4 ms·

If WeWork owns no assets (leasing model), can't raise money, burns billions per year, and runs out of cash, what is there left except bankruptcy? It's a cash fl

If WeWork owns no assets (leasing model), can't raise money, burns billions per year, and runs out of cash, what is there left except bankruptcy? It's a cash flow model that doesn't cover its costs - WeWork pays 100 units for commercial real-estate and flips it for 90 units. This is the Movie Pass model - they give VC money directly to customers!

jacquesm 7y ago
> This is the Movie Pass model It's the dumb-money backed venture model, and there are plenty of those. Many companies that are not profitable on a unit-economic basis are kept afloat by burning cash. It can't last of course, but in the meantime they can make your life quite hard if you are competing with them.
- seibelj 7y ago
  I think one difference between the typical VC model and Movie Pass / WeWork is that VC-backed companies typically own assets, such as valuable IP and software. WeWork doesn't own anything and operates a real estate splitting service. This is a thin-margin business. Similarly, Move Pass didn't own the theaters, the films, and didn't ink any exclusive deals - they just took 10 units of money from customers and gave them 100 units of tickets. There is no real value there.
  - mschuster91 7y ago
    > they just took 10 units of money from customers and gave them 100 units of tickets. One could have said the same about Netflix and Spotify. The key point is to find a monthly fee that is low enough to get masses of people subscribing, but high enough that the masses of 1-movie-a-month ordinary users support the 30-movies-a-month power users - or to cap the "power user" limit at something reasonable. The other thing would be to gain value from the users beyond the subscription, for example by having them rate the movies they see or giving out boni (=one high quality review gets you two extra visits even if you hit the cap).
    - jlei523 7y ago
      >but high enough that the masses of 1-movie-a-month ordinary users support the 30-movies-a-month power users How would this work for WeWork though? If someone rents the space, WeWork can't rent it out to someone else. And this is work. People are going to show up on most days - unlike gym memberships.
    - munk-a 7y ago
      Except that Netflix and Spotify don't have to pay the per-performance costs, Netflix isn't paying $29.99[1] to CBS every time someone watches Star Trek TNG - and spotify isn't paying 70$ every time I listen to a song even though concert tickets might run that high. MoviePass _may_ have been a sane venture if they rented out the theatres for MoviePass specific screenings at a flat rate then tried to make a margin on filling those seats up enough. As it is they resold a thing from one company to consumers at a price below the consumer's standard price while trying to convince theatres to honor the passes by rebating the theatres well below standard fare price. Would you like to buy a coke from a merchant for 2$? What if I could sell you a subscription to buy as many cokes as you'd like for free for a 29$ monthly fee, while offering the merchant 1.50$ per sold item - oh and the transaction would still take place in the store... and be run by the shop owner... they'd just make less money - but hey maybe my subscription will end up selling more coke than the merchant would normally sell - but wait if that happens I lose money, so I only end up making money here if both of you are screwed because I'm essentially trying to make money shaving it off of a transaction that was already taking place. MoviePass was so ridiculously stupid[2]. 1. The price off of Amazon to purchase the season in CAD 2. Props to college humor on a great mock of their business and CEO, worth a watch if you want a laugh.
  - CaptainZapp 7y ago
    I think the initial model, where they charged 50$ a month, could have worked. But then the douchebags moved in with they're brilliant "what we lose per customer we make up in volume" philosophy. Making up in volume they definitely did.
- entee 7y ago
  This seems to be a theme, but I wonder how it passes muster with any semi-smart VCs. Don't they ask about this? If the unit economics are so obviously bad, how did they get through in the first place?
PhasmaFelis 7y ago
The "step 1 collect users, step 3 profit" business model.
eternalny1 7y ago
> WeWork pays 100 units for commercial real-estate and flips it for 90 units Not from what I can see ... they charge their clients enough to cover the location. Individual locations are (barely) profitable, the losses are coming from massive expansion and leasing new places. Maybe I'm wrong on that. Either way this seems like an epic fail, but they are not "paying for 100 flipping for 90".
mike00632 7y ago
There is a key business trick of renting the buildings in the name of smaller companies. Then if one building cannot be rented out, the small company declares bankruptcy and the rest of WeWork is unaffected/profits. I'm pretty sure this is what's going on and I don't think it should be legal.

