8 ms·

I'm glad Ben laid out the bull case simply because nobody else is doing that. However, the analogy to AWS isn't compelling. First, running data centers is a muc

I'm glad Ben laid out the bull case simply because nobody else is doing that. However, the analogy to AWS isn't compelling. First, running data centers is a much bigger challenge (technically, organizationally, and financially) than running your own office space. That's why AWS can maintain 30% gross margins and still be cheap at the price. By contrast, it's hard to imagine WeWork getting that kind of margin for repackaging leases (and adding beer and smugness into the mix.) With the rise of serverless computing and similar technologies, there's also the question of utilization. Setting up your own server for an occasional request is expensive because you end up using some small percentage. of the capacity. AWS can make a lot of margin by pooling and smoothing demand for those occasional services. I don't think there's a good analogy in the office space category: maybe shared kitchens? Your average small business is much better at managing it utilization percentage for office space than for compute.

julianozen 7y ago
While this is true, the ability to get space in a new city for exactly as many employees as needed, without having to have someone on the ground who knows local neighborhoods is pretty compelling. By going with WeWork a company has reasonable assurance that the location will be in a good place, have nice amenities for happy employees, and have the comfort knowing they are purchasing the right amount of space for their current needs and can expand or contract quickly. This makes expansion much quicker and lower risk. Sure a company doesn’t need to offer beer or kombucha or be in central working districts, but not having to figure out all this info on their own when they just need a few rooms in a remote city is what companies are paying for. Like scalable sever infrastructure, the benefit isn’t the cost savings, so much as not having to hirer experts for things outside your business domain.
- icebraining 7y ago
  The alternative isn't having someone on the ground, it's hiring a reputable rentals agency that deals with international clients.
  - SolarNet 7y ago
    So, hiring someone on the ground...
- ghaff 7y ago
  I think that's all fair. And it's actually also perfectly consistent with an opinion that there will be more distributed/remote/WFH work in whole or in part and generally more flexible working arrangements. Because a company may need fewer seats under those conditions but it wants to be flexible about what seats and facilities it has. I'm certainly not convinced WeWork will ultimately be a beneficiary of that--especially in a downturn that will lead to companies cutting back on expenses they don't really need to incur. But the basic idea makes sense (and of course there is a long record of companies like Regus in the space, albeit with a more traditional take).
  - secabeen 7y ago
    Once the market turns, and the labor pools aren't so tight, you might just see corporations stop allowing so much remote work. If you need to lay off 10% of staff, and 15% of your staff are remote, that's a easy place to start cutting. Lay-off all your remote workers, and re-hire the 5% from local employees who can work at your existing office.
    - ghaff 7y ago
      I suppose it depends on the attitude of management towards distributed work. If it's something they just tolerate to attract people who might otherwise not work for them, you're probably right. But the situation may be different if they see it as a way to attract better and/or cheaper employees and to reduce the facilities costs associated with those employees. That said, when things go south, companies (and managers within companies) do lots of haphazard things in an effort to be seen as doing something whether or not it makes long-term sense.
    - EnFinlay 7y ago
      Might be easier to lay off everyone on that half-full 3rd floor and save money on your lease next cycle.
- kolbe 7y ago
  You're giving a perfectly compelling reason for someone to use WeWork. Clearly there are hundreds of thousands of people for whom WeWork offers a service that benefits them. But there is no reason for me to believe that the few companies that cannot afford to pay a local expert a few thousand dollars to help them with a move is going to lead to WeWork fulfilling its $1T/year vision.
  - julianozen 7y ago
    But this is also the way the world is moving – don't hirer or purchase anything that is not your companies core competency. Don't run a janitorial service? Use contractors and hirer/fire at will [1]. Don't run a CRM service? Use Salesforce and pay per user. Don't run a server company? Use AWS and turn on/off servers. Don't run a payments company? Use Square/Stripe and never think about payment types. Modern business is becoming (for better or worse) about owning 0 assets and only focusing on your core product. Yes, with all these things you can do it yourself, but having a company that is an expert in that service saves your business time (and often already employees the best resources in that industry). [1] https://www.nytimes.com/2017/09/03/upshot/to-understand-rising-inequality-consider-the-janitors-at-two-top-companies-then-and-now.html https://www.nytimes.com/2017/09/03/upshot/to-understand-risi...
    - kolbe 7y ago
      Where AWS succeeds is actually in its ability to save money. Netflix has elastic demands that are negatively correlated with other users. Netflix doesn't have a system to share compute resources with say a hedge fund. Amazon steps in and allows them both to save money by having one server fulfill both their needs instead of two. The problem being solved has nothing to do with expertise. Netflix is as equipped as anyone to manage their own data center. It's not just domain expertise. It's a marketplace. That said, there may be reasons that WeWork could entice companies to join, but there still need to be reasons. Extrapolating with a hand wave just doesn't cut it.
