WeWork Gets a Visit from Financial Reality
bloomberg.com
bloomberg.com
"In addition to the corporate finance weirdness: “Going forward, the company will no longer be called WeWork but rather The We Company.” (“The switch is not a legal name change,” okay.) And: “Rather than just renting desks, the company aims to encompass all aspects of people’s lives, in both physical and digital worlds,” which is—and I have spent years writing about the financial and tech industries and do not say this lightly—the very worst corporate slogan I have ever heard.
Me: What does your company do?
We: We encompass all aspects of your life, in both physical and digital worlds.
Me: Wait that’s terrifying.
We: We’re like Facebook, only you also live here.
Me: Who did you say you are again?
We: We are We.
The new company will be divided into several main business units: WeWork, WeLive, WeGrow, WeHarvest and WeFeast, wait no only the first three of those are real, but I am looking forward to when they start a line of industrial-chic funeral homes, WeDie. (Free beer at the wake!) Seriously WeGrow (real!) is “a still evolving business that currently includes an elementary school and a coding academy.” And WeWhatever’s founders once (in 2009!) “mapped out plans for everything from WeSleep to WeSail to WeBank.” I can’t keep up with this."
Says what they do and hints at why people want it. And it will never, ever be their mission for the reasons you said.
And this coming is from someone who loved 1984 and Brave New World and was eagerly looking forward to reading "We" at one point.
I also judge it harshly for the way the author wrote the only female character as an obvious object of wish-fulfillment rather than a coherent individual with reasonable motivations.
I do indeed give it credit for being an early scifi dystopia, but every other dystopia I've read was far better, and I can't help but feel that "Brave New World" surpassed "We" in every possible way. Still not recommending this book to anyone who doesn't just want to learn about dystopic novels.
Lower your firewall and surrender your data. We will add your biological and technological distinctiveness to our own. Your culture will adapt to service us.
Resistance is futile
It's basically a Weception at this point
Education is like catnip to these people. It's like some kind of attractor industry. They're all convinced they have the magic formula.
If I were made king of the world, I'd have a lot of ideas about how to reform education (after I'd take some time to throw sand in Billy's face, as payback for three years of playground bullying.)
[1] Just about everyone, at least.
On the contrary, public employee unions (including teachers) have done a masterful job of enriching themselves at public expense. E.g. Oregon:
Member accounts saw appreciable and consistent growth during this time, but underlying pension assets did not grow to cover the increased benefit guarantee. Career public employees who worked from 1970 to 2000 often were entitled to retirement income replacement rates over 130% of their pre-retirement earnings.[1]
Show me private sector pensions (if you can still find any) that come close to that.
[1] https://en.wikipedia.org/wiki/Oregon_Public_Employees_Retire...
There's another possible contributing factor: government can offer higher future pensions without increasing current expenditure (because government is not forced to fund the higher pensions until they need to be paid, many years in the future). Maybe that's why so many US states have dramatically underfunded pension plans (meaning teachers and other pensioners might not actually get their promised pensions when they retire).
This is a very complex topic. I think it's widely agreed that the US Congress can change Social Security benefits at any time. But the pension issue varies in the states. E.g. the Illinois Supreme Court ruled that pensions were sacrosanct:
Justices cited a provision in the Illinois Constitution stating that pension benefits, once granted, “shall not be diminished or impaired.”
https://www.chicagotribune.com/news/local/politics/ct-met-il...
Like honestly, think of all the people you know in unions. What are their houses and cars like? Do they live in the rich neighborhoods with the doctors, lawyers, and professional athletes? Do their kids go to expensive private schools? Just outrageously wrong.
The issue here is that most (all?) state and local governments are very resource constrained by reactionary Republican low tax regimes, so the amount of money required for pensions (or health care or education) is a big pie slice. But if these governments adopted reasonable, progressive tax regimes with confiscatory upper limits, the pie would look very different.
In other words, look at the ruthless income inequality in this country before blaming budget shortfalls on government employees, social programs, and unions.
As I mentioned in a nearby post, the average public sector pension was $3,771 per month for 30 years of service. Maybe to you that's "nothing", but to many people that's a very decent supplement to IRAs, savings, and Social Security.
I can't believe the straw man you're creating. No, the average Joe isn't entitled to live in "rich neighborhoods" alongside "professional athletes". And most "doctors" did 8+ years of additional education and training after college. You resent that they are getting paid for that?
It would be better to quote the rest of the context [1]:
As organized labor groups were quick to point out on
social media this weekend, normal benefits are much
lower. Out of some 136,000 retirees receiving PERS
benefits, only 2,000 or so collect more than
$100,000 a year.
The average monthly benefit for public employees who
retired in 2015 was $2,692, or about $32,300 annually.
That includes all retires that year, whether they
worked five years or 35. For career employees, with
30 years of service, the average monthly benefit was
$3,771, or $45,252 annually. The Oregonian/OregonLive
maintains an online database of public employee
pensions.
Along with the guaranteed rate of return for older
members' pension accounts, and the decision by a
PERS Board packed with public employees to credit
most of the system's bull-market earnings to
employee accounts for two decades ending in 1999,
the money match formula inflated pensions for a
large cohort of public employees.
But I wouldn't say that Oregon teachers are "enriching" themselves. We're talking about pensions that ended up paying 100% of salary. That's not bananas; most advice is save for 75% taking inflation into account. But I also think pensions are weirdly complicated for probably political reasons. It seems to me a benefits cap at 50% makes complete sense (considering Social Security and other retirement income vehicles)?
(OP quotes 130%, and the source is a YouTube video via Wikipedia posted by the president of ECONorthwest. The video is clear and feels unbiased--in fact ECONorthwest is an economics consulting firm so it's in their interest to be analytical--but the 130% number is assuming Social Security accounts for 30% of salary [5]).
