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WeWork Rivals Pitch to Win Back Market Share, Try Not to Gloat (bloomberg.com)
59 points by pseudolus 11 days ago | hide | past | web | favorite | 64 comments





I'm not quite sure if I really agree with the premise of this article. This isn't some type of Uber vs. Lyft analogy. WeWork dwarfs all the other coworking spaces. Customers aren't going to leave WeWork because they fear it going out of business (after-all that's the point of month-to-month). The turnover happens from unhappy customers.

This also seems to imagine given all their recent troubles that WeWork isn't going to dramatically improve operations. WeWork has never gone back to make things efficient since inception, so it wouldn't be a huge surprise if there's a lot they've left on the table. WeWork owns so many leases from landlords; the landlords might be strong-armed into concessions.

It's not unreasonable to expect a lot of their metrics are going to improve (and cut costs drastically down), especially with a new set of management.

I just signed up for WeWork in Lima, Peru this week. There's definitely customers. Everything is clean/organized. Although, the music is definitely a bit distracting ...


As a counter point, I left WeWork because Spaces (one of the competitors in the article) had more flexible plans for co-working and was overall cheaper. I also disliked the fact that they kept having all types of loud music in the background. The Spaces location I go to does play music, but they typically have it at a lower volume and the music is usually mellow (ultimately, I'd rather have no music but w/e).

I wondered why the Spaces subscription was cheaper than the WeWork I went to, and if I had to guess, it might have to do with the locations they've chosen in my city aren't in the super prime locations like WeWork. Most of the WeWork's in my city are near major downtown intersections/corridors where office space is at an extreme premium.

They also offer slightly less amenities. For example, WeWork had cleaning staff come in pretty frequently while Spaces probably only has them come at some point during the day/evening. Plus they don't have free coffee or a gourmet selection of tea like WeWork.

But all in all, I'm pretty satisfied with switching. It has the same sort of feel as WeWork what with lots of interesting companies renting the dedicated office spaces, but it's quite a bit easier on the wallet for myself.


*>they don't have free coffee or a gourmet selection of tea like WeWork."

That's the thing, just like "free" breakfast or coffee at hotels, there's always a cost baked into the price. But there's something to be said for the psychology as an "all in" price rather than nickel-and-dime, or having to brew your own coffee. Though for $100 a month, I'll absolutely brew my own coffee.


Exactly, WeWork is turning into a normal business with competition. I think of them as similar to a hotel chain. Hotel chains basically own or lease real estate that they rent out on a per night basis to individuals. The reason the hotel business has multinationals owning large amounts of hotels world wide is because that kind of scale provides certain benefits in terms of operational cost, brand recognition, etc.

WeWork bootstrapped a multinational with hundreds of locations world wide using investor money and are now serving hundreds of thousands of users that apparently like them enough to pay a premium for using their space. So far so good. But it's something that others can copy and there are a lot of smaller and bigger competitors starting to offer similar services that are showing healthy growth.

The premise of WeWork's valuation is that it can continue to charge a premium because of their scale. However, if other competitors emerge, it becomes exactly like the hotel business and they'll be competing on price and quality. Given enough competing spaces, their customers will simply flock to the ones with the best price and offering.

That is going to limit the ROI for investors and probably is causing them to have second thoughts about dumping billions in it. Hence the IPO withdrawal.


>That is going to limit the ROI for investors and probably is causing them to have second thoughts about dumping billions in it.

Precisely. Apart from corporate governance, the problem was never really the business fundamentals since with careful oversight they really should be able to flip the switch from massive growth to profitability. The major issue with that is investors put their money in at 20x revenue premised on growth when it now looks like it's a more traditional 4x revenue business, at least for the near term.


> Given enough competing spaces, their customers will simply flock to the ones with the best price and offering.

Just waiting for “Expedia for coworking spaces” to come and commoditize them :)


> Just waiting for “Expedia for coworking spaces” to come and commoditize them :)

I've been waiting for this too, but the more I think about it, the less likely I think it'll actually happen. People spend at least 5 days and 40 hours a week in their work environment, often across many years. In contrast, when traveling, you spend just a handful of hours in a flight or a few days in a hotel. When you're spending a short time on something, you're less likely to see details, and commodification is easier. When you spend days, weeks, years in a place, tiny minutea jump out and no two spaces are exactly the same.

