as firms globally laid off 114M employees and shut down. As the global economy begins to reopen, management teams will be looking to re-engage in growth initiatives, thus creating a wave of demand for new hires and additional training programs. Firms adopting a hybrid-model as the new normal creates a need for universal training programs that can be deployed across multiple avenues. According to the XR Association, 46% of HR Professionals indicated that training and upskilling is their main priority and 92% of surveyees view XR training as a pandemic-recovery tool. The current average spent on learning and development per employee is $1,308. As firms look for cost-efficient strategies to boost overall profitability, XR training platforms are a logical extension for Vimeo’s current SaaS platform. Virtual HR programs are favourable for Vimeo’s enterprise customers given its low cost rollout that can be deployed across many years.
Vimeo already has over $300 million cash on hand and could further cut down on costs by reducing its large marketing budget. This, coupled with its strong revenue growth, will provide sufficient capital to acquire STRIVR. An operational challenge Vimeo would face is handling the hardware aspects of XR enterprise solutions. While some potential customers already own headsets, the vast majority would not. Fortunately, STRIVR has already selected and procured hardware for its customers, and this in-house ability will serve Vimeo well in offering more tailored solutions to its various customer needs.
In summary, Vimeo can refine its value proposition and enter an emerging market by acquiring STRIVR. Vimeo can capture its valuable customer base and position itself as the go-to provider of XR-based training solutions, finally becoming a profitable market leader. In doing so, Vimeo can reinvent itself in a highly competitive market and experience financial success through addressing its recent poor revenue growth outlook. Overall, management can realign its strategic initiatives towards capitalizing on emerging markets that poise opportunities to generate sustainable returns on invested capital.