WeWork probably does have an advantage specifically for tech startups. But startups are definitionally not a large market, nor are they generally a good one. When we're small, we're cheapskates. And then we pretty quickly either go out of business or become like other companies, willing and able to deal with building owners directly. It's high churn, which is expensive.
Startup investment is also pretty cyclical; anybody who was around after Bubble 1.0 knows how quickly the party stops when investors get nervous. So WeWork has a lot of long-term commitments, with no obvious way to cover them in the next recession. And since we're already in the longest peacetime economic expansion, the possibility of recession is definitely on investor's minds.
I take issue with the "people have been doing the same thing for years" take, when most hugely successful start-ups tend to be small tweaks on established ideas. Take AirBnB. Peer-to-peer short term rentals existed on the Internet in the form of sites like VRBO since the late 90s, but AirBnB's relatively small changes (mainly ensuring that the financial transaction occurred completely on their platform) allowed for the sea change of urban short term rentals.
While I'm bearish on WeWork for the same reasons as many other people, I think there is certainly room for a consolidated business of month-to-month office rentals that offers a branded experience.
WeWork is betting on taking a similar track - sure, companies _could_ decide they want to build out expertise in leasing and managing real estate space, but it can actually help them focus on their core business more by leaving it to another company that provides the 'platform'. The growth of WeWork's enterprise offerings and general awareness of how to pitch to mid- and large-size tenants indicates that growth projections are not pinned to a startup-driven economy.
Although now I think about it, perhaps demand volatility is even more important. Office space needs are way more stable and predictable than server load. Salesforce, for example, signed a 15-year lease for Salesforce tower. And there's every reason to think they'll use it. Whereas AWS and its customers benefit hugely from being able to change load both month to month and hour to hour.
Yes, WeWork has market-fit, no one denies that. Their problem is governance and risk management. On top of it, how would an unprofitable company with massive debt and contract obligations do during a down-turn.
It's not that there is no need for what WeWork does; it's that they do it too expensively, and are valuing themselves far too high.
WeWork main competitor is Regus, founded in 1989. Regus is now present worldwide with revenues of 2.535 billion GBP (2018). Their market cap is a mere 3.68 billion!
There are also tons of smaller companies in that sector which are not international (mostly 1/2 countries) with much lower valuations.
So, the business model is fine, the market fine, the room to expansion here (especially with growth of remote work). Just the previous valuation wasn't.
That depends on their financial state. If they over expanded with the expectation of future capital to cover future contractual costs then they'll need to find a way to cover those costs without funding. That could be impossible without declaring bankruptcy.
But for the difference in valuation, that's an easy thing to do in a LBO: Hire a Chief Design Officer!
Thanks to WeWork maybe, their new offices are better: https://www.regus.co.uk/offices/united-kingdom/county-edinbu...
Not really. Regus is brutally bad. I am not a fan of WeWork specifically but it's vastly superior to Regus' offices, old-school style of lead capture, and terrible dealing with its customers.
I now lease from an independent co-working space to expand on my small business' offices until we can find a larger space at a reasonable price (good luck with that in Seattle), and it's been great. WeWork helped push co-working along. Regus has done absolutely nothing in this regard for decades.
They're a glorified landlord, not a product.
Use wework to fill the building, then go around them to get more cash by leasing directly to the tenants. Tenants might even see rents lower.
Shopify went through something similar -- offering their product for free, taking a cut of any transacted products. But they realized that it incentivized companies who, deep down, knew they would never make a dollar. So it was okay to sign up for the 'free' ecommerce software, because they were never going to make a dime.
It also _dis_incentivized companies that were actually selling things, because taking a cut of every transaction is too expensive if you're really driving volume.
In short, WeWork is attractive to companies that, deep down, know they aren't going to grow. These companies minimize long-term exposure by paying more short-term. The companies that are _confident_ they will grow have no problem signing 5-year leases. It's the long-term prudent thing to do, and drastically cheaper.
"This time it's different"
I'm no economist, but to me, it seems that short term rentals can't be an inferior good if a large percentage of startups are already currently using them. You'd need a majority of them to be leasing a traditional office space in order for coworking to be seen as a viable lesser option. And I don't really see larger, more established startups that do have traditional office space (like Duolingo for instance) moving out into a WeWork.
Do you know any companies that have made this kind of transition?
I would note that I know of larger companies that are shifting people to remote who don't consistently use their assigned office space if capacity has gotten tight.
But it's also a very risky business, requiring a lot of capital, and it's not at all a SaaS business. The valuation was crazy.