As a comparison, think about residential real-estate. There still has been very little commodification of residential real-estate, because neighborhoods, amenities, schools, safety, light, and even the color of the grass play a factor.

Work-spaces are less extreme, but similar dynamics play out. Even if thousands of WeWork copy-cats pop-up around the world (as is currently happening), I wouldn't expect serious commodification.


> WeWork dwarfs all the other coworking spaces.

In the world in total? Sure. In individual cities? Barely. WeWork is always pitted against local competitors. I would guess that most of their customers are single-location, and for the bigger ones that are renting in multiple locations, they haven't really created any useful value-add.


IWG is bigger than WeWork in terms of square footage, locations and revenue

I mean, have you been to a Regus space? It’s not in the same ballpark (regarding modern amenities), in the smallest way.

No, but it is a sustainable business, so they've got that going for them.

Having worked closely with oil & gas I’d be curious how Regus would do without “that client”.

Yes, but Regus (now called IWG) runs Spaces, which is catching up quickly with WeWork. Unlike WeWork, their balance sheet is amazing. WeWork will have to endure a staggering restructuring.

When I was at a Regus space years ago, we had an amenity I never saw at WeWork - solid, opaque walls.

The ones in downtown LA are mighty close to a WeWork feel.

The one in downtown proper, or the one at The Row? As someone mentioned in another comment, Spaces picks property that doesn't command a price premium vs. WeWork where it's always a prime location.

IWG is no longer bigger on revenue given WeWork's far higher growth rate.

IWG is at around $3.1 to $3.2 billion per year in revenue, trailing four quarters, with slow growth. They did $1.6 billion in revenue in the first half of 2019.

WeWork did $1.54 billion in revenue for the first six months of 2019 with a fast growth rate. Unless WeWork's business has done a complete 180 and is suddenly contracting (there is no information indicating that is happening), they have likely caught and surpassed IWG on quarterly revenue at this point and will have higher revenue for all of 2019.


> IWG is no longer bigger on revenue given WeWork's far higher growth rate.

WeWork can’t afford much more revenue at this rate:

WeWork IPO filing shows it's losing nearly $5,200 per customer https://www.cbsnews.com/amp/news/wework-ipo-office-sharing-p...

Whereas IWG actually earns a profit on its revenue:

WeWork Is Valued 10 Times Greater Than This Profitable, Public Rival https://www.wsj.com/amp/articles/wework-is-valued-10-times-g...


The argument is that WeWork can stop losing money at nearly any time it wants by halting new facility growth and focusing on filling what it has, as most of it's losses stem from growth projects. At least, that's the theory. It seems we'll get a chance to see what happens when they try and hit the "pivot to profit" button. Maybe they should have, like, a whole bunch of people help them hit that button really hard? Maybe hit it twice, just to be sure.

It’s reasonable to assume if they could have hit a button to demonstrate profitable unit economics or profit in long running spaces, they would have amended the S-1 to show this as the IPO valuation was collapsing.

This ability to turn on profitability was decently spelled out in their S-1. It was too late to amend it further to reemphasize the point because investors had already massively soured on the deal and would not take mere assurances at face value.

In order to overcome that, WeWork needs to take time, at least a quarter or two, to hit that button and show they're at least on a course to profitability. Before they can get back to IPO land and hope for even a $15 to $20 billion valuation, they need to demonstrate the truth of their statements on turning profitable. Even then I'd place that at the high end of a valuation, 7.5x to 10x revenue is still enormous for a real estate firm


> there is no information indicating that is happening

I mean, aside from their CEO being pushed out and their IPO being shelved because they were losing money hand over fist. Which means they can't raise the $7 billion they wanted to continue expanding.

They were buying growth. They can't afford to buy growth anymore. So it's entirely possible that they'll shrink. And that's not even counting all the negative press, which has to be discouraging potential clients.


I think it's less an issue of stealing existing customers than it is filling the vacuum that would have been filled by a massively expanding WeWork. If WeWork has indeed tapped into a growth market in their flexible term leasing & quality environments, then competitors will have an opportunity to soak up demand that might otherwise have gone to the expanding WeWork offerings.