I'm not at all saying everyone's entitled to be rich. OP made the claim Oregon teachers enriched themselves via public sector pensions, and as I interpret the word "enrich" to mean "become rich", I presumed their argument was Oregon teachers can live like rich people on public sector pensions. This is, as we've both pointed out, not true, even though it seems there have been some shenanigans in how the pension is managed.
There are a lot of "social safety net" politics swirling around pension policy debates, and I guess my points are generally:
- A lot of public sector employees don't even get pensions
- Average pension payments are low
- There are sometimes outrageous abuses
- There should probably be a cap on benefits
- Beneficiaries shouldn't be allowed to manage the fund
- Pensions in general are a good idea
- But it would be better if we just expanded Social Security and removed the taxable earnings cap
[1]: https://www.oregonlive.com/politics/index.ssf/2018/04/nation...
[2]: https://www.oregonlive.com/politics/index.ssf/2012/11/oregon...
[3]: https://www.heritage.org/social-security/report/the-real-cos...
[4]: https://www.brookings.edu/blog/brown-center-chalkboard/2016/...
https://www.mcall.com/news/nationworld/pennsylvania/mc-nws-p... states that "Rodney Erickson is netting $477,590 a year -- from a state pension". I believe that is "well off".
"More than 127,000 former Pennsylvania state employees or their beneficiaries collect public pension checks each month, and most are comparatively paltry. The average paid out last year was $27,722."
I'm a little tired of people using rare abuses to justify shutting down programs that people depend on. "ODB got food stamps", "this Penn State president makes $500k a year from his pension". The programs are still worth it, and even that level of abuse is beneath the cost of what it would take to combat it. It's also important to note that this guy is an example of "privileged white guy bilking the public sector", as we remember that the vast majority of fraud in social safety net programs is actually by providers of services (medical, food, etc.), not receivers. Guess which demographic most of those are?
I also find it very interesting that the 130% number on that wikipedia page comes from the only reference which is a youtube video by one "John Tapogna", who appears to be from a thinktank.
A different view: https://www.oregonafscme.org/?zone=/unionactive/view_article...
"the average PERS benefit to a retiree is $29,720 per year, or about $2,476 per month, which is a modest income, but it is being seeing as the problem. In the mean time, Comcast owes $170 million of unpaid taxes, Intel's off-shore profits were $26.9 billion, and "non-profit" hospitals made $1 billion in profits in 2015 - yes, you read it right, non-profits made a profit. " (I wonder why this more plausible number is so different to the Tapogna one?)
Your "different view" is from the public employee union, so of course they will have a different spin. I guess it's all down to what "average" is.
The local newspaper puts it this way:[1]
The average monthly benefit for public employees who retired in 2015 was $2,692, or about $32,300 annually. That includes all retires that year, whether they worked five years or 35. For career employees, with 30 years of service, the average monthly benefit was $3,771, or $45,252 annually.
Not too many private sector people get a pension of $3,771 per month for 30 years of service. But that number includes everyone. I don't see any data just on "education", which is the category that initially started this subtopic.
It's unfair to start pulling in off-the-wall stuff like Intel's "off-shore profits". That's old-school union thought. Thoroughly discredited. I remember very clearly when in NYC the World Journal Tribune[2] newspaper asked the unions for concessions so they could keep operating. To me the money quote was a union guy on TV who resisted this and said: "this is one of the richest firms in the world". There was a 140 day strike. Shortly thereafter the newspaper folded and everyone was out of a job.
[1] https://www.oregonlive.com/politics/index.ssf/2018/04/nation... [2] https://en.wikipedia.org/wiki/World_Journal_Tribune
Sweet, sweet tax dollars in your pocket.
Me: But I like meat!
We: Not if you want to be We, you don't. Are you sure you're We material?
Also moral stand is - an injustice is happening and you refuse to support it- in this case innocent animals are killed, the environment is trashed for future generations. etc. Ideological stand - I personally belief in A and B. An Ideological stand or belief is by definition subjective. A moral stand - there is a victim involved.
For the sake of argument lets imagine there is such thing as "humanely" slaughtered cow. For example this one here, enjoying the sun: https://i.redd.it/9v0shahwsh921.jpg
First of all, cows live around 20-25 years and are slaughtered between 18 months and 3-4 years when it comes to dairy cows (which live a live full of misery and are disposed of, once they stopped producing enough milk to be economically viable). Best case scenario, you steak was a child/teenager in cow years.
Second, even the the most "humanely" slaughtered cow has to bleed to death for you steak - we don't want our precious meat to be soaking in blood don't we.
Third, your steak almost certainly didn't have a good live. If you want to see what humanity looks like at its worst, look no further then any industry involving humans and animals that can be economically exploited. Dairy, meat, eggs, fur, wool - it is all horrors beyond your wildest dreams.
Forth, last time I checked - if you eat a lot of meat, cholesterol still blocks your arteries. Heme iron still causes a lot of oxidative stress, aka you age faster. And animals are filled to the brim with antibiotics and hormones and all that good stuff accumulates in the meat, so you get a good juicy concentrated dose.
Fifth, that steak also hurts humans. Nobody in their right mind wants to work in a slaughterhouse, only the most desperate an financially vulnerable choose this field of work and are scared for life afterwords.
All this misery for 15 minute of sensory pleasure. In a time where we have the impossible burger, beyond meat and a plethora of other options, if we want meat without all the suffering and misery.
Why anyone at Nintendo thought that the Wii U was a good name for a completely new console is beyond me.
Thinking:
Nintendo entertainment system and super Nintendo entertainment system. Not necessarily bad, but also kinda "meh." Probably the best 90s explanation for what a "console" is, before everyone already knows what a console is. I bring it up because here begins Nintendo's critical error: failing to understand the customer in America isn't children, it is their parents and grandparents, who have no fucking clue what the difference is between "the Nintendo" and "the super Nintendo." I remember peripherals were a nightmare already. Also: consider the competition. Sega Genesis. Badass.
