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.
"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
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!
https://techcrunch.com/2018/09/27/safe-as-houses-compass-400...
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.
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.
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.
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...
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.
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?
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.
So as long as AMZN was >= 20% of your basket, then it was fairly valued. Sounds about right.
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...
and there's the rub, knowing, a priori, what the proper balance should be.
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?
'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 difficult to decompose a stock price, but I think Amazon gets most of its from AWS.
As the old adage goes -- the pioneers get all the arrows.
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.
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.
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.
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.
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...
Which, while some of the examples sometimes quoted survived, was generally validated by the 2000 crash.
It's a heavily leveraged company with high capital requirements. AWS makes all of the money.
It’s all relative
Oh, and for greater 'collaboration'.
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.
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.
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.)
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.
(Also, Uber is a terrible company that doesn't deserve my money.)
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.
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 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.
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.
[Edit] Doesn't Uber subsidize vehicle leases for drivers?
I don't remember if Uber does, but Lyft does.
... while complaining about the big evil taxi cartels
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?
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.
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.
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.
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.
What does Wework do that Regus doesn't, that accounts for 16x the value?
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.
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.