9 ms·

Many people, including the author, skip the more interesting point in favor of the lazy critique: WeWork is not being valued by its investors as an office rent

by j4p3 9y ago

Many people, including the author, skip the more interesting point in favor of the lazy critique: WeWork is not being valued by its investors as an office rental company. It's made the case that it is a business services marketplace, selling vendors' insurance and HR and legal and servers to as large as swath of the small business sector as it can grab with its fancy offices. It wants to own the app store for enterprise services. It hasn't fulfilled that promise yet, not even close, but it's not an unreasonable proposition. Is it possible to capture a big, fragmented market with kitschy decor? Will the services marketplace be as fruitful as it thinks? These would be interesting questions to explore.

dmode 9y ago
Honestly, as someone dealing with small businesses, selling insurance and HR services to tiny startups is not a $20B business. Selling those to large companies is, but that market is already saturated.
- lnanek2 9y ago
  The WeWork claim is that some of their startups will become huge and they'll already have their foot in the door, so to speak, for selling those huge companies more real estate and services. Having a 5 person startup as a renter is not a big win, but if that startup becomes Twitter size...
  - pcsanwald 9y ago
    Do they seriously claim this? It sounds like a pretty far-fetched thing for them to say. I've opened several offices and moved my company around a fair bit, and I don't know how WeWork or anyone else would have their "foot in the door". Any company approaching the size of twitter is going to contract those services out and either beat them down to very thin margins or manage the services themselves. very little upside in that.
  - readhn 9y ago
    haha. seeing that most start ups will fail - good luck with waiting for that unicorn! it might never come in their space. https://www.forbes.com/forbes/welcome/?toURL=https://www.forbes.com/sites/neilpatel/2015/01/16/90-of-startups-will-fail-heres-what-you-need-to-know-about-the-10/&refURL=https://www.google.com/&referrer=https://www.google.com/ https://www.forbes.com/forbes/welcome/?toURL=https://www.for...
zaidf 9y ago
It wants to own the app store for enterprise services. If this is what WeWork is all about, then buying / leasing real estate worth hundreds of millions is a rather convoluted way of going about it.
- 627467 9y ago
  Sounds as convoluted as McDonalds Corp business model...
  - deleted 9y ago
    [deleted]
    - deleted 9y ago
      [deleted]
  - CPLX 9y ago
    Yeah except McDonalds owns the valuable real estate and pushes off the occupational and downturn risk to the franchisees. The WeWork business model is literally the exact opposite of this. If things go well their landlord makes a windfall on the appreciation. If there's a sharp downturn they're stuck with the lease and no members. The business model has the potential to be obviously and severely problematic, which is the topic of this post.
    - eric_h 9y ago
      If I'm not mistaken, WeWork owns a number of the buildings in which they have offices. Not sure what the percentage is.
      - CPLX 9y ago
        It may have changed very recently I suppose, but with that caveat aside I believe you are, in fact, mistaken. The business model for the company has always been lease arbitrage. There was discussion at one point[0] of them having a related entity to purchase real estate, but I'm not sure what came from that, and even in that plan it was to be a separate investment vehicle, not the VC backed company being discussed here. [0]https://therealdeal.com/2016/10/14/wework-wants-to-become-a-real-estate-investor/ https://therealdeal.com/2016/10/14/wework-wants-to-become-a-...
gameguy43 9y ago
As someone who works in a WeWork, the "business services marketplace" aspect actually just feels like "oh also we bother you with advertisements all the time"
sillysaurus3 9y ago
Not sure why people are negative about the core idea of WeWork. You get free beer, free coffee, bathrooms, an office, meeting rooms, phone booths with doors that close that you can also go work in whenever you want to be isolated, you can be there 24 hours a day, you have a keycard that works at all hours, and best of all, you're surrounded by startups and companies doing the same things as you. Meaning you can chat up your neighbors and meet some interesting people. Chance encounters like that are rare at a traditional office. People also throw events on the upper floors all the time, which gets you free lunch at a minimum. The above experience costs $2,200/mo to get you an office with plenty of room for four people. I don't know. I hope they never go out of business. It's the best environment I've ever been in. Did I mention you're surrounded by empty rooms with doors that close? I mean hello, you get a door! It closes! When you have the option to go work someplace with a door that shuts, it removes all the stress of not having it, even if you never actually use it.
- rezistik 9y ago
  It's not free beer and free coffee, it's X% of $2,200 a month beer and Y% of $2,200 a month coffee.
  - sillysaurus3 9y ago
    Sure, but your corporate overlord^W^Wfounder pays for that. From your POV, it's all you can drink coffee. Also $2200 is on the high end for four people. You can probably talk them down to $2k or less. You'd be surprised how valuable it is to have a pot of coffee ready to go all the time, next to a mini fridge that's always stocked with half and half. Sweetner's on the counter. It ends up taking like 30 seconds to grab coffee. The janitors are surprisingly cool people, and they're fastidious about making sure the trash is taken out, doing the dishes (yes, you get a kitchen + fridge!), and making sure everything is stocked. It's so effective to pool resources like that. Everyone gets those benefits just by being in the same place. And it's remarkable how un-cramped it all feels. Your office even has beautiful floor to ceiling windows that gives you a nice view of downtown and sunsets.
    - 9y ago
TYPE_FASTER 9y ago
This business model has existed before WeWork, and I've used it. Here's an example: https://www.regus.com https://www.regus.com Similar idea: free coffee, shared printer, power/internet access/etc. It made sense for two people in one room. When it got to three or four in a bigger space, it made more sense to lease a dedicated two room office and setup our own internet connection, etc.
- geoffw8 9y ago
  True - but my god the experiences aren't even in the same league and for me that matters. WeWork is worlds apart.
  - karmelapple 9y ago
    I guess it depends what you're looking for, everything from price point to frequency of use. I have a Businessworld Gold membership, and for its price (which is significantly lower than a similar WeWork membership), I can visit any "business lounge" location in the world. I don't use it every day, nor even every week, but when I'm on travel, I have relied on knowing they will have solid internet and a relatively-quiet place to focus. For the price and my use case of infrequent visits, Regus is fantastic.
    - taternuts 9y ago
      I work in a Regus office in CA, and they are constantly having issues. The washers/dryers are always broken, the AC has to be fixed every other week, yesterday they had a plumbing issue and the water was out so no one could get the 'free' coffee let alone use the bathrooms. There's almost always something not working, however most the times it's something relatively minor and overall it's been a decent experience. I imagine WeWork would probably have those things ironed out for a lot more $$. The other thing is you have to pay extra to turn on AC if you want to work at night or on the weekends, which thankfully I haven't had to do with my current company.
jeirje88382hj 9y ago
I don't think the specific services you can find are as valuable as the networking itself. In 3 months in a WeWork I connected with a number of people. Some of them have moved on as the services they were offering didn't work out financially for them. But we're still connected and most of the folks that moved on are onto more interesting endeavors. One knew I was in machine learning for healthcare and dinged me on a gig. I have one I love, but it would have been a nice option if I was looking.
jordanb 9y ago
> It wants to own the app store for enterprise services. For this to work the way an app store works they would have to be able to control access by service providers to their tenants. Like, if you're a lawyer and you want to meet with a WeWork tenant you have to pay them 30%. I highly doubt that they could pull that off without getting stopped either by the market or by the law.
shostack 9y ago
In some ways that sounds like the Zenefits model. Compete with one service on lower/break-even margins, and use it as lead-gen for selling in other higher-margin services. If they can sufficiently grow and diversify their recurring revenue streams across services offered and industries of clients served, that could give them solid staying power, even in a down market.