Gameboy: what the fuck does this even mean. And thus: Gameboy color. Advance. Sp (what?????). Mini?
DS is even worse. Dual screen, maybe. And then, DS but smaller. DSi, also some games for this aren't compatible with DS regular. 3ds. 3ds xl (not too bad). "New 3ds," good luck grabbing the right one at GameStop.
Wii vs Wii U is just a crime. What does the "u" even mean??? How do you communicate across parental units the intended Christmas purchase? "Sally wants what? We? We want to what? We you? Honey what are you saying? She wants the Nintendo we with you? With enhanced we motes?"
The switch, I argue, is the only time Nintendo has applied a sensible name.
They all play the same games though, so yeah, good luck explaining which is which to a casual buyer. The very 2DS name sounds like it should be a weaker system than the 3DS, despite coming out later and being mostly the same bar the stereostopic 3D visuals.
Names certainly haven't been their strong suit.
The Switch in English also manages some naughty dual meanings while also being totally innocuous.
That was a console released following the video game industry crash of 1983 — a crash associated with total pessimism of games everywhere (at least in the US, but that was the most important console market)
It’s likely they were very deliberately trying avoid direct association with the game industry. Afaik, they’ve always intended their consoles be percieved as more toy-like, but the nes was a particilarly hard stance on that (even bundling it with a toy — R.O.B.)
>Nintendo's critical error: failing to understand the customer in America isn't children, it is their parents and grandparents, who have no fucking clue what the difference is between "the Nintendo" and "the super Nintendo."
You say this.. but outside of the wii u and n64, hasnt nintendo outsold its competition in every console generation so far? Although, I suppose it could also be said thats better attributed to the bigger shitshow of microsoft/sony/sega/atari, than nintendo’s own doing
Although I don't see why, in an alternate universe we couldn't have one company making the "serious, powerful" console and two companies competing on the "fun, less expensive, great first party titles (although not so much less expensive now with the switch)" end with the "serious, powerful" one winning out just like Nintendo is in the current environment.
I also find it humorous that xbox/ps have gone down the road of building an “entertainment system” (which is part of the justification issue; the price is always higher for it, for things I don’t need/care, especially since I have a pc for that stuff), while nintendo stuck much closer to games specifically, despite the NES name.
For most of my gaming type friends, it's always a battle of MS vs Sony every single console cycle. However, after a few months of playing the main console, they almost always buy a Nintendo console as their secondary.
I don't think Nintendo minds being "third" place as long as the first and second place customers still buy their system. I know I would be happy in Nintendo's shoes.
"Wee" also means "pee" in the US, as well as meaning "small".
Nope. Never in my life heard of it being a britishism.
Edit: A downvote for proving an absolute statement wrong?
"Bloody" is used as a britishism. "Wee" is not, at least in many areas.
Those uses of "wee" (particularly the "urine" meaning) have been common in the US for far longer than I've been alive. Nobody thinks of them as "britishisms".
(By way of explanation, 'pajero' roughly means 'wanker' in Spanish)
"We have met the enemy and he is We."
>"We is set in the future. D-503, a spacecraft engineer, lives in the One State, an urban nation constructed almost entirely of glass, which assists mass surveillance. The structure of the state is Panopticon-like, and life is scientifically managed F. W. Taylor-style." https://en.wikipedia.org/wiki/We_(novel)
I'm not sure why they would invite the comparison in both mission and name,
The same cannot be said for We.
"If you want a picture of the future imagine a human trapped in a glass co-working space -forever" - George Orwell ...probably
"The valuation of the round was still being agreed between the two sides, with one person saying that it would be split with $1bn at the existing $20bn level and the remaining cash at the $42bn valuation from the previously announced fundraising."
So, $2bn at a $31bn valuation is what is being done.
The moment we stopped working at the fields was the moment we had to stop the profit business. We should instead put in efforts into projects like CERN or anything that actually helps us improve the lives for as many as possible.
I wonder when craft-dying becomes popular.
This is the bogey man of a huge number of current 'tech startups' - What if it turns out Tesla really are a car company! Or if We Work are actually an office rental company! OR gasp Uber is a cab company! (1)
We now have a glut of companies operating in traditional markets that have valuations that would indicate they'll be as big or bigger than their biggest competitors. IWG is a comparable company to WeWork, has £2.35n revenue and £1.95Bn market cap. Wework has slightly lower revenue but is being lined up for a £20Bn valuation. Not only this, but WeWork are going to learn about the cyclical nature of office rental revenue.
The key for these companies is to show concrete indicators that their business is actually different from the companies they're disrupting and We Work has done an absolutely rubbish job of that so far.
(1) I want to be clear I don't think all those examples have nothing to differentiate them, but it's closer than some people might like to think.
There was a general sense of "it's just a bookstore".
Now I know everything is more mature and the situation is different, but I also remember feeling very confident that Amazon was waaay overvalued.
As the old adage goes -- the pioneers get all the arrows.
So as long as AMZN was >= 20% of your basket, then it was fairly valued. Sounds about right.
and there's the rub, knowing, a priori, what the proper balance should be.
Yes. This has been extensively studied. Almost every investor who deployed new capital in the late 90s lost money on those investments.
> as long as AMZN was >= 20% of your basket
You’d have to torture causality to come up with a portfolio that would have made sense in the 90s and would have been 20%+ Amazon. It wasn’t even in the top 10 most valuable public companies by market cap [1].
[1] https://en.m.wikipedia.org/wiki/List_of_public_corporations_...
[1] https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=1&year1=199901...
It's also worse case because it assumes you buy at the $107 peak. It didn't spend much time above $100...
