A strange legal document came to Profit a few weeks ago. The document was a court case filed by a Pakistani company called D-Tech Consultancy. In the case they had brought before the court, D-Tech had named Eric Yuan, the CEO of global video conferencing platform Zoom, as a defendant.
D-Tech, a little known Pakistani company based in Karachi, was suing Zoom. Why? Because according to them, Zoom owes D-Tech over a million dollars in unpaid commissions, and the company is now demanding that Zoom cough up $2.2 million in damages and losses.
So what’s the story behind the lawsuit? D-Tech Consultancy was apparently Zoom’s partner in Pakistan and had been given the status of authorised reseller. This essentially meant this company was a sales agent for Zoom, and would pitch the company’s products to big clients in Pakistan such as universities, government departments, and large corporations. In exchange for selling these deals, Zoom would pay them a one time commission.
D-Tech claims that in their time as a partner, they have made many big sales and Zoom has simply not paid them their commission. In response, Zoom has said nothing. Profit made multiple attempts to reach out to their management to no avail. But something else is strange in this story too. Where did D-Tech come from? How did it convince Pakistani companies to spend hundreds of thousands of dollars on a product like Zoom? And why is an international tech giant holding out a payment to a Pakistani partner that is peanuts to them? There is a lot more than meets the eye in this story.
The partnership
D-Tech simply applied for a partnership with Zoom online. The partnership is an open offer whereby D-Tech would be acting as an ‘authorised reseller (partner)’ for Zoom’s services and subscriptions in Pakistan. After reaching an agreement, the onboarding process was initiated by Zoom, after which D-Tech officially became a Zoom partner in Pakistan on August 27, 2022.
The partnership meant D-Tech would collaborate with the executive management of Zoom to explore business growth avenues and possibilities that would provide Zoom’s offerings to clients in Pakistan. Through this partnership, it was agreed that D-Tech would earn commission payment on the basis of ‘one-time referral agreement’ for the clients they got for Zoom. This meant that D-tech would get a commission from Zoom for every client it successfully onboarded with Zoom, to utilise their video conferencing services.
It was a pretty simple business partnership model.
D-Tech soon got to work and immediately hit two big home runs. The first prominent organisations that D-Tech successfully onboarded with Zoom was the Central Directorate of National Savings in November 2022, with a deal worth $247,503.
The second big deal D-Tech closed was with Image Garments, worth $553,295. This was a client another partner had been working to onboard but could not close the deal. The legal document seen by this correspondent claims Zoom has yet to pay part of the commission it owes to D-Tech for these two deals.
But this raises a serious question. Why are these organisations and companies paying such massive amounts to Zoom?
Why pay crores for video conferencing?
Put these amounts in context. A company like Image Garments is signing a deal with Zoom worth Rs 15 crores for a service that will be available to them for three years at the most. Can Image afford to spend Rs 5 crore a year on video conferencing, and do they really need to?
The answer to both those questions is a resounding no. So why then did they make these deals with Zoom? Because the $553,295 and $247,503 amounts are never actually going to be realised or paid. They are just what the deal is “worth”.
Let us explain.
If you have used Zoom for a video meeting, chances are that you might have used the free 40-minute version. For a meeting that allows more time and more participants to attend the meeting, you have to become a paid user or a licensed user.
If a company is a big enterprise that frequently uses Zoom for internal meetings, virtual conferences or training etc, it might want to buy a paid version for many of its employees. Based on the requirement Zoom sales team would quote a price that would allow a certain number of licensed users in the company to avail the Zoom service with the features that come with being a paid customer. Let’s say that Zoom offers these licences to a company for say $100,000 for one year.
Companies like Zoom try to entice their customers into longer contract terms, such as for three years or five years, which increases the total value of the contract. If the customer chooses a longer contract, there is either some leverage offered in form of discounts or some leverage by offering a certain free period. If it is a complicated deal, they can give a free period of certain months and or try and buy.
Sources privy to Zoom’s working said that because Pakistan is a new territory, they would give it companies here for some period for free and start charging the customer after six months or into the second or the third year. Giving a free trial period is how companies entice many subscribers. As many use free trial, the actual number of customers that convert to paid service is higher. Recall your old Netflix days when they launched the service with a 30-day free trial for you to check out Netflix and decide if you wanted to pay for this service. Same goes for LinkedIn Premium which offers a 30-day trial period during which users can navigate functionalities and decide within a month if they want to convert to paid subscription.