by j4p3 9y ago

dmode 9y ago

Honestly, as someone dealing with small businesses, selling insurance and HR services to tiny startups is not a $20B business. Selling those to large companies is, but that market is already saturated.

lnanek2 9y ago
The WeWork claim is that some of their startups will become huge and they'll already have their foot in the door, so to speak, for selling those huge companies more real estate and services. Having a 5 person startup as a renter is not a big win, but if that startup becomes Twitter size...
- pcsanwald 9y ago
  Do they seriously claim this? It sounds like a pretty far-fetched thing for them to say. I've opened several offices and moved my company around a fair bit, and I don't know how WeWork or anyone else would have their "foot in the door". Any company approaching the size of twitter is going to contract those services out and either beat them down to very thin margins or manage the services themselves. very little upside in that.
- readhn 9y ago
  haha. seeing that most start ups will fail - good luck with waiting for that unicorn! it might never come in their space. https://www.forbes.com/forbes/welcome/?toURL=https://www.forbes.com/sites/neilpatel/2015/01/16/90-of-startups-will-fail-heres-what-you-need-to-know-about-the-10/&refURL=https://www.google.com/&referrer=https://www.google.com/ https://www.forbes.com/forbes/welcome/?toURL=https://www.for...

zaidf 9y ago

It wants to own the app store for enterprise services. If this is what WeWork is all about, then buying / leasing real estate worth hundreds of millions is a rather convoluted way of going about it.

