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Conflating WeWork, Uber, and SaaS businesses is inaccurate. With a SaaS business - most of which are b2b - there are tremendous costs to switching providers an
by jelling 8y ago
Conflating WeWork, Uber, and SaaS businesses is inaccurate.
With a SaaS business - most of which are b2b - there are tremendous costs to switching providers and going without is typically not an option. For example, if company uses Salesforce, they must have a CRM and it will likely save them little to no money to switch to a competitor (ex. Hubspot) but it will create enormous organizational disruption as people and processes are built around the existing platform. So customer life-cycle is likely 10 years or more for the customers that generate the majority of their revenue. And if we do have a recession and they bleed customers, Salesforce can always reduce costs by cutting sales and support staff. The existing capital investments in the software are already paid-off.
In comparison, WeWork's model is predicated on being easier to join and leave than a typical office space. As a result, they attract businesses with shallower capital reservoirs. Meanwhile, WeWork is holding inventory risk in that they hold the long-term lease or the property itself. So in the event of a recession their customer base will be the first to die out or cut costs via less desks and/or working from home.
(WeWork may or may not be off-setting this risk via financial engineering but the question is at what cost as someone has to take the other side of the bet and the downside risk here is pretty obvious. And, oh look, the yield curve just inverted.)
Finally, 10 years in, Uber is still a commodity business. I generally think Uber is better than Lyft and worse than Via, but none of their advantages are anywhere near as durable as a SaaS business. Don't like Ubers new prices? Don't like the the CEOs new haircut? You can use one of their other competitors starting tomorrow. Even if you use Uber today there is zero reason you can't switch to Waymo/Apple/whatever in the future. And in the worst case scenario, Uber paid CAC to educate consumers who will use something else in the future.
- jameslevy 8y agoUber has network effects. It's definitely possible and inevitable even that they won't be on top anymore at some point, but what they are doing is not exactly a commodity if it relies on a dense two-sided marketplace.
- jhwang5 8y agoWhile it does have network effects, I'd argue it's not recession proof (mildly cyclical, even), and there's low switching costs to using other forms of transport (for example, I haven't used Uber in lieu of Lyft / driving my own car and had no issues)
- 0xB31B1B 8y agoUber has shown great growth in markets during recessions: ex Brazil. The theory is that ridesharing is a driver constrained market, and during recessions, more people drive for uber to make ends meet. Also, people invest less in large purchases (cars) and instead spend more on services with a higher marginal cost (taxi, ride share.
- malisper 8y agoAgreed. The business models and risks between these companies are completely different. The main commonality I was highlighting was that these business have high upfront costs and make the money back over a long period of time. Because of this, profits are a not very good way to measure the health of these businesses.
- muzani 8y agoWeWork is aggressively buying out the good spots. They're going for a limited resource before competitors can, and unlike software, the entry barrier is just money, brand, and interior decoration skills.
- MrBuddyCasino 8y agoMonopolizing available office space in a large city is a tall order though. But they might be able to be the coworking Walmart and drive the Mum and Pop stores out of business, through sheer economies of scale.
- muzani 8y agoOh right, I was comparing to my own city, where is a fight for the best office spaces. It might not be the case in New York City, but would make a huge difference in, say, Sydney or Kuala Lumpur.
- rickyc091 8y agoI believe once you start hitting the 8 to 10 people, WeWork makes you sign up for a 1-year agreement since it's more difficult for them to find new occupants for those spaces. Not sure about the exact number as it may differ per location. As for signing/leaving leases, the experience is comparable. You can leave any lease if you're willing to pay the penalties defined without much of a hassle. Usually, the hassle has to do with the renegotiation of the terms. But I do agree, WeWork has been more flexible about breaking the initial agreement.