I think you're generally right about them not losing customers, but they may lose some: Short leases mean ease of mobility, so if a competitor offers similar quality at a lower price, or if you've outgrown your current We space and would need to move into a larger one anyway, you might be enticed to switch. However, that sort of competition would apply with or without WeWork's current issues.


> Short leases mean ease of mobility, so if a competitor offers similar quality at a lower price, or if you've outgrown your current We space and would need to move into a larger one anyway, you might be enticed to switch.

Most articles about WeWork ignore half of its business model. The first part, which is heavily discussed, is acquiring long term leases, and then leasing out short term rentals. If this was their entire company, it would clearly fail as they're basically absorbing the risk of any long term risk of their tenants.

But the other component of WeWork's business is to create vibrant work environments that people want to work in. They have excelled at this, bringing the silicon valley relaxed low formality tech vibe to every city across the planet. The vast majority of office workers still work in stuffy environments, that are uninspired, formal, and depressing. Bloggers and startups may have created WeWork, but now employees at law firms, finance companies, and accounting agencies are starting to demand a similar environment. Having good offices is becoming important to hiring the best talent. Sure WeWork has competitors and inspired corporations can always build their own WeWork-esq office space, but assuming this trend continues, WeWork has a ton of headroom.


The thing about attracting traditional businesses looking to offer their employees a silicon valley low formality work environment is that such businesses can probably do it themselves with a traditional lease for less than the premium charged by WeWork.

I could be wrong about the above, it might be cheaper or simpler to pay WeWork. But for accounting, law, and finance: Those are industries with high level needs for privacy & confidentiality that would be a problem in a co-working environment. They need work spaces that are separated from other businesses, which obviates the benefits of a mixed co working environment.


> businesses looking to offer their employees a silicon valley low formality work environment is that such businesses can probably do it themselves with a traditional lease for less than the premium charged by WeWork.

Over the long term, you may be right. But at least for the next ten years, I don’t think so. Many businesses don’t even realize this is something desirable, but even those that do, don’t know how to achieve it. Assuming young talented new hires keep demanding it (no sign of that slowing), and while many companies remain in the dark (a very slow gradual process), WeWork will remain an attractive solution.

Regarding law, accounting, finance requiring greater security, that’s hardly a serious blocker. Locked doors, frosted glass office windows, and locked down WiFi solve those problems pretty easily.


> but even those that do, don’t know how to achieve it

Yes, I hand't considered that, but it's like 100% (or 99.999%) correct. I work on a sprawling campus and about 10% of buildings are ~100 years old, and many others 40 or 50 years old. As they remodel and build new facilities, they try to go for trendy cool SilVal lite and... yeah, it kind of doesn't work. I mean, nicer than the old cramped facilities, but that's it.

For finance etc., I'm not sure locked doors & frosted glass are sufficient if they're embedded with other offices and there's lots of intermingling foot traffic in the area, but I suppose with relative few additional precautions it could work, and it would be very smart for WeWork to enhance themselves in that area. However these business frequently want longer term leases, so WeWork would also have to expand their options for 5+ year lease terms. Getting a good baseline of such customers would also offer a nice baseline of guaranteed revenue that could help weather temporary downturns in either the overall economy or startup/vc availability.


> For finance etc., I'm not sure locked doors & frosted glass are sufficient if they're embedded with other offices and there's lots of intermingling foot traffic in the area, but I suppose with relative few additional precautions it could work

I know for certain that shared office space for lawyers is common. I actually visited such a space just a week ago. This particular space was hideous and depressing, but many 1-3 attorney law firms were operating right next to each other.

At least for law, there are certain ethical obligations everyone needs to follow, and if you break them, you can lose your license, get fined, and in extreme cases, face jail time. For security, in addition to frosted glass and locked doors, maybe WeWork could devote certain areas of a space to certain professions, i.e., this floor is for lawyers, this one is for accountants, etc. Only the worst and most unethical lawyers would break into another law firm's records, and there are plenty of existing processes for dealing with that.

The big point here is that with a bit of tweaking, WeWork could service just about any office-based company. There is a currently small, but fast growing demand for the type of office culture they are promoting. It's plausible that in 20 years, the "startup" style workspace will be the norm, rather than a niche millenial perk. It's not clear if WeWork will ultimately succeed, but they have a huge head start and seem to be tapped into what a quickly growing segment of office culture is demanding.


