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This is typically called a high fixed cost business, like airlines, hotels/apartments, SpaceX, etc. The dream may be barriers to entry that allow high margins

This is typically called a high fixed cost business, like airlines, hotels/apartments, SpaceX, etc. The dream may be barriers to entry that allow high margins (“rents” if you prefer the prejudicial), but all too often these huge capital costs bankrupt the company and lose money for investors (see: WeWork, Magic Leap). It is high risk, high return. Which seems fair.

boringg 3y ago
I understand the economics concept. I'm not sure WeWork was a great example it had significant other challenges such as a self-dealing founder and, frankly, a poor long term model. I would wager that the concept needs a bit of a refresh as historically it has referred to high capital costs for the production of a hard good though in this case there is more than just a good produced theres a fair bit of influence and power associated with the good and a ton of downstream businesses that are reliant upon it if it goes according to plan.
- renegade-otter 3y ago
  It's more like "disrupting the market". The problem is that it's a whole market. Uber just now turned its first profit since 2009, and I would wager that if not for the newly found appreciation of efficiency and austerity, it would still be burning through money like a drunken socialist sailor. Classic approach required basic math. "Here is my investment, here is what I am going to charge for rent". You actually can figure out when your investment starts paying off. This new "model" requires tall, loud, truth-massaging founders to "charm" VCs into giving away billions, with the promise of trillions, I guess. The founders do talk about conquering the world, like, a lot. I do not know what the WeWork investors were thinking when they expected standard real estate to "10x" their money while the tenants were drinking free beer on tap. The whole thing screamed "scam" even to a lay-person.
- brookst 3y ago
  Agreed, and Magic Leap had its own problems. My point was just that “invest huge amounts of capital to create a moat and then monetize in the long run” Is an inherently risky strategy. Business would not work if society insisted that large, high risk investments could not product higher long term margins than less risky investments.
nradov 3y ago
Nothing in the WeWork business model is inherently capital intensive. Fundamentally they just take out long-term office leases at low rates, then sublease the space to short-term tenants at higher rates. They don't really own major assets and have no significant IP.

boringg 3y ago

I understand the economics concept. I'm not sure WeWork was a great example it had significant other challenges such as a self-dealing founder and, frankly, a poor long term model. I would wager that the concept needs a bit of a refresh as historically it has referred to high capital costs for the production of a hard good though in this case there is more than just a good produced theres a fair bit of influence and power associated with the good and a ton of downstream businesses that are reliant upon it if it goes according to plan.

renegade-otter 3y ago
It's more like "disrupting the market". The problem is that it's a whole market. Uber just now turned its first profit since 2009, and I would wager that if not for the newly found appreciation of efficiency and austerity, it would still be burning through money like a drunken socialist sailor. Classic approach required basic math. "Here is my investment, here is what I am going to charge for rent". You actually can figure out when your investment starts paying off. This new "model" requires tall, loud, truth-massaging founders to "charm" VCs into giving away billions, with the promise of trillions, I guess. The founders do talk about conquering the world, like, a lot. I do not know what the WeWork investors were thinking when they expected standard real estate to "10x" their money while the tenants were drinking free beer on tap. The whole thing screamed "scam" even to a lay-person.
brookst 3y ago
Agreed, and Magic Leap had its own problems. My point was just that “invest huge amounts of capital to create a moat and then monetize in the long run” Is an inherently risky strategy. Business would not work if society insisted that large, high risk investments could not product higher long term margins than less risky investments.

nradov 3y ago

Nothing in the WeWork business model is inherently capital intensive. Fundamentally they just take out long-term office leases at low rates, then sublease the space to short-term tenants at higher rates. They don't really own major assets and have no significant IP.