      - julianozen 7y ago
        Well the same thing applies. WeWork can step in and allow Netflix and a hedge fund to save money on a floor in a remote destination where both companies don't know anything about the region except for how many people they plan to employ there. When one of them needs a bigger office, they move out and another company moves in Again Netflix is equipped to have office managers, find people/firms to scout nice neighborhoods to remote cities, and stock kombucha, but all of this requires hiring people to do a job that Netflix fundamentally doesn't care about. WeWork will save money for companies not ready to commit to long term leases, and it will certainly save time for companies that don't want to have to think about this
JackFr 7y ago
I agree that this is a refreshing take, and while I'm not fully sold on his argument I will play devil's advocate. The large part of any excess margin WeWork earns will not be necessarily for their operational expertise, but for the optionality for the customer which has real value. With respect to utilization, there are some small businesses which are seasonal, or which have lumpy staffing requirements, for which we work might fit the bill.
deleted 7y ago
[deleted]
v77 7y ago
I wonder if this is true. My one startup experience sure involved the management spending a lot of time scouting, negotiating for and renovating space rather than doing things that actually made the company successful. Is the WeWork moat as big as AWS, probably not, but dealing with local real estate regulations and contractors in hundreds of jurisdictions around the world is not nothing.
- chasely 7y ago
  I can definitely see the benefit for a team working remotely, which may (hopefully) become more common. I think WeWork still has a "local" business model: you rent out space at a specific location for defined periods of time. If this switched to global, as I'm sure it is for enterprise accounts, I could see it being very valuable. If the variable cost of adding a desk in an office anywhere in the globe is, say, $500/seat that is so much easier than having to deal with setting up offices wherever you find talent. That all being said, I have serious problems with the design of WeWork offices. Their horrible sound design means you· better hope you don't have an office neighbor that is making calls all day. The office I worked at had a private equity firm that rented out a corner of the building for a few of its remote employees. They then also rented the neighboring offices for those employees, which remained empty, so they could have privacy.
- mrosett 7y ago
  I've seen the same phenomenon where CEOs spend way too much time thinking about the physical office space. I suspect, though, that they enjoy doing that - it plays pretty directly to vanity - and invest that time because they want to, not because they need to.
waylandsmithers 7y ago
> I don't think there's a good analogy in the office space category: maybe shared kitchens? I worked for a startup that also rented out our extra space to other startups and there were a ton of benefits: conference rooms with tvs and teleconference hardware, phone booths, a very nice coffee maker and other kitchen appliances, shared outdoor space, nice furniture, copy machine, a receptionist... all things that most of the >10 person companies would not want to buy for themselves, but we all got to share because of the setup.
edanm 7y ago
> First, running data centers is a much bigger challenge [...] than running your own office space. > With the rise of serverless computing and similar technologies, there's also the question of utilization. [...] AWS can make a lot of margin by pooling and smoothing demand for those occasional services. I disagree with both points. I'm a small business owner - I was also a small business owner in 2012. (Two different businesses). One of the biggest changes that have helped me out nowadays vs. back then, is the fact that WeWork exists. In 2013, when we decided we wanted an office, we started to look for one. This was a super long process, and in our specific case we eventually gave up and stayed with a previous arrangement (unimportant to the story - that's usually not an option). The reason this was complicated was: 1. We needed to actually find a good location and a place that looks decent. This a) took time, and b) wasn't easy for a decent price. 2. Once renting a place, we'd need to decorate it / etc to make it actually usable - most places aren't immediately ready. This also includes furniture/etc, without which the space isn't useable. 3. We'd also need to take care of a lot of related payments and setup - internet, electricity, etc. Internet alone is annoying, as you have to setup office routers/etc. 4. To make everything really complicated - we had no idea how much space to get. We were a 10 person company, with plans to grow. But leases are for 2 years - do we get a space for 10? Of course not, if we grow we are in trouble. For 20? That means we're paying for a lot of excess space for a few years. Compared to the above, setting up servers is much easier :) And as you can see in point #4, WeWork can smooth out capacity. In contrast, last year my new company (2 people) moved to a WeWork. It took 3 days - we looked at 2 locations (also non WeWork), picked WeWork as it was the best combination of price vs. space provided, and moved in a week later. WE recently grew to 4 people - it took 3 conversations, and we found a new room in the same building that can house 4 people, we moved a week later.