627467 9y ago
Sounds as convoluted as McDonalds Corp business model...
- deleted 9y ago
  [deleted]
  - deleted 9y ago
    [deleted]
- CPLX 9y ago
  Yeah except McDonalds owns the valuable real estate and pushes off the occupational and downturn risk to the franchisees. The WeWork business model is literally the exact opposite of this. If things go well their landlord makes a windfall on the appreciation. If there's a sharp downturn they're stuck with the lease and no members. The business model has the potential to be obviously and severely problematic, which is the topic of this post.
  - eric_h 9y ago
    If I'm not mistaken, WeWork owns a number of the buildings in which they have offices. Not sure what the percentage is.
    - CPLX 9y ago
      It may have changed very recently I suppose, but with that caveat aside I believe you are, in fact, mistaken. The business model for the company has always been lease arbitrage. There was discussion at one point[0] of them having a related entity to purchase real estate, but I'm not sure what came from that, and even in that plan it was to be a separate investment vehicle, not the VC backed company being discussed here. [0]https://therealdeal.com/2016/10/14/wework-wants-to-become-a-real-estate-investor/ https://therealdeal.com/2016/10/14/wework-wants-to-become-a-...

gameguy43 9y ago

As someone who works in a WeWork, the "business services marketplace" aspect actually just feels like "oh also we bother you with advertisements all the time"

sillysaurus3 9y ago

Not sure why people are negative about the core idea of WeWork. You get free beer, free coffee, bathrooms, an office, meeting rooms, phone booths with doors that close that you can also go work in whenever you want to be isolated, you can be there 24 hours a day, you have a keycard that works at all hours, and best of all, you're surrounded by startups and companies doing the same things as you. Meaning you can chat up your neighbors and meet some interesting people. Chance encounters like that are rare at a traditional office. People also throw events on the upper floors all the time, which gets you free lunch at a minimum. The above experience costs $2,200/mo to get you an office with plenty of room for four people. I don't know. I hope they never go out of business. It's the best environment I've ever been in. Did I mention you're surrounded by empty rooms with doors that close? I mean hello, you get a door! It closes! When you have the option to go work someplace with a door that shuts, it removes all the stress of not having it, even if you never actually use it.

rezistik 9y ago
It's not free beer and free coffee, it's X% of $2,200 a month beer and Y% of $2,200 a month coffee.
- sillysaurus3 9y ago
  Sure, but your corporate overlord^W^Wfounder pays for that. From your POV, it's all you can drink coffee. Also $2200 is on the high end for four people. You can probably talk them down to $2k or less. You'd be surprised how valuable it is to have a pot of coffee ready to go all the time, next to a mini fridge that's always stocked with half and half. Sweetner's on the counter. It ends up taking like 30 seconds to grab coffee. The janitors are surprisingly cool people, and they're fastidious about making sure the trash is taken out, doing the dishes (yes, you get a kitchen + fridge!), and making sure everything is stocked. It's so effective to pool resources like that. Everyone gets those benefits just by being in the same place. And it's remarkable how un-cramped it all feels. Your office even has beautiful floor to ceiling windows that gives you a nice view of downtown and sunsets.
  - 9y ago

TYPE_FASTER 9y ago

This business model has existed before WeWork, and I've used it. Here's an example: https://www.regus.com https://www.regus.com Similar idea: free coffee, shared printer, power/internet access/etc. It made sense for two people in one room. When it got to three or four in a bigger space, it made more sense to lease a dedicated two room office and setup our own internet connection, etc.

geoffw8 9y ago
True - but my god the experiences aren't even in the same league and for me that matters. WeWork is worlds apart.
- karmelapple 9y ago
  I guess it depends what you're looking for, everything from price point to frequency of use. I have a Businessworld Gold membership, and for its price (which is significantly lower than a similar WeWork membership), I can visit any "business lounge" location in the world. I don't use it every day, nor even every week, but when I'm on travel, I have relied on knowing they will have solid internet and a relatively-quiet place to focus. For the price and my use case of infrequent visits, Regus is fantastic.
  - taternuts 9y ago
    I work in a Regus office in CA, and they are constantly having issues. The washers/dryers are always broken, the AC has to be fixed every other week, yesterday they had a plumbing issue and the water was out so no one could get the 'free' coffee let alone use the bathrooms. There's almost always something not working, however most the times it's something relatively minor and overall it's been a decent experience. I imagine WeWork would probably have those things ironed out for a lot more $$. The other thing is you have to pay extra to turn on AC if you want to work at night or on the weekends, which thankfully I haven't had to do with my current company.

jeirje88382hj 9y ago

I don't think the specific services you can find are as valuable as the networking itself. In 3 months in a WeWork I connected with a number of people. Some of them have moved on as the services they were offering didn't work out financially for them. But we're still connected and most of the folks that moved on are onto more interesting endeavors. One knew I was in machine learning for healthcare and dinged me on a gig. I have one I love, but it would have been a nice option if I was looking.

jordanb 9y ago

> It wants to own the app store for enterprise services. For this to work the way an app store works they would have to be able to control access by service providers to their tenants. Like, if you're a lawyer and you want to meet with a WeWork tenant you have to pay them 30%. I highly doubt that they could pull that off without getting stopped either by the market or by the law.

shostack 9y ago

In some ways that sounds like the Zenefits model. Compete with one service on lower/break-even margins, and use it as lead-gen for selling in other higher-margin services. If they can sufficiently grow and diversify their recurring revenue streams across services offered and industries of clients served, that could give them solid staying power, even in a down market.