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The comparison between WeWork and AWS the author attempts to make in the bull case is deeply flawed, IMO. He states the AWS story: commoditizing servers and all

The comparison between WeWork and AWS the author attempts to make in the bull case is deeply flawed, IMO. He states the AWS story: commoditizing servers and allowing new customers to get in cheaply/quickly/easily. Then he compares to that to We Work...well, don't many customers already have libraries, cafes, and their own homes to potentially work from? Did AWS customers have numerous server options to easily use in case they needed to save money? How are these comparable? Adding ping pong tables and surveillance tech to an open office work space is vastly less useful than AWS. And corporate entities, surely WeWork will rely on those and not just contractors/freelancers/entrepeneurs, right? Well, corporations in a recession would likely lay workers off, so this dream WeWork has of gaining corporate partners seems unlikely in the next 5 years, if a recession is to hit as everyone claims. These corporate players will probably have excess office space of their own, never mind paying for more. I appreciate attempting to present the bull case, but comparing WeWork to AWS is laughable.

sturgill 7y ago
I thought his AWS comparison was more favorable than it seems you did. I remember launching a startup in 2009 and our head investor (who was a CFO at a bespoke insurance firm) was floored when he saw our financial docs and that we were able to make our infrastructure expenses OpEx instead of CapEx. As AWS got its start making it easy for startups to get access to infrastructure, the bull case for WeWork is that startups choose that environment over signing a traditional lease. It’s not that a startup can’t work out of a coffee shop, just like we could have theoretically run our own email servers. But a physical location and address has advantages and WeWork opens that to more people with less friction than the pre-WeWork options. But that’s the bull case. I’m not a financial analyst and I’m not your financial analyst so this isn’t financial advice, but my risk profile tells me to pass on this opportunity...
- majewsky 7y ago
  > [He] was floored when he saw [...] that we were able to make our infrastructure expenses OpEx instead of CapEx. Can someone ELI5 to me why spending a dollar on OpEx is better than spending a dollar on CapEx?
  - gigatexal 7y ago
    For one an OpEx is 100% deductible whereas a CapEx is something that is amortized over time for tax purposes so the former gets you a better tax result
    - deleted 7y ago
      [deleted]
  - unreal37 7y ago
    As the article says, with OpEx, your costs scale with your revenues. So when you have $0 revenues, you have $0 costs. You only pay for what you use. Instead, with CapEx, you go and spend $10 million on a data center buildout (raising a lot of money from investors which is work too) with $0 revenues coming in at the time, that's real money with no guarantee of any return.
  - patio11 7y ago
    You'd likely be able to expense the dollar (deduct 100% of it against your taxes in the current year), versus having to capitalize the CapEx (deduct perhaps 20% of it against your taxes in the current year, via depreciation, while carrying the remaining 80% on your balance sheet for the next ~4 years in this stylized example). The real magic, though, is flexibility: you don't have to bunch all of your server purchases into an annual (or worse) exercise, execute a buildout at a data center, and then somehow allocate them to internal teams consuming them prior to the next capacity planning exercise. You just fire API calls, and a bill arrives at the end of the month. The bill may be a lot of money, but the amount you were spending on planning, building, operating, fixing, and decommissioning your infra was a lot of money, too, split between big spiky equipment purchases and employee salaries with a dusting of leases and electricity on top.
    - SilasX 7y ago
      Am I understanding that right, that there are major inefficiencies induced merely by how you have to expense capital purchases?
- lonelappde 7y ago
  AWS was a novel offering. WeWork appeals to dad followers and people so green that they don't know Regus and others exist. It might be attractive from a SV VC social perspective, but it's not meaningful as an business-model proposition. It's like opening a chain to compete with McD and Wendy's with the value prop "we have an efficient quick-servoce hexagonal burgers". The valuable part isn't new, and the new part isn't changing fundamentals.