From reading the comments on this story, it sounds like there are already (profitable) competitors like Spaces that are easily copying the WeWork office format. If this is the case, it doesn’t sound like WeWork has much of a moat.

> From reading the comments on this story, it sounds like there are already (profitable) competitors like Spaces that are easily copying the WeWork office format. If this is the case, it doesn’t sound like WeWork has much of a moat.

Maybe in the long term (10+ years) you're right, but today, the vast majority of offices were designed over a decade ago, and have not kept up with modern trends. WeWork, and their competitors, have a huge amount of headroom to grow.

I doubt the WeWork copy-cats really concern WeWork, their real challenge is to convince companies in more traditional offices that moving to newer workspace culture and design is worthwhile and necessary to stay competitive. If they are successful here, WeWork (and their competitors) can get vastly larger than they are today. Over the long term, as this industry matures, WeWork can buy out much of their competition and the industry will consolidate.


WeWork is launching a lot of new spaces. The company I work was almost decided on moving to one of these new ones but with the crisis, potentially layouts, so increased risks of a worse service or even more serious complications; it is already kind of decided that we are going to another place.

WeWork growth promise, the basis for any investment (that seem to be very much needed now) depends on a lot of new spaces and these are the most affected by the public crisis. It can create a very damaging vicious cycle.


I think the assumption is that given imminent cashflow issues We Work will have to contract in less/unprofitable markets. Also new business will generally be damaged by the ongoing farce.

I also know of 2 (large) customers who moved from We work in the last year because employees were sick of the "unprofessional" workplace. One example was dogs pissing in the office!


I've always been extremely skeptical of commercial real estate investment schemes based on the heuristic that the AM airwaves are full of advertisements for them.

WeWork has been outed as a fraud for months, probably longer [1]. But hey Adam Neumann proves the greater fool theory is still alive and well, so there's that.

[1] https://www.zerohedge.com/news/2019-07-19/they-are-guarantee...


That zerohedge site is a bit nuts when it comes to politics. Not that WeWork doesn’t sound scammy.

Zerohedge also said that Tesla and Deutsche Bank were frauds.

Give them time.

Using VC backing to predatorily price your product (like the free rent in this article) is basically dumping, isn't it? I don't know how long we'll tolerate that kind of behaviour.

https://en.wikipedia.org/wiki/Dumping_(pricing_policy)


It's not dumping because it's the primary market. Dumping is leveraging your primary market capacity to expand to another market. No one has ever successfully kept their prices low, drove out the competition, and then raised them.

Being sarcastic here, but many companies' primary market these days is the cash-burning-pocket investors.

> No one has ever successfully kept their prices low, drove out the competition, and then raised them.

Standard Oil did exactly this. It kept prices low under Rockefeller's leadership and raised prices dramatically under Archbold, when they already had the market sewn up. Very successfully.

More recently, China did exactly this with rare earth metal prices.

There's even a name for it, cornering the market.


What about Hynix? Didn't they drive all of the the Japanese semiconductor makers out of business? I know it was a national/political move, but it was still dumping.

Their IPO disclosure said they could profitable if they halted growth, so t seems we'll get a chance to see what happens when they try and hit the "profit" button. Hopefully it's a big button. And the should have, like, a whole bunch of people help them hit that button really hard? Maybe twice, just to be sure.


WeWork is going to keep doing their thing for a while.

I wouldn't expect there to be much opportunity for rivals until WeWork has to start cutting amenities to cut costs and so forth.


How are the CEO's actions not illegal? Renting your own spaces to your own company, cashing out before IPO, loaning yourself company money - none of this is illegal??

I don't understand the title.

Have a comma.

Is there anybody here who actually uses these spaces? How do you justify the costs?

If I was an early investor in a company, and I learned that they were spending those sorts of amounts on office space, I would be furious.


> I would be furious.

Most likely you would not care. It is hard to quantify what is a waste of money as an investor because you're 60,000 feet above the day to day happenings. If the employees are happy with the situation do you care? You can yell at the CEO and try and have them work in a cheap dingy garage but if they are miserable and productivity takes a nose dive are you going to be any happier? That's why you stay out of it as an investor, you don't actually know any better because there is not enough data to make that kind of judgement.