It's a heavily leveraged company with high capital requirements. AWS makes all of the money.
The biggest difference I see this time is these unicorns have actual revenue. Heavily subsidized but revenue still. Last time we had monster companies that didn't even show that given 2 dollars they could make 1, so progress?
'Valuation' these days seems to be less about determining the free cash flow of a company's operations. It's the promise of great innovation that's just around the corner. Or, more likely, it's the promise that a bigger company will acquire this company at a markup above whatever you paid.
I wonder how these profitless companies will fare when the next recession arrives.
It’s all relative
Besides, Amazon, Kodak and Boeing were never exactly in the same market. The parent is comparing companies that ostensibly offer similar services.
If I can trust Wikipedia by 1999 Amazon "also sold video games, consumer electronics, home-improvement items, software, games and toys in addition to other items." That meant that it was already an online retail store, not a mere bookstore.
How long before Amazon sounds of its retail business?
Would not surprise me if a majority of both inventory and sales are actually marketplace sellers by now, that pay Amazon for fulfillment.
However, their cloud (and other IT) services do qualify them as a "tech" company.
WebVan is another such example.
Timing was wrong, too early. Chewey sold for 3 billion in late 2017 to petsmart, a less online savvy box store https://www.recode.net/2017/12/6/16681040/ryan-cohen-chewy-r...
It's like saying "All houses built in 1900 are built SOLID because look at all the 100 year old houses that still exist" and then completely ignoring all the 100 year old houses that don't exist...
Hell, look at the companies that were undervalued. GIANTS! Companies that will never fall... like, say, Blackberry and Palm?
It's more accurate to say that venture capital allows Uber to subsidize rides more aggressively. I see no evidence that Uber is substantially more efficient (when you include the driver's costs) than traditional taxi companies.
Edit: Uber has also managed to skirt a bunch of labor laws by claiming their employees are contractors. I guess that's a kind of "efficiency".
At its most efficient, an Uber model can automatically and predictively allocate rides based on realtime rider and driver current and predicted locations with realtime traffic/travel data. There's simply no comparison.
The extent to which rides are cheaper due to skirting of regulations, extracting money from VCs, pushing costs onto drivers, is effectively a separate issue.
That is to say, Uber can break many laws, screw over drivers, flood the market with way too many cars, all while losing money, but none of that means that the dispatch model isn't inherently more efficient.
one, the convenience of the app model.
two, subsidizing rides to flood the market with drivers.
three, offloading risks like employment law and fleet management onto drivers.
None of the stuff you said about traffic routing is currently true nor is it likely to be relevant. Taxi and Uber drivers do the same thing -- show up where and when there are predictable flows of people. They do this using human intelligence. It is unlikely that all the crazy big data analytics is going to do significantly better than this.
Occasionally they work off hours and pick up a few people that need rides.
That's it.
Their only realistic "exit as a world champion" play was to get to self-driving and own a fleet themselves (being able to create economies of scale on vehicle purchase and maintenance that would beat local taxis). That dream ended when they ran over a woman in Tempe.
Their best hope now is to be one of several large commodity players-- modest margins, some limited ability to spread fixed costs like software engineering over large volume.
This seems like a bizarre claim. Precisely when a specific rider will call for an Uber is inherently unpredictable (at least without a lot of surveillance). Meanwhile Uber drivers are not paid to drive from place to place without a rider - so Uber has limited capability to make them do something like head to a high-volume area in anticipation of demand. This is especially true since almost all drivers I talk to now drive for Uber, Lyft, and whoever else at the same time.
The micro-optimizations of dispatching drivers based on what side of the street I'm on or how many left vs. right turns are on the route are nice but only have a meaningful impact on wait time when there are already numerous drivers in the area to choose from (i.e. when the wait time is already short).
Edit: On second glance I realized you may mean that the dispatch is predictive in terms of anticipating traffic conditions and factoring this into the matchmaking between riders and drivers. While this is valuable, the key innovation here is the same kind of predictive routing algorithms that both Google and Apple already provide. Building this yourself may be hard, but is far from novel.
In the US, taxi drivers were always considered contractors, Uber just followed the existing model. In fact, they used to pay to work[1], starting each day in the hole. Only after Uber et all appeared have drivers started unionizing nationally and suing taxi companies to change that.
[1] https://www.nytimes.com/1995/04/09/nyregion/driving-a-taxi-d...
Amazon, despite losing money, had very competitive gross margins from day one. I think pets.com was literally losing money on every product they sold (but don’t quote me), which is not sustainable.
Which, while some of the examples sometimes quoted survived, was generally validated by the 2000 crash.
What made Amazon survive (and achieve valuations way in excess of those in 1999) was not the fact that it had something super valuable then, but that it relentlessly innovated, stayed flexible (an online bookstore offering a computing cloud services, what a weird idea) and executed well enough. And had enough money and controlled costs well enough to reach profitability. For every Amazon there are hundreds of Enrons and WorldComs.
It's difficult to decompose a stock price, but I think Amazon gets most of its from AWS.
Not to mention when the dotcom bubble popped Amazon's stock price took a beating and didn't really surpass its dotcom bubble peak until fall 2009, 9 years later...
... while complaining about the big evil taxi cartels
Oh, and for greater 'collaboration'.
WeWork single handedly changed the way we work. It is way easier to build a tech startup with the help of a co-working space company than before.
I suspect that WeWork's business model ain't the problem but it's competitors, for example in London, UK. Competition drives prices for new real estate, crashed margins.
Why? Coworking is not a new concept. There are plenty of local coworking spaces in every city that has WeWork. How are they better than their local competitors?
Most co-working spaces are cheaper, but they won't offer as many amenities as WeWork. 24-hour building access, conference rooms (for clients and internal meetings), phone booths, free coffee, a kitchen to utilize for lunch, highspeed internet (1,000Mbps if you use the ethernet jack) and roughly around 200Mbps on their free Wifi, free printing up to a certain volume every month. Did I forget the best perk? With your WeWork membership you can actually access any other WeWork location in the world and work out of there.