jacquesm 7y ago

> This is the Movie Pass model It's the dumb-money backed venture model, and there are plenty of those. Many companies that are not profitable on a unit-economic basis are kept afloat by burning cash. It can't last of course, but in the meantime they can make your life quite hard if you are competing with them.

seibelj 7y ago
I think one difference between the typical VC model and Movie Pass / WeWork is that VC-backed companies typically own assets, such as valuable IP and software. WeWork doesn't own anything and operates a real estate splitting service. This is a thin-margin business. Similarly, Move Pass didn't own the theaters, the films, and didn't ink any exclusive deals - they just took 10 units of money from customers and gave them 100 units of tickets. There is no real value there.
- mschuster91 7y ago
  > they just took 10 units of money from customers and gave them 100 units of tickets. One could have said the same about Netflix and Spotify. The key point is to find a monthly fee that is low enough to get masses of people subscribing, but high enough that the masses of 1-movie-a-month ordinary users support the 30-movies-a-month power users - or to cap the "power user" limit at something reasonable. The other thing would be to gain value from the users beyond the subscription, for example by having them rate the movies they see or giving out boni (=one high quality review gets you two extra visits even if you hit the cap).
  - jlei523 7y ago
    >but high enough that the masses of 1-movie-a-month ordinary users support the 30-movies-a-month power users How would this work for WeWork though? If someone rents the space, WeWork can't rent it out to someone else. And this is work. People are going to show up on most days - unlike gym memberships.
  - munk-a 7y ago
    Except that Netflix and Spotify don't have to pay the per-performance costs, Netflix isn't paying $29.99[1] to CBS every time someone watches Star Trek TNG - and spotify isn't paying 70$ every time I listen to a song even though concert tickets might run that high. MoviePass _may_ have been a sane venture if they rented out the theatres for MoviePass specific screenings at a flat rate then tried to make a margin on filling those seats up enough. As it is they resold a thing from one company to consumers at a price below the consumer's standard price while trying to convince theatres to honor the passes by rebating the theatres well below standard fare price. Would you like to buy a coke from a merchant for 2$? What if I could sell you a subscription to buy as many cokes as you'd like for free for a 29$ monthly fee, while offering the merchant 1.50$ per sold item - oh and the transaction would still take place in the store... and be run by the shop owner... they'd just make less money - but hey maybe my subscription will end up selling more coke than the merchant would normally sell - but wait if that happens I lose money, so I only end up making money here if both of you are screwed because I'm essentially trying to make money shaving it off of a transaction that was already taking place. MoviePass was so ridiculously stupid[2]. 1. The price off of Amazon to purchase the season in CAD 2. Props to college humor on a great mock of their business and CEO, worth a watch if you want a laugh.
- CaptainZapp 7y ago
  I think the initial model, where they charged 50$ a month, could have worked. But then the douchebags moved in with they're brilliant "what we lose per customer we make up in volume" philosophy. Making up in volume they definitely did.
entee 7y ago
This seems to be a theme, but I wonder how it passes muster with any semi-smart VCs. Don't they ask about this? If the unit economics are so obviously bad, how did they get through in the first place?

PhasmaFelis 7y ago

The "step 1 collect users, step 3 profit" business model.

eternalny1 7y ago

> WeWork pays 100 units for commercial real-estate and flips it for 90 units Not from what I can see ... they charge their clients enough to cover the location. Individual locations are (barely) profitable, the losses are coming from massive expansion and leasing new places. Maybe I'm wrong on that. Either way this seems like an epic fail, but they are not "paying for 100 flipping for 90".

mike00632 7y ago

There is a key business trick of renting the buildings in the name of smaller companies. Then if one building cannot be rented out, the small company declares bankruptcy and the rest of WeWork is unaffected/profits. I'm pretty sure this is what's going on and I don't think it should be legal.