Anecdotal story: I worked for an early stage startup backed by a large reputable VC. We worked for two years in the VC's conference room. One of the senior partners forced us out of their office and to spend money on office space we did not need because they did not like the look of our large ugly flat screen monitors (40" they were great). Meanwhile a few other startups stayed in that same space for several years because they worked on pretty Apple 20-something inch monitors that looked proper for the space.

So... who knows, VC's are not immune to irrationally stupid decisions. I will say one of the things WeWork always had going for it was locations. I'm more familiar with NYC and Boston but there were WeWork offices 5-10 mins away for South Station in Boston and Penn Station in Manhattan. It makes it really convenient to recruit when you can say your office is right next to a major transportation hub.


> VC's are not immune to irrationally stupid decisions

VCs don’t care about expenses, they care about growth. Actually it’s worse than that, they actually want high expenses (with accompanying growth), so the startup needs to come back to them and ask for more money.

The second a startup turns profitable and doesn’t need VC money is precisely when the VC stops making money.


Investors want to minimize silly reasons for startups to fail.

I've never seen a startup shutdown medium post that started with "We have a great team and our product has seen huge uptake, unfortunately the cost of our coworking space has overwhelmed us".

On the other hand plenty of startups fail because they cant hire the right talent. Wework is in locations, and has an atmosphere that most tech workers if not like, at least are used to. Especially ones who are happy to work in an early stage startup (and if that one doesn't work you've made a lot of connections with other ones in the office :P).

Additionally investors don't want startup founders to spend weeks negotiating leases for offices, fit-outs etc.


The biggest cost for a startup is going to be employees. Unhappy employees are likely to be less productive and more likely to leave. Assuming they even decide to join once they see the space they'd be working in. That's all expensive.

Self replying because the edit window has closed. Fair points, all, thank you for making them. I guess from what I had read about the costs of wework offices, it would be in the same realm as everybody renting themselves lamborghinis every weekend to build company morale, or something like that.

It just seems like an outrageous luxury, with questionable utility (some luxuries, for instance a pleasant office, nice equipment, etc. are obviously really important)


Boring uninspired office space costs roughly $200/month/person in non-prime major metro areas, plus you need to manage the space itself. “Luxurious” WeWork spaces cost roughly $450/mo/person in major metro areas, and require almost no admin work.

The extra $3k/year/person is not nothing, and certainly some companies won’t pay that, but in many cases it can be reasonably justified if it helps you attract better talent and reduces time devoted to office space admin work.


Wework phoenix is $700/person/month. A 5 person team in a tiny shared office is $3000/mo.

Some of my friends rent nice offices in boring industrial parks for less than that, and have 6 private individual offices, 2 bathrooms, plus a conference room, a kitchen, and a large meeting area that would normally have cubicles or whatever in it (it's got a couple of rows of desks/monitors), and a storage room.


Amazon using doors as desks back in the day is in stark contrast to startups using WeWork space now.

Amazon using doors was an expensive thing to do that they mainly did for the image it brought them.

https://news.ycombinator.com/item?id=21133408


I don't think it's that expensive? Hollow core doors are cheap (~$30 at HD), flexible, huge, durable, and feel nice. I love my door desk.

They hired people to build the desks. The labor cost probably puts them in the red, especiaplly b/c of the scale.

How can something be flexible and durable? As someone who accidentally punched a hole through a hollow core door, I can definitely say I’d never consider placing expensive equipment on one.

I meant flexible in terms of what it allows you to do (although it does flex a bit as well).

But to your question, ductile (non-brittle) metals tend to be more durable than brittle ones.


> As someone who accidentally punched a hole through a hollow core door, I can definitely say I’d never consider placing expensive equipment on one.

Why would you place expensive equipment on a door?


I agree it is cheesy but at least they were trying!

A full-size exterior door as a desk seems like an impossible luxury to me now. I'm a high-ranking engineer at a famous, rich company and I'm well-paid etc but my desk is 24"x44". The conditions under which modern software companies expect "knowledge workers" to exercise their mental abilities are absurd.



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