  - caseysoftware 7y ago
    While I'm not a fan of WeWork, it's not just newbs. They've been useful to allow established companies to expand and "open an office" in a given city with a handful of employees without the time, expensive, and effort of a long term lease. My company has done it at least twice for a year+ before they grew it into a full office.
    - twic 7y ago
      There were already other suppliers that would allowed companies to do this.
  - gamblor956 7y ago
    Success frequently hinges on execution, not changing the fundamentals. The entire premise of the free market is that market competition rewards those who execute the fundamentals the best. If changing fundamentals was a requirement for success most businesses would fail against the incumbent. After all, there are plenty of competitors to McDs and Wendy's, most of who are doing quite well even though there's a McDs on nearly every corner and all burgers basically follow the same recipe. (That being said, I think WeWork isn't executing very fell. I'm partial to Cross Campus if I must use a hipsterish co-working space, and Regis if I want to use a professional temporary working space.
  - sturgill 7y ago
    AWS in the early days wasn’t that different than many other cloud providers of the day: you had Rackspace, Linode, Slicehost, etc. And then there’s the oversold shared hosting... WeWork isn’t a brand new offering; Regus has been around for awhile. But it has mindshare and that has value. The question is will it be an AWS or pets.com. I won’t answer that for you, but I’m not putting my money into its IPO... ;)
vchak1 7y ago
I dont agree. Its actually the exact same thing. Before AWS you did not time share servers. Servers would be idle for long amounts of time if the capacity requirements were spiky. You have the same situation here, but for work areas/meeting capabilities. Going from a single tenant fully leased capability to a shared workspace model allows for much higher utilization of the underlying assets.
- neom 7y ago
  With a cloud provider you have a lot more behind the scenes control over how an asset is subscribed and provisioned. Now, If we squeeze everyone into a wework with the lights off...
- unreal37 7y ago
  How quickly people forget. Before AWS, companies did IN FACT time share servers. The whole mainframe model was that IBM owned the server and you only rented a couple of hours on it. But before WeWork, people also rented office space. WeWork is not the first company to offer rentable office space to workers. They're not breaking new ground here.
  - reallydude 7y ago
    > companies did IN FACT time share servers. Ok. It was so uncommon that I didn't encounter it for the 15 years preceding AWS. It's like pointing to a car that runs on vegetable oil. Yes there are IN FACT cars that run on vegetable oil, but nobody does it statistically. This is much different than the chance that a business (with income) is renting commercial space. Yes your local mom and pop pool company doesn't rent an office (and that's a non-trivial amount of businesses, as I've worked for some), but they aren't going to rent space in WeWork anyway.
    - deleted 7y ago
      [deleted]
    - csande17 7y ago
      I got my start in web development by renting a shared-hosting account on https://www.dreamhost.com/ https://www.dreamhost.com/ .
dnautics 7y ago
> so this dream WeWork has of gaining corporate partners seems unlikely in the next 5 years, if a recession is to hit as everyone claims. These corporate players will probably have excess office space of their own, never mind paying for more. What if the corporate partners are partners in flipping excess space in the case of a recession?
justicezyx 7y ago
Narrative similarity only works in hindsight. i.e., if A succeeded, and A looks similar to B, which was hugely successful. Then A is claimed to be always having the success factor because it is similar to B. To predict the success by drawing similarity is always fool's game.
blueboo 7y ago
This is absolutely spot-on. AWS doesn’t replace email servers, as one commenter suggests. It offers compute infrastructure, a new need that grew alongside a truly novel business. Where’s the novelty of WeWork? Even now Wework has real competition, maybe not from IWG, but from myriad commercial business spaces that are just regearing for co-working — an immediate threat that further damages the AWS analogy.

