$4.5B Valuation for an SaaS business that doesn't charge for it's service and makes money from commissions?
Did they invent something no one else can do? Why would insurance companies not just scrap the middle man and build their own thing?
Did they invent something no one else can do? Why would insurance companies not just scrap the middle man and build their own thing?
In fairness, this is also a rough description of the business model of ebay (current market cap: 70.2B). Like Zenefits probably eventually will, ebay has added various bolt-on services, but its core business has always been, as far as I can tell, making commissions on transactions between others. See also: AirBnB.
>Did they invent something no one else can do? Why would insurance companies not just scrap the middle man and build their own thing?
It's not so much that the underlying technology is that mind blowing (it isn't, or at least, historically hasn't been). Indeed, I'm hoping they invest some reasonable chunk of this cash in improving ui/ux. But execution matters, and the mere fact that, like facebook, they didn't really "invent something no one else can do", doesn't mean they aren't creating a hell of a lot of value.
I don't know Zenefits' market or business well enough to have any idea whether $4.5B is reasonable at their current stage, but it's not beyond the realm of possibility.
I once worked for a company that built smaller products for insurance companies. No really big ones, but a decent representation of the market. We would put together an update for what was an internal application, and sometimes it would take 6-8 months or more for them to get around to deploying the new version to their users, assuming they didn't decide to just hold off for the next version for some reason or another.
These companies are pretty absurd in how slowly they move with anything, especially anything technology related.
Still, they're burning a very worrying amount of money.
Uber was the same. PayPal was the same. They were both so successful at it that the incumbents in their respective markets have just accepted the loss of market share without any return strategy. I imagine that's Zenefits aim too.
One of the benefits of an HR solution like Zenefits is that it lets you shop among and switch between insurance providers. A captive solution wouldn't be able to do this as well or as independently as a third-party company. Zenefits also helps companies with more than insurance, services which would presumably be less interesting for an insurance carrier to provide.
Yes, Zenefits has a gorgeous interface which feels much more modern and sleek than something like Trinet. The trade-off is that the healthcare benefits are inferior for a small company - because unlike a PEO, Zenefits is NOT pooling together tens of thousands of young, healthy employees across many companies and getting a good deal from insurance companies. Yes, as an employer, you don't play the hefty admin fee you pay Trinet - but you just don't have access to better plans for your employees.
The other pain we've found is that at the end of the day Zenefits is simply a wrapper around third party services (healthcare insurance, payroll etc.). If everything is smooth sailing, there is no problem. the moment something goes wrong there's this super frustrating finger pointing session where you have to call Aetna directly, or Intuit Payroll and Zenefits blame each other, or no one wants to cop to a payroll tax filing error. If you have an employee waiting for some critical healthcare reimbursement, this he-said/she-said is the worst. Never had to deal with that with the one-stop-shop PEOs.
Zenefits has great software but the customer service needs some catching up. Maybe this round of funding will do it.
With Trinet, you get negotiated rates that are pretty fantastic - but all the employee sees is an outdated interface, and all the employer sees is the monthly overhead cost per employee draining their bank account.
With Zenefits, the employee doesn't see that their health care actually costs more (the employer typically covers the same amount regardless), and the employer doesn't have that monthly fee.
It's as compelling as it is accidentally insidious.
It's accidentally brilliant.
Maybe I'm wrong (I'm a user of Zenefits but only from the employee side) but Zenefits seems to bring all of the disparate services (generic HR forms, payroll, insurance) together in a single place with flexible insurance coverage. If an insurance company did this I don't think they could offer as much unless they're going to branch services out. Plus this let's a company switch out insurance providers without changing services.
Last report I saw pegged their number of customers at 10,000 which would mean a $2K average customer annual value. To get to $450M ARR they either need to grow to 225,000 customers or increase their average customer value (or a combination of both).
According to the US census there's over 2M companies with more than 5 employees which means they need to capture about 10% of the market.
Doesn't seem too unreasonable especially when you consider a company can stay with their platform even if they switch providers / plans every year (minimizing churn).
Other companies should be doing this!