There were a number of times when I was traveling, I would just book a desk at another city or country for a single conference room credit.
Just a few positives off the top of my head compared to other coworking spaces. While you can find some with the same benefits, WeWork also wins with their decor and natural lighting in some offices. They also make it easy for startups to expand if they need more desk space. You rent on a monthly basis, whereas most places do yearly contracts.
Now let's talk about leasing your own space and all the headache that goes with it. At least in NYC, most places don't have a kitchen. So if you want a place to make coffee and wash your hands that's not the bathroom, you'll need to pay someone to have it installed.
You'll also need to set up the internet and electricity. And since you're on a lease, there's a good chance the landlord will raise the prices sky high the moment the contract is up. You'll actually end up paying relatively close to WeWork's price per month with a lot more things to manage on your own.
Think of it as self-hosting versus managed hosting. Small scale startups don't want to deal with all the headache so they just opt for WeWork. It's a reputable brand and they know what they are getting at any WeWork. It's similar to walking into a Hilton or Marriot. You know what to expect from it.
Hope that helps!
The question is though is it worth 10x more than it's competitor on a per customer basis?
Since they are fundamentally selling the same thing, office space, and there are ton of new startups doing the same thing with a similar vibe to WeWork in NYC, their original market, it has shown that the model is easy enough to replicate and most tenants won't benefit from a WeWork satelite network of offices since they remain local, and the customers will primarly choose on price when the same benefits are offered.
So a 10x multiple increase over their closest competitor at scale would imply that they have a foreseeable future where they are doing 10x more revenue, which would be approaching $8-10B.
Also in a market that is heavily dependent upon the general health of the fiscal market that would imply 100% growth for each of the next 3 years and the global economy not hitting a recession which would certainly impact their revenue. That's before we even get into the fact they are losing over a $1B a year as well.
They are well capitalized so that is less of an issue, but people are basically implying that either WeWork owns the entire coworking office space market, or these other initiatives take off.
There is a possibility for that to work. After all half of Amazon's current market cap is actually AWS and that is far removed from their original ship books to customers business model when they first launched.
So it is possible that WeLive can become a large contributor over time, but I would prefer to see more numbers on that and how that is progressing and if it's really a working model, then the rehash of the coworking office space analysis.
Over time, it seems like I'm getting less and less noise dampening... my last office, they had these little fabric cardboard deals they clipped to the edge of the desk... before that, I worked at smaller places, where there were a few people per office, and before that, I worked at a large place that gave us full cubes.
But at this office? nothing. nothing in between me and the person in the desk across from me. I had facilities put in a whiteboard between us, 'cause while I can wear hearing protection for noise; accidental eye contact is just not okay.
These aren't junior people, these aren't low-paid people; I don't think it's about saving money; or, cramming us in might be about saving money, but leaving out the partitions isn't. They give us really nice, expensive sit/stand desks that would demolish the cost of partitions.
(That said, most of the places I've worked at the very least had fabric coverings on the floor, and often those noise dampening ceiling hanging things... but I personally think that partitions are important, and those have gone the way of the dodo)
You'd have to pay me a lot of money to have me work in a place with separate offices or with people that think that "accidental eye contact is just not okay". A lot of people (not arguing that it's the majority, I have no idea) are actually more productive and happy in an open space than in a box cut out from the rest of the workers.
I guarantee that you work with someone who doesn't want to accidentally make eye contact through their monitors while trying to work. You don't even need to be particularly introverted, i think, to find faces distracting when trying to code, and introverts, historically, have been attracted to the industry.
You literally couldn't pay me enough to work in an open office space. Those things are nightmares.
I did a lot of co-working from 2009-2012 in several cities. The atmosphere was always very quiet and professional. People were very cautious about creating noise, and few people every spoke aloud unless they were on the same team.
I'm not sure what changed. Was it the bro-ification of the tech industry? Did coworking get a lot cheaper, and brought in a lower class of people? Was it Starbucks making its stores less attractive to campers? It doesn't sound like I'd go back to coworking again.
The problem people can't be making much unless there is a way of monetizing noisy phone calls that I am unaware of?
From what I've read about wework, I certainly won't be a customer any time soon.
I've worked out of a WeWork and it's just an expensive shared-office space the same as any other.
What does Wework do that Regus doesn't, that accounts for 16x the value?
It has?? Not so much that I've actually noticed it...
Uber doesn't buy and own the car, which means it requires much less capital. This small change has many implications, and the tech helps solves many of the problems that come up.
I am not saying it is properly valued (over or under or whatever). Just that given the choice between an Uber (or Lyft or yourlocalapp.com) or a cab company with the same fleet, customers, and revenue, I would consider the Uber version more valuable.
I don't think this is true with one of the major things they have been selling investors for years: self-driving cars. That certainly requires a lot of capital to pull off, and I think they plan is they would own those cars.
1. It is not the same business model it currently has
2. It has an even stronger claim to not being a traditional cab company, and for being a "true" technology company
In that case they would have capital costs (perhaps even higher), but would eliminate labor costs.
I don't think they will get there with self-driving, but by the same token they're not going to end up owning a zillion cars either.
Your bank might lend you money to buy a house based on your excellent credit and your large downpayment. That does not mean they want to rent out your home, speculate on home prices etc.
They may end up doing some of this tangentially (they have to dispose of the house if you end up not paying) but that is not the same business.
Uber's risks are additive here. They're extremely leveraged.
They’re already profitable in New York and San Francisco.
Scale. One can reliably get an Uber almost anywhere. That makes it attractive to travelling businesspeople and jet setters, two price insensitive customer segments that Uber almost singularly dominates.