sturgill 7y ago

I thought his AWS comparison was more favorable than it seems you did. I remember launching a startup in 2009 and our head investor (who was a CFO at a bespoke insurance firm) was floored when he saw our financial docs and that we were able to make our infrastructure expenses OpEx instead of CapEx. As AWS got its start making it easy for startups to get access to infrastructure, the bull case for WeWork is that startups choose that environment over signing a traditional lease. It’s not that a startup can’t work out of a coffee shop, just like we could have theoretically run our own email servers. But a physical location and address has advantages and WeWork opens that to more people with less friction than the pre-WeWork options. But that’s the bull case. I’m not a financial analyst and I’m not your financial analyst so this isn’t financial advice, but my risk profile tells me to pass on this opportunity...

majewsky 7y ago
> [He] was floored when he saw [...] that we were able to make our infrastructure expenses OpEx instead of CapEx. Can someone ELI5 to me why spending a dollar on OpEx is better than spending a dollar on CapEx?
- gigatexal 7y ago
  For one an OpEx is 100% deductible whereas a CapEx is something that is amortized over time for tax purposes so the former gets you a better tax result
  - deleted 7y ago
    [deleted]
- unreal37 7y ago
  As the article says, with OpEx, your costs scale with your revenues. So when you have $0 revenues, you have $0 costs. You only pay for what you use. Instead, with CapEx, you go and spend $10 million on a data center buildout (raising a lot of money from investors which is work too) with $0 revenues coming in at the time, that's real money with no guarantee of any return.
- patio11 7y ago
  You'd likely be able to expense the dollar (deduct 100% of it against your taxes in the current year), versus having to capitalize the CapEx (deduct perhaps 20% of it against your taxes in the current year, via depreciation, while carrying the remaining 80% on your balance sheet for the next ~4 years in this stylized example). The real magic, though, is flexibility: you don't have to bunch all of your server purchases into an annual (or worse) exercise, execute a buildout at a data center, and then somehow allocate them to internal teams consuming them prior to the next capacity planning exercise. You just fire API calls, and a bill arrives at the end of the month. The bill may be a lot of money, but the amount you were spending on planning, building, operating, fixing, and decommissioning your infra was a lot of money, too, split between big spiky equipment purchases and employee salaries with a dusting of leases and electricity on top.
  - SilasX 7y ago
    Am I understanding that right, that there are major inefficiencies induced merely by how you have to expense capital purchases?
lonelappde 7y ago
AWS was a novel offering. WeWork appeals to dad followers and people so green that they don't know Regus and others exist. It might be attractive from a SV VC social perspective, but it's not meaningful as an business-model proposition. It's like opening a chain to compete with McD and Wendy's with the value prop "we have an efficient quick-servoce hexagonal burgers". The valuable part isn't new, and the new part isn't changing fundamentals.
- caseysoftware 7y ago
  While I'm not a fan of WeWork, it's not just newbs. They've been useful to allow established companies to expand and "open an office" in a given city with a handful of employees without the time, expensive, and effort of a long term lease. My company has done it at least twice for a year+ before they grew it into a full office.
  - twic 7y ago
    There were already other suppliers that would allowed companies to do this.
- gamblor956 7y ago
  Success frequently hinges on execution, not changing the fundamentals. The entire premise of the free market is that market competition rewards those who execute the fundamentals the best. If changing fundamentals was a requirement for success most businesses would fail against the incumbent. After all, there are plenty of competitors to McDs and Wendy's, most of who are doing quite well even though there's a McDs on nearly every corner and all burgers basically follow the same recipe. (That being said, I think WeWork isn't executing very fell. I'm partial to Cross Campus if I must use a hipsterish co-working space, and Regis if I want to use a professional temporary working space.
- sturgill 7y ago
  AWS in the early days wasn’t that different than many other cloud providers of the day: you had Rackspace, Linode, Slicehost, etc. And then there’s the oversold shared hosting... WeWork isn’t a brand new offering; Regus has been around for awhile. But it has mindshare and that has value. The question is will it be an AWS or pets.com. I won’t answer that for you, but I’m not putting my money into its IPO... ;)

vchak1 7y ago

I dont agree. Its actually the exact same thing. Before AWS you did not time share servers. Servers would be idle for long amounts of time if the capacity requirements were spiky. You have the same situation here, but for work areas/meeting capabilities. Going from a single tenant fully leased capability to a shared workspace model allows for much higher utilization of the underlying assets.

neom 7y ago
With a cloud provider you have a lot more behind the scenes control over how an asset is subscribed and provisioned. Now, If we squeeze everyone into a wework with the lights off...
unreal37 7y ago
How quickly people forget. Before AWS, companies did IN FACT time share servers. The whole mainframe model was that IBM owned the server and you only rented a couple of hours on it. But before WeWork, people also rented office space. WeWork is not the first company to offer rentable office space to workers. They're not breaking new ground here.
- reallydude 7y ago
  > companies did IN FACT time share servers. Ok. It was so uncommon that I didn't encounter it for the 15 years preceding AWS. It's like pointing to a car that runs on vegetable oil. Yes there are IN FACT cars that run on vegetable oil, but nobody does it statistically. This is much different than the chance that a business (with income) is renting commercial space. Yes your local mom and pop pool company doesn't rent an office (and that's a non-trivial amount of businesses, as I've worked for some), but they aren't going to rent space in WeWork anyway.
  - deleted 7y ago
    [deleted]
  - csande17 7y ago
    I got my start in web development by renting a shared-hosting account on https://www.dreamhost.com/ https://www.dreamhost.com/ .

dnautics 7y ago

> so this dream WeWork has of gaining corporate partners seems unlikely in the next 5 years, if a recession is to hit as everyone claims. These corporate players will probably have excess office space of their own, never mind paying for more. What if the corporate partners are partners in flipping excess space in the case of a recession?

justicezyx 7y ago

Narrative similarity only works in hindsight. i.e., if A succeeded, and A looks similar to B, which was hugely successful. Then A is claimed to be always having the success factor because it is similar to B. To predict the success by drawing similarity is always fool's game.

blueboo 7y ago

This is absolutely spot-on. AWS doesn’t replace email servers, as one commenter suggests. It offers compute infrastructure, a new need that grew alongside a truly novel business. Where’s the novelty of WeWork? Even now Wework has real competition, maybe not from IWG, but from myriad commercial business spaces that are just regearing for co-working — an immediate threat that further damages the AWS analogy.