How is it hard to replicate? Lots of people know how to add beer taps to office spaces. There might not be competition now, while they are operating at a gigantic loss, but at a break even price point I think it'll be a different story.

If they can't make money in this boom market cycle, what makes you think they'll make money in the next one?

Judging by all the NYC competitors that have cropped up, I would say it is not hard to replicate at all. The biggest benefit to co-working spaces is short lease terms and the ability to scale up(down) space. Foreseeable, this could apply to a new company or a company opening an office in another city. I doubt you would use WeWork once you are leasing 10,000+ square feet of space, but perhaps HQ by WeWork has merits. As a startup founder that has leased spaces from co-working spaces, the price, location and quality of the space mattered much more than the brand renting the space.

Same in Berlin. At a past company, we've happily switched from WeWork to Rent24 paying a fraction of the rent for a bit less involved offering, and can just highly recommend it.

It could rant all day long about WeWork Potsdamer Platz, but I think I've done so on every bigger WeWork thread here before...

"Clearest economic model"? They're losing almost 2 BILLION dollars a year (https://www.nytimes.com/2019/03/25/business/dealbook/wework-...)

Their economic model can be clear and simple even if it isn't profitable. At it's core, the model is:

a) buy or rent commercial real estate

b) rent that same real estate out to people who want office space

As long as the money coming in from b is sufficiently greater than the money being spent on a, you should be good.

As far as profitability, the company is making investments now that will pay back over time. Since they are growing quickly, you'd expect them to take a loss since they have to make upfront investments in new offices (and on real estate, which they seem to be getting into the business of purchasing outright rather than taking out long term leases).

EDIT: I don't have an opinion one way or another on whether WeWork is a good business to invest in or not, but it's definitely a straightforward and easy to understand business, as opposed to say, a bank or a biotech company.

I think the model is rather: a) buy long-term leases at low price b) sell short-term leases at high price

The problem with this model is that when demand for real estate falls (e.g. because of economic cycles, trends/tastes, etc.) the revenues will evaporate and the costs will remain.

It's like the old joke: If you can't pay back a $1 million loan, you have a problem. If you can't pay back your $1 billion loan, the bank has a problem.

If WeWork can't pay the lease on 29,000 square feet of office space, WeWork has a problem. If they can't pay the lease on 2.9 million square feet of office space, the owners have a problem.

that is true only when WeWork may be in danger of filing bankruptcy, otherwise contract law prevails.

My understanding is that they spin up separate entities to sign leases, and have cancellation clauses. It seems nuts landlords would agree to that but it’s come up a few times in prior threads.

There's a bit of longer-term reputation damage which is significant in an industry dominated by companies who tend to think over the span of decades rather than quarters.

One fairly big serviced offices company pulled the "separate entities" trick in one of the previous recessions, and some of the major landlords in that country still to this day, more than a decade later, refuse to do business with them.

I think also more true when they rent from a single owner.

An HN submission 4 months ago¹ reported that WeWork forms a separate subsidiary for each lease agreement. So at least when they're not the owner, they've conveniently arranged to not be on the hook if a particular location or region doesn't work out.

¹ https://news.ycombinator.com/item?id=18714962

Also this: https://wolfstreet.com/2019/03/25/how-can-a-company-with-1-8...

And commercial real estate never goes down...

They lease property long-term, then rent it out short-term at a staggering loss. That's a model of clarity

Fair.

I used to work at company that rented from WeWork. And we were in their awful glass cubicles, like working in a Borg ship, and we wanted some privacy, so we asked about putting up some removal decals.

They said no, it violated their brand guidelines.

Clarity, always clarity.

That is true commitment to transparency.

Just build a cubicle within your cubicle.

Their revenue growth is accelerating and they're only losing money because they're investing it all on growth. The year they stop expanding/buying/renting new spaces, they'll bring in a huge net profit.

The magic of adjustments: ebitla-dee-da (comment about WeWork's “Community Adjusted Ebitda”) https://ftalphaville.ft.com/2018/04/26/1524715201000/The-mag...

"Sure, we lose a little on every sale, but we make it up on volume!"

That's not it at all.

No, and I don't think you did a decent job trying to interpret what he said.

What FANG benefits are you referring to?

I have a few clients who work at WeWorks and the nitro coffee and kambucha on tap is fine and well but I wouldn’t call it lavish. Having a few hot and cold drink options for visitors is just common curtesy and basic part of doing business.

Yeah, comparing WeWork to FANG is pretty silly. The benefits that matter are the massive salary on top of max 401k matching and 3 gourmet meals a day.