Network effects. Ubers are almost always among the fastest transportation options in most cities.
Breadth. I never use Uber Eats, but apparently it’s doing quite well.
(I don’t know if the above gets me to $70bn. It does, however, point to a gargantuan business.)
(Also, Uber is a terrible company that doesn't deserve my money.)
Indeed. I was shocked to not be able to get one in China a couple of months ago
When I land in Sydney, or Seoul, or Paris, or New York, I don't want to have to work out what app to get, download it, set it up, set up payments, and then hope it works.
On the other hand Uber really let me down in Nairobi last year. with an airport pickup, so I don't rely on it there now, and will pre-book a legacy transfer to/from the airport now. They need to keep the quality up across all those cities otherwise they risk someone else winning.
They burned through billions of dollars of capital. That's quite a lot for a business that requires very little capital. What would they burn if they needed lots of capital? Trillions of dollars?
Thus far, Uber has raised $24.2 bil in financing so they could have bought cars for every driver easily. No idea what they did with all that money.
[Edit] Doesn't Uber subsidize vehicle leases for drivers?
I don't remember if Uber does, but Lyft does.
that can go both ways:
If I have to buy a fleet of cars big enough to cover my area and write an app and advertise to compete with uber, that sounds like an expensive proposition.
If all I have to do is come up with an app and the advertising, that sounds rather less daunting.
That sounds the same as all cab companies I know of that have operated in the UK for years.
I don't know anything about office rental so I'm curious, what makes it cyclical? You also seem to imply that we're high on the cycle (otherwise it wouldn't be a problem for WeWork in the future), why do you think that?
WeWork's lifetime has been on the upward slope out of the 2008 crisis. There is a question as to whether they can survive a downturn that at all hits them where it hurts.
The problem is that WeWork is agreeing long-term agreements (5-10 years) with their suppliers. So when a recession happens unemployment will spike, businesses will close offices, consolidate to the low cost offices they own (which they can do really easily with their flexible agreements with WeWork) and WeWork is going to be left with lots of expensive offices that no one wants to use. That's one of the reasons their debt is so expensive.
Uber, Tesla, okay, maybe there is an argument to be made for them to be "tech companies". Like the referenced investors, I fail to see how WeWork is anything but a real estate play, and consequentially having to work from that rulebook. Oh, you have computer systems involved? Welcome to the 21st! Where everyone else does, too.
In summary, I don't think simply using a phone app to do some form of collaboration or logistical deployment using assets owned or contracted by the company qualifies one as a "tech company" anymore. I think they're still a traditional company doing what everyone else ought to (and eventually will) be doing to begin with.
https://techcrunch.com/2018/09/27/safe-as-houses-compass-400...
Having a website in 1997 to sell goods was a better means to reach customers unable to visit a store location than a mail catalog due to better inventory management, personalization, etc.
One blog I've enjoyed reading is Chick-fil-a's technical blog as it really demonstrates how a company in the restaurant business is leveraging technology to make its customer experience or operations more efficient, much in the same way, Mcdonald's used milkshake machines to be more efficient. But, Chick-fil-a is willing to admit it is a restaurant!
1) Ratio of fixed to marginal costs is high you have economies of scale, and will get much more profitable as you grow (software vs consulting)
2) You can capture revenue quickly because it's operationally simple to add customers (e.g don't need to hire with each dollar of revenue) you are more likely to reach that profitable scale faster.
If your company uses tech to achieve (1) and (2) then they should have high valuations. If you happen to use cool tech but don't have economies of scale or easy operational growth than how you brand the company shouldn't really matter.
"IMHO the idea that companies are either "tech" or "not tech" has been peddled by VC's to convince buyers that all companies considered "tech" either have or will potentially have high gross margins regardless of current state and thus high valuations."
"When working with my clients (investors/acquirers) we generally consider businesses in three distinctions, IT Supported, Heavily Tech Enabled and Software Businesses. There are then varying degrees in between those distinctions."
Yup, which is precisely what an Operating Model is: https://en.wikipedia.org/wiki/Operating_model
Or even free.
When I was in the Seattle tech scene about ten years ago, the State of Washington had free co-working space at the convention center as a way to stimulate local entrepreneurship. The desks were a little strange, but they were free!
But even living in Boston I never saw the libraries super packed, usually plenty of room in the top-floor old-school reading room at the central branch on Boylston. Maybe not on holidays, but those sucked for cafes too in the city–better to just stay home or not work those days.
Internet can be a crapshoot, but I can do most of my work tethered to cell anyways. I always have that one cafe with awesome WiFi I can go to for downloading OS/IDE updates.
At least it's nice to know people are using our library.
1. At a library, when it's poop time, you gotta bag everything and bring it with you. Mildly annoying if you're using a mouse and notebooks etc.
2. If you're in a major metro library, no matter how hard they try to keep it clean, the bathrooms are full of people using the sink as a shower, and the toilets are foul beyond measure.
Your local library. It has desks, internet, restrooms. And there are more than one so you can pick the one that best fits your needs.
https://www.wework.com/buildings/154-grand-st--new-york-city...
To put it another way, I'd rather have a dedicated space for 10 employees than have 10.5 or 11 employees all working from their bedrooms and starbucks.
(I don’t actually know what a comparative traditional lease would cost).
As a founder, do you want to spend your time negotiating contracts, handling the admin stuff like setting up the internet, electricity, build out if necessary?
To compare the original WeWork location I posted, a 1,000- 1,5000 square feet place would be around $15,000/mo in an older building. But that space would be a lot larger than what WeWork is offering, without any ammenities. At the same time, you can move it to a less convenient location and cut some costs.
It really depends on what the company's needs are at the time and how much they want/need to invest in their own office at the moment. WeWork has month to month contracts for smaller desk spaces so you can adjust as needed. They also offer to build you out offices to customize to your needs.