julianozen 7y ago

While this is true, the ability to get space in a new city for exactly as many employees as needed, without having to have someone on the ground who knows local neighborhoods is pretty compelling. By going with WeWork a company has reasonable assurance that the location will be in a good place, have nice amenities for happy employees, and have the comfort knowing they are purchasing the right amount of space for their current needs and can expand or contract quickly. This makes expansion much quicker and lower risk. Sure a company doesn’t need to offer beer or kombucha or be in central working districts, but not having to figure out all this info on their own when they just need a few rooms in a remote city is what companies are paying for. Like scalable sever infrastructure, the benefit isn’t the cost savings, so much as not having to hirer experts for things outside your business domain.

icebraining 7y ago
The alternative isn't having someone on the ground, it's hiring a reputable rentals agency that deals with international clients.
- SolarNet 7y ago
  So, hiring someone on the ground...
ghaff 7y ago
I think that's all fair. And it's actually also perfectly consistent with an opinion that there will be more distributed/remote/WFH work in whole or in part and generally more flexible working arrangements. Because a company may need fewer seats under those conditions but it wants to be flexible about what seats and facilities it has. I'm certainly not convinced WeWork will ultimately be a beneficiary of that--especially in a downturn that will lead to companies cutting back on expenses they don't really need to incur. But the basic idea makes sense (and of course there is a long record of companies like Regus in the space, albeit with a more traditional take).
- secabeen 7y ago
  Once the market turns, and the labor pools aren't so tight, you might just see corporations stop allowing so much remote work. If you need to lay off 10% of staff, and 15% of your staff are remote, that's a easy place to start cutting. Lay-off all your remote workers, and re-hire the 5% from local employees who can work at your existing office.
  - ghaff 7y ago
    I suppose it depends on the attitude of management towards distributed work. If it's something they just tolerate to attract people who might otherwise not work for them, you're probably right. But the situation may be different if they see it as a way to attract better and/or cheaper employees and to reduce the facilities costs associated with those employees. That said, when things go south, companies (and managers within companies) do lots of haphazard things in an effort to be seen as doing something whether or not it makes long-term sense.
  - EnFinlay 7y ago
    Might be easier to lay off everyone on that half-full 3rd floor and save money on your lease next cycle.
kolbe 7y ago
You're giving a perfectly compelling reason for someone to use WeWork. Clearly there are hundreds of thousands of people for whom WeWork offers a service that benefits them. But there is no reason for me to believe that the few companies that cannot afford to pay a local expert a few thousand dollars to help them with a move is going to lead to WeWork fulfilling its $1T/year vision.
- julianozen 7y ago
  But this is also the way the world is moving – don't hirer or purchase anything that is not your companies core competency. Don't run a janitorial service? Use contractors and hirer/fire at will [1]. Don't run a CRM service? Use Salesforce and pay per user. Don't run a server company? Use AWS and turn on/off servers. Don't run a payments company? Use Square/Stripe and never think about payment types. Modern business is becoming (for better or worse) about owning 0 assets and only focusing on your core product. Yes, with all these things you can do it yourself, but having a company that is an expert in that service saves your business time (and often already employees the best resources in that industry). [1] https://www.nytimes.com/2017/09/03/upshot/to-understand-rising-inequality-consider-the-janitors-at-two-top-companies-then-and-now.html https://www.nytimes.com/2017/09/03/upshot/to-understand-risi...
  - kolbe 7y ago
    Where AWS succeeds is actually in its ability to save money. Netflix has elastic demands that are negatively correlated with other users. Netflix doesn't have a system to share compute resources with say a hedge fund. Amazon steps in and allows them both to save money by having one server fulfill both their needs instead of two. The problem being solved has nothing to do with expertise. Netflix is as equipped as anyone to manage their own data center. It's not just domain expertise. It's a marketplace. That said, there may be reasons that WeWork could entice companies to join, but there still need to be reasons. Extrapolating with a hand wave just doesn't cut it.
    - julianozen 7y ago
      Well the same thing applies. WeWork can step in and allow Netflix and a hedge fund to save money on a floor in a remote destination where both companies don't know anything about the region except for how many people they plan to employ there. When one of them needs a bigger office, they move out and another company moves in Again Netflix is equipped to have office managers, find people/firms to scout nice neighborhoods to remote cities, and stock kombucha, but all of this requires hiring people to do a job that Netflix fundamentally doesn't care about. WeWork will save money for companies not ready to commit to long term leases, and it will certainly save time for companies that don't want to have to think about this