Free coffee and beer doesn't begin to compare (not that I don't think what WeWork offers is useful)

The ones that don't actually cost money like access to a $400 foos ball table and a giant been bag chair

Free potato chips and sodas.

> they lack the kind of competition that would trap them at this low price point as few places in the different jurisdictions that they operate in can offer similar services due to the large upfront investment involved

If these types of services become popular, couldn't any commercial landlord start offering these services in the buildings they already own?

I have used their WeWork, for what that's worth. There's a good amount of tech in managing badges, their website, allocating rooms and IT. (Though, TBH, it's not exactly stellar web design.) The team that manages the buildings does a good bit more than a typical landlord.

I think many landlords would make awful clones and lose a lot of money, at least at first.

There's a business right there, selling white label office management software direct to landlords.

Which in turn raises the question: Why do WeWork bother with renting the properties? Uber doesn't rent cars, they just provide software and a network to drivers and riders, and something similar might work for renters and property owners (AirBnB for offices, essentially).

UK serviced office provider Regus offers "franchise opportunities" [1] if you know any landlords who'd like to turn their offices into a wework-like-business.

[1] https://news.ycombinator.com/reply?id=19783108&goto=item%3Fi...

They want control over the look and feel of the buildings; it's all part of a brand identity.

(Of working in a panopticon, but that's popular, I guess.)

They could, but WeWork has a nice network of spaces. We have seamlessly moved from one WeWork building to another in the same city, opened up satellite offices in other cities, etc. It's also nice to be able to reserve a workspace or conference room in other cities when I'm traveling.

Yeah, they have had competitors offering similar things longer than they have existed. Their main advantage is VC funding making them able to operate at a loss so they can undercut the competition.

well, i guess they're the starbucks of office rentals. anybody can sell coffee, but starbucks gets all the little things right.

I think WeWork is the most recession-sensitive. When the next one finally does hit in the near-future, they're fucked.

My impression is that the We Company (holding company), will diversify into social spaces for social things, including short term hoteling: a la co-living, airbnb/Marriott, event spaces, popups, etc. You're right, the gym membership subscription model will quickly fall apart during the next downturn.

> As a global company, not every market has strong renter's protections and it makes me wonder how they'll protect their assets when people realize that they could get more from them.

I was under the impression that residential leases had protections, but commercial leases did not (if you're a business you probably have money for a lawyer to look over the contracts and take the landlord to court if needed).

The WeWork model has proven very easy to copy and in competitive markets there are a lot of other popular “WeWorks” other than “WeWork” so I don’t buy the idea that it’s hard to replicate.

Not that different than Uber. It was a great idea but it’s an easy business to copy with little brand loyalty once new entrants appear in a market.

I think another factor in the next recession will be the actual usage. My local Wework hit 100% dedicated desk occupancy, but if you walked around M-F business hours it was nearly a ghost town. Huge numbers of these desks are paid by companies and rarely used, they’ll be the first to go in a downturn.

Isn't it just Regus with more quirky layouts? Regus's parent company had £2.5bn revenue last year.

regus has a sister company called spaces that is a closer thematic competitor to wework.

> Then there is the CEO that leased properties he owned to the We Company, making millions in the process - https://www.wsj.com/articles/weworks-ceo-makes-millions-as-l.... (this bit of impropriety should raise eyebrows and raises questions about the company's ability to prevent such rolling conflict of interests going forward).

As an investor, why would I want to go go through the rigmarole of buying shares and calculating losses for my taxes when I could just send a wad of my money to Adam Neumann every month for much the same effect.

if the their CEO believed in WeWork he would have sold his properties and buy shares but no, he is milking money invested in WeWork to drum up profits of his personal properties. Just this fact says enough about that company and what kind of an investment it will turn out to be.

You can diversify while still believing in the individual investments.

diversifying is when you invest into different industries or markets. this guys is investing in the same building just using a different vehicle.

I don't think you have to have different industries or markets in order for it to be diversification. I think it's enough that the assets are not perfectly correlated.

Sorry but it just isn't diversification. If he wanted to diversify into property the reasonable course of action would be to buy properties that WeWork weren't renting in areas WeWork don't strongly impact the market. By investing into property rented by WeWork he's further concentrating his risk - not only is he invested in the company but now he's also invested in a property whose value is largely reliant on the rental income from WeWork. Technically his risk profile is slightly diversified - because part of his risk is now just in the property market it means his portfolio is more diverse than just being invested in WeWork, but it's significantly less diverse than what any reasonable person would have achieved by just investing in other properties. For that reason you can confidently say that he's not diversifying - but if his intention was diversifying this is almost THE least effective way of doing it.

Hehe. The CEO article is the one I thought of when I saw the news. Well done sharing it here