Many larger companies typically have remote offices at WeWork. For example, at a WeWork we were working at, there was a Blizzard and GitHub office.
I'm working out of the Factory in Berlin for about 100 euro a month. Very nice space facilities, nice people, etc. and it matches my "I might drop in a couple of times a week" type usage. There are loads of co-working spaces here.
I've been in one of the local WeWorks as well (apparently they have 9 offices now in Berlin) and in my experience the space is alright but a bit less so than the Factory. But it did suit the project I was on at the time perfectly and we were there for a few months before we outgrew the space. I'd say it's perfect for seed funded companies or well funded corporate projects. It makes less sense for indivduals looking for a desk as they tend to be comparatively expensive to competitors or coffeeshops. I suspect their corporate revenue is a bit more lucrative.
Ultimately we grabbed a lease on Pacific Coast Highway with a sweeping view of the ocean for less with about 3x the room in a freshly renovated building.
These coworking spaces are terrible.
They're like Monkey Joe's for tech bro's.
I was blown away at the cost of a "hot desk" membership [1]. The least expensive offering was $360/mo. For a desk that's not "yours" and you can't leave anything at.
I wound up going with Novel [2] for $99/mo. Sure printing costs me $0.10/page but other than that it's pretty much a desk.
For fun I checked out the pricing for WeWork SF [3]...
[1] https://www.wework.com/l/denver--CO
[2] https://novelcoworking.com/locations/colorado/denver/16th-st...
Interesting startup. :)
That said, we moved from a WeWork to a Spaces (the Regus clone-ish) and it's incredible the basic things that feel standard that Spaces screw up. It took weeks to get us all building passes. The office was boiling when we moved in, we asked them to cool it and they made it freezing (no thermostat...), then ignored further requests to adjust. No microwaves (they sell food instead...). No free coffee (you can buy instant pods). To print you have to email reception then wait for someone to be available to do it - and you have to pay for that. Booking meeting rooms for a future day costs money. You can't ask them to get your parcel from the postroom, they just leave it wide open so anybody can take whatever, and there's no organisation. WeWork wasn't anything special (and had the noise issues everyone else mentioned), but they did have down the very basics that make an office usable.
Funny thing about that list though - their app doesn't remember your office location, so if you want to book a meeting room you have to drill down from every Spaces location worldwide down to your country, then city, then office to find the one in your building. :)
Finally and unbelievably, there is a bathroom on our floor that has no toilet cover dispenser. Bathrooms on other floors have it, but not this one. I mentioned it to the staff and they were told by their superiors that one won't be installed.
There is a lot to like about the location, but these problems are just simply comical and won't get fixed for whatever reason.
WeWork’s model wasn’t new (Regis has been doing real estate subdivision arbitrage for years) they just made that model cooler and added some free beer and a few other perks but it’s still the same business. Someone from WeWork recently told me they are a digital experiences company and not a real estate company. Increasingly the market seems to be calling BS on that.
There’s very much a demand for WeWork type services and it meets a real need but it’s a low margin low multiple real estate arbitrage play not a high multiple tech play. WeWork has way too many people and far too much overhead relative to the business they are actually in despite pretending to be something else.
WeWork also seems to be getting very unfocused buying up lots of other businesses and getting way beyond their core real estate play. Given that, shifting market views and their extreme leverage with long term leases I wish them well but this could get real ugly real quick.
Did you ask them what this meant, or did the conversation effectively die there? I'd be curious to hear straight from the horse's mouth what the horse thinks 'digital experiences company' means.
The gist though was that these were all just existing needed but boring businesses with low valuations. WeWork’s strategy seems to be “but we can run an elementary school and it should command a wild valuation because it’s not a school it’s a WeSchool.” It wasn’t a convincing argument.
The problem also is that the experience also sucks. I've been working out of WeWork and other coworking/office rental spaces in Berlin and WeWork is by far the worst of it while also costing 2-3 times as much.
Excerpt from the things I experienced at one WeWork location over the last year:
- Broken AC in the whole building during a very hot summer
- Water dripping from the ceiling in the hallway for about two weeks (which also left ugly stains, which I think are still there to this day)
- Regular recurring construction noise during working hours, to this day (one year after opening!)
We all know how well that ended.
Companies that want the sky-high valuations of innovative high tech should be, you know, actually innovative and high tech. Just because your company has web 2.0 trappings (or ends in .com) doesn't automatically entitle you to "high tech" and "innovative" valuations.
Developing a new non-obvious technology would be a good start.
Can't wait till SEC adds "state of consciousness" and "emotionally interconnect-ness" to quarterly reports.
> That first innovation seems a little questionable. Like, there is an established competitive business of office rental in which real-estate companies own office buildings and rent them to companies; I am not sure why there would be a ton of room to compete with that business by interposing yourself as an expensive middleman. Why would a tenant want to pay a profit margin both to WeWork and to its underlying landlord, when it could just rent from the underlying landlord and pay only one profit margin? There is some room for a value-added middleman — and WeWork can add value not only by providing beer but also by splitting office rental into smaller space and time chunks than a big commercial landlord — but, still, it does not seem easy.
> But the second innovation is great. For one thing, it is great for the obvious reason: If you can get into a traditional mature highly competitive business, call yourself a tech startup, and get a multibillion-dollar valuation based on potential rather than cash flow, then you have achieved a profound arbitrage and really ought to be rewarded for it. But it also helps solve the first problem: WeWork’s tenants don’t have to pay two profit margins, because WeWork’s investors give it tons of money which it can then spend on giving tenants free rent. In a loose sense, WeWork’s business model is getting SoftBank to buy beer for software workers. Which is fine!
I understand why companies occasionally report results as GAAP and non-GAAP, but "community adjusted EBITDA" is absurd, even for a private company.