JackFr 7y ago

I agree that this is a refreshing take, and while I'm not fully sold on his argument I will play devil's advocate. The large part of any excess margin WeWork earns will not be necessarily for their operational expertise, but for the optionality for the customer which has real value. With respect to utilization, there are some small businesses which are seasonal, or which have lumpy staffing requirements, for which we work might fit the bill.

deleted 7y ago

[deleted]

v77 7y ago

I wonder if this is true. My one startup experience sure involved the management spending a lot of time scouting, negotiating for and renovating space rather than doing things that actually made the company successful. Is the WeWork moat as big as AWS, probably not, but dealing with local real estate regulations and contractors in hundreds of jurisdictions around the world is not nothing.

chasely 7y ago
I can definitely see the benefit for a team working remotely, which may (hopefully) become more common. I think WeWork still has a "local" business model: you rent out space at a specific location for defined periods of time. If this switched to global, as I'm sure it is for enterprise accounts, I could see it being very valuable. If the variable cost of adding a desk in an office anywhere in the globe is, say, $500/seat that is so much easier than having to deal with setting up offices wherever you find talent. That all being said, I have serious problems with the design of WeWork offices. Their horrible sound design means you· better hope you don't have an office neighbor that is making calls all day. The office I worked at had a private equity firm that rented out a corner of the building for a few of its remote employees. They then also rented the neighboring offices for those employees, which remained empty, so they could have privacy.
mrosett 7y ago
I've seen the same phenomenon where CEOs spend way too much time thinking about the physical office space. I suspect, though, that they enjoy doing that - it plays pretty directly to vanity - and invest that time because they want to, not because they need to.

waylandsmithers 7y ago

> I don't think there's a good analogy in the office space category: maybe shared kitchens? I worked for a startup that also rented out our extra space to other startups and there were a ton of benefits: conference rooms with tvs and teleconference hardware, phone booths, a very nice coffee maker and other kitchen appliances, shared outdoor space, nice furniture, copy machine, a receptionist... all things that most of the >10 person companies would not want to buy for themselves, but we all got to share because of the setup.

edanm 7y ago

> First, running data centers is a much bigger challenge [...] than running your own office space. > With the rise of serverless computing and similar technologies, there's also the question of utilization. [...] AWS can make a lot of margin by pooling and smoothing demand for those occasional services. I disagree with both points. I'm a small business owner - I was also a small business owner in 2012. (Two different businesses). One of the biggest changes that have helped me out nowadays vs. back then, is the fact that WeWork exists. In 2013, when we decided we wanted an office, we started to look for one. This was a super long process, and in our specific case we eventually gave up and stayed with a previous arrangement (unimportant to the story - that's usually not an option). The reason this was complicated was: 1. We needed to actually find a good location and a place that looks decent. This a) took time, and b) wasn't easy for a decent price. 2. Once renting a place, we'd need to decorate it / etc to make it actually usable - most places aren't immediately ready. This also includes furniture/etc, without which the space isn't useable. 3. We'd also need to take care of a lot of related payments and setup - internet, electricity, etc. Internet alone is annoying, as you have to setup office routers/etc. 4. To make everything really complicated - we had no idea how much space to get. We were a 10 person company, with plans to grow. But leases are for 2 years - do we get a space for 10? Of course not, if we grow we are in trouble. For 20? That means we're paying for a lot of excess space for a few years. Compared to the above, setting up servers is much easier :) And as you can see in point #4, WeWork can smooth out capacity. In contrast, last year my new company (2 people) moved to a WeWork. It took 3 days - we looked at 2 locations (also non WeWork), picked WeWork as it was the best combination of price vs. space provided, and moved in a week later. WE recently grew to 4 people - it took 3 conversations, and we found a new room in the same building that can house 4 people, we moved a week later.