In the case of Zoom as well, they give a trial period of their services to customers, hoping that the customer would start consuming the licences and eventually convert to a paid subscriber, which is when the actual multi year payment would come into effect. This could be a hit or it could be a miss for Zoom. If the customer does not want to continue, they can theoretically use the service for the entire trial period for free and cancel at the last moment without incurring any charges. But if they do not cancel, they are in a multi year contract with Zoom in which case the payment becomes due for all the years.
D-Tech’s commission
Now the IT industry works on a three-tier model in which there is the principal, the actual vendor which in this case is Zoom, a distributor and a partner, which in this case is D-Tech.
According to a source familiar with Zoom’s work, the reason why principals would want to work via a partner is because they would want to minimise their financial exposure. As opposed to Zoom speaking to a lot of customers because of a high number of transaction volumes, they choose to work in different markets via partners. The partner basically generates leads and passes them onto the principal. Zoom works with multiple partners in Pakistan that generate these leads for Zoom. The partner then takes the risk of getting paid or not getting paid. And then in turn they owe money to the distributor. It could also work with multiple distributors, which are probably 3-4 in every region and would be the ones responsible for payments to Zoom.
All the deals that have been closed, for instance the deals with IMAGE Garments and CDNS, are between these companies and Zoom after deciding the price based on individual requirements and the length of the contract. These customers might have simply agreed to the prices just to use Zoom services for the trial services but regardless, Zoom owes commission to D-Tech for referring these customers as soon as these deals are signed.
The contract value ascertains to a certain extent what is the commission that D-Tech is going to get. Henceforth, that is how the company has visibility on what the amounts that have been decided between the client and Zoom are.
On Jan 09 2023, D-Tech became the Strategic Partner for Zoom in Pakistan after the closure of the aforementioned deals and for selling a wide range of offerings from the Zoom portfolio. Both these clients, IMAGE Garments and CDNS, were on-boarded with Zoom for its video conferencing licences.
The suit mentions six high profile public and private enterprises. These are companies registered and operating in Pakistan, also having registered offices across the country. D-Tech enacted the role of a liaison partner to onboard these customers on the Zoom platform against commission-based incentive. All six of these organisations, including the Central Directorate of National Savings, IMAGE Garments, IBEX Pakistan, Benazir Income Support Program (BISP), RIPHA University, University of Sindh, and Sindh Education and Learning Department are currently utilising the Zoom service packages.
The four deals that followed after the successful onboarding of the Central Directorate of National Savings and Image Garments, were closed between January 2023 and June 2023. All four of these clients onboarded to utilise Zoom’s Contact Centre services. It must be noted that D-Tech is listed with Zoom as their sub-agent for handling these subscription packages, therefore Zoom has been utilising D-Tech’s services since August 2022.
D-Tech was to earn commissions on various accounts, in accordance with the “Zoom Master Agent – Spiff Terms and Conditions’ (“Spiff Terms”), ‘Zoom Contact Center and Zoom Virtual Agent Spiff Promotion’ and ‘Finance and Operations Policy for Zoom Partners”. Spiff stands for sales performance incentive fund formula, which is an immediate bonus given to salespeople as an incentive or commission for their services.
After Zoom gained global popularity during the pandemic, it launched a new product– the Zoom Contact Centre was the new service. Zoom required market penetration for the new offering, so they asked their existing partners in different regions to sell the call centre product in exchange for certain incentives. Zoom offered the service for free for the first year, however, it required clients to sign a three year agreement (PO).
Considering that the Business Process Outsourcing (BPO) industry in Pakistan was on an upward trajectory in 2021 and 2022, this market was a highly attractive one for Zoom’s new cloud contact centre product. D-Tech helped Zoom close deals with four clients for this new offering.
The agreement between Zoom and D-Tech for some clients was a one-time referral agreement (OTRA), therefore a one-time referral fee was to be paid for some customers to D-Tech. For new customers on-boarded by D-Tech, Zoom had agreed to pay SPIFF commissions, which would be calculated based on the annual recurring revenue (ARR) and incremental monthly recurring revenue (MPR) generated from these customers, and the contract term committed.