If they ran themselves like a real estate company then their central function would probably be a few attorneys to process deals and some people handling paperwork. Instead they have huge central costs which they want people to ignore via these metrics.
Simple non-GAAP is one thing but most of these invented metrics scream “our financials are terrible so we made up this metric where if you ignore our real costs we look less terrible”
During my time there, it became apparent that their entire focus was on growth. WeWork was never interested in catering to their core market: people who want to work. They failed to create a productive work environment. They alienated people like me, who were willing to pay top dollar for a decent place to work. Instead they created distraction-filled, tacky places that fostered little except beer drinking.
I'm looking forward to seeing it crumble, or at least for reality to catch up.
PS. If anyone knows a co-working space in NY that actually provides a nice, quiet place to work, please let me know. I will pay good money for such a place. I am thinking like https://misantrope.com/?lang=en
I don't think this has to be true. Why can't people co-work together, quietly? This used to be the case in libraries, before libraries became places where governments administer social services.
It's nice to work around other people, just as long as they are not on phone calls or taking meetings. These people belong in call centers or meeting rooms, so that people who aren’t talking can continue thinking and working.
> Certainly there are lots of places that rent private offices.
After giving up on the open office hot desk, I switched to a private office in WeWork. You could hear the music from the hallway. Furthermore, this particular WeWork was situated on top of a beer garden. Every weekend my "private office" most literally started shaking and vibrating as the beer garden turned into a club. I am not exaggerating. It was a joke.
I agree music seems more than a bit much but a workplace is somewhere many people have conversations and have to make and take calls. I don't think I'd be very inclined to spend money on a space where I had to try to find a room every time I was on a phone call or wanted to talk with someone.
I'm willing to restrict talking if I'm hanging out for free in a library. Not so much if I'm paying for a desk. One should of course have consideration for others but, for many, a big part of their job is talking on the phone.
But what makes more sense: you stepping out or getting a private office, or making the open office non-viable for everyone else who has to focus? What a conceit that everyone else should adapt to you when you could simply adapt to everyone else.
Can't argue that. Only issue is WeWork doesn't sell it that way. They sell the open office space as a quiet place, and then play good cop/bad cop and everything in between.
Source: spent over a year in a WeWork, with a desk, using meeting rooms etc. I've spent 14 years working in various open offices and WeWork was the worst.
Coworking spaces for the most part don't seem interested in catering to you. It's easier to find people who don't mind an active noisy environment than it is to please people who demand a quiet workplace.
How about a location that's dark and brooding and enforces "library" noise rules? How about a location that fosters the hot-house environment of sales teams? How about a location that's free of alcohol? It doesn't matter what each one is, but make them different, and give people the option of choosing one that fits their mood that day.
That being said, maybe I just don't like the centralization of WeWork. Let a hundred different people make their own spaces with their own characters and the market will work it out.
That is the most amazing and accurate description of SoftBank I've ever read.
If you have earlier invested in WeWork as a tech startup then one should be questioning your investment strategies and research methods.
Imagine if your town had almost as many co-working hubs as mattress firm stores. I know that's a lot but a guy can dream, right?
Edit: Not to mention, you could have a membership that could be regional, national, international and interplanetary.
They both seem like less risky and more traditional tech plays than WeWork's current business model.
That's when I started thinking about smaller co-working spots in strip malls and similar locations. Focus more on the details around managing co-working (member management, access management, etc) and franchise it out.
I have never gotten deep into the details so there are likely many reasons why it wouldn't work but as a work from home guy, it's something I'd love to have near me.
I left immediately after we were acquired to start another new company and have been very happy with that decision. The whole thing was very... bizarre... to say the least. Just glad I can enjoy this spectacle from afar with relatively little skin in the game.
The question is have now is: where are those investors / investment monies going to go next? If the hipness of being involved in startups is over (for the trendy types if you will), where are these rich cool kids going to go next? That is, unless they have a place to go, are they going to leave?
From Dan Primack's column at Axios:
>"The state of play: There's lots of buzz about how this deal is much smaller than what was originally contemplated, including one 2018 report whereby SoftBank could acquire a majority stake in the co-working space giant.
>The big picture: We told you in October that the control deal was no longer on the table, but that investment negotiations were ongoing.
>Fast Company this morning reports, based on an interview with CEO Adam Neumann, that the two sides neared a much-larger deal that could have bought out all of WeWork's existing shareholders, but that SoftBank bailed after a disappointing IPO for its Japanese mobile unit. In short, SoftBank's corporate balance sheet was smaller and less flexible than had been originally anticipated. SoftBank theoretically has enough dry powder in its Vision Fund, but we hear that the Saudi connections made that prospect less appealing to both sides due to perceived regulatory risk (read: CFIUS, particularly in light of the Khashoggi murder). The bottom line: Don't read this deal as a macro commentary on unicorn troubles. SoftBank is still investing $2 billion into WeWork, in which it already holds a sizable position though both its balance sheet and Vision Fund, and doing so at a high valuation.
>Not even the most profligate investor spends that kind of coin if it believes the market is crumbling. There also is a NYT report that SoftBank may have had trouble getting enough WeWork shareholders to sell into the larger proposal."
Common themes I've seen are, some hipster Instagram'ing their overpriced avo and toast, a bunch of cute dogs running around mad distracting everyone, people browsing social media and someone messing around with the Sonos music player, setting the song to Rihanna's "Work" on repeat.
The WeWork camps look fun, if not a bit cultish.
caveat: these observations are from what I've seen in the shared spaces, I realise there are private offices and spaces where people will be working hard.
Seems like maybe a more realistic approach that provides a way for traditional real estate to become coworking spaces.
I think they're overvalued, and they'll be in trouble if a recession hits. But coworking spaces do fill a need in the real estate market, one that's likely to grow, and WeWork is the market leader.