In order for these commissions to be realised, D-Tech had to submit the signed POs to Zoom for the services sold to these customers, against which invoices were to be issued by Zoom. These POs and invoices were then used to calculate the commission payable to D-Tech.
The problem
Problems started arising when Zoom, according to the lawsuit, failed to meet its end of the agreement – some of these deals never got implemented and customers were never able to use Zoom’s services. D-Tech blames it was the responsibility of Zoom to provide them services. But because they didn’t, not only does this put D-Tech’s reputation with these companies in jeopardy, their commission payments are also in trouble.
Of the cumulative commission payment Zoom owed to D-Tech, $389,927 was released through a financial vehicle corporation (FVC). D-Tech claims that Zoom has yet to release payments worth $1,022,717. Moreover, the calculation method for these payments was never disclosed to D-Tech, which was another suspicious activity on part of Zoom.
When D-Tech had signed up customers to use the Zoom Platform and the customers paid Zoom for the subscription, D-Tech was supposed to receive a commission from these payments, as agreed. However, Zoom held back these commission payments, giving various excuses.
When D-Tech demanded the remaining payments, Zoom first caused delays and later refused to pay altogether. For a certain portion, Zoom informed that the funds were routed through its distributor (FVC)’ based in UAE, which remained withheld on part of the distributor. For another portion, it was communicated that the payment could not be released since the customers had not made those payments. The remaining portion was simply denied as never having accrued to D-Tech, which Zoom was able to do since they never disclosed the calculation methodology for Spiff commissions even with respect to the funds that had been released.
Moreover, the clients on-boarded with Zoom also informed D-Tech that the Zoom team never implemented the program as committed, nor carried out any follow up. This was the primary reason why the clients had not released all payments to Zoom, which Zoom then used as an excuse to withhold D-Tech’s money.
On another occasion, Zoom announced that a deal they had closed with IBEX, with the help of D-Tech, became Zoom’s first global highest sale of 2000 customers. Zoom then invited D-Tech for an award ceremony where a partner’s award was to be presented to D-Tech. The CEO of D-Tech could not be present in the US to accept this award, however he joined the ceremony virtually. To make matters with D-Tech worse, Zoom cancelled the invite and announcement of D-Tech at the awards event. After this fiasco, and D-Tech consistently demanding its pending payments from Zoom, Zoom unexpectedly sent a ‘letter of audit’ to D-Tech.
Now Zoom had resorted to proper bullying, wherein it actively started trying to dissuade D-Tech from pursuing its right to demand the pending payments.
The lawsuit highlights Zoom’s alleged mistreatment and unethical practices, shedding light on the power dynamics between large corporations and their smaller partners. D-Tech’s lawyer stated, “Zoom’s behaviour towards our client is unacceptable and we will fight for justice on their behalf. No company should be allowed to use threat tactics and bullying to exploit their partners.”
The suit
This is what it all boils down to. D-Tech has filed the court case but it unlikely anything will ever come from it.
The lawsuit was filed against the Founder and CEO of Zoom Mr. Eric Yuan, Head of EMEA Zoom Frederik Maris and Head of Pakistan and MENA Zoom Mounir Rachi. The suit filed by D-Tech demands the court to hold Zoom liable to pay the $1,022,717 in pending commission payments and another $10,00,000 in damages for “breach of contract, and the loss of repute and goodwill caused to [D-Tech Consultancy Private Limited].” The suit does not mention the breakdown of damages and how it amounts to $10,00,000. Salman Ijaz, Partner at KhanIjaz Advocates, explained, “Damages are arbitrary, especially loss of repute and goodwill. The company can demand a certain price they believe such damages would amount to, however, the final decision lies with the court. At times the court will reduce the worth of these damages and order the defendant to pay a portion of it, while other times the defendants may have to pay what the plaintiff demanded.”
The case has been filed in Pakistan and D-Tech’s lawyers believe that since Zoom holds no assets in Pakistan, they have no obligation to show up to court or even defend themselves. The legal notice had been sent through FEDEX, and then a later serve was sent through the US embassy. Zoom has finally engaged a counsel in Pakistan, with Velani & Velani as Zoom’s legal counsel.
Zoom has not yet released a statement about the lawsuit. Zoom hasn’t responded to Profit’s request for comment.
