They borrowed short, lent long and then pretended it was as sustainable business. To their credit, they abundantly disclosed their shenanigans. (I haven't seen any evidence suggesting investors can reasonably claim fraud.) But they were playing fast and loose with basic economics.
At its core, sure, WeWork could have been a business. Its thesis, that office space should be treated as a service versus capital expense, is plausible. But there was so much garbage--the party-at-work hypothesis, thoughtless cross-selling, nepotism, consciousness nonsense, self-dealing, et cetera--that the value got diluted while the price was pumped.
SoftBank and Masayoshi Son's hypothesis is:
1. Find a market which can be captured by a business with access to massive capital
2. Provide massive capital
3. Extract profits once a monopoly has been established
WeWork is a terrible example of this, because in no way does scale give them unique advantages. And furthermore, "scale" in this context means "scale in the office property market" -- that's a pretty big pool to expect to overflow.
I run a small digital agency, as a WeWork member when I'm on the road being able to know I can find and book space for meetings or work is invaluable. We've also spun up offices in new cities (Mexico City for us) easily and quickly with a confidence in the level of service and support that we're getting.
There is a premium for this and we've moved on from those offices sometimes as we settle in. But its not a non-existent advantage.
Within the original thesis per se it gave them a possible demand-side advantage. (Commercial real estate is too big for any meaningful sell-side advantages.)
Being able to say "let's open a branch in Singapore and see how it goes for 6 months" with a few clicks is quite awesome. If I trusted it to be around in a few years, it would change how I think about deploying people.
To be able to deliver that value prop, you need seats available in Singapore. (And New York and London and Dubai.) Hence a potential scaling advantage.
I'd have thought that for most businesses, the two big obstacles for doing this are a) getting skilled people to suddenly move to Singapore at your will, and b) getting the Singapore office well integrated with the rest of the company.
Compared to those two, setting up an office lease is about as hard as tying your shoelaces.
This has not been my experience. Given how localized real estate markets are, they haven't been subjected to efficiency-driving global competition. The result is every market has hidden oddities. Little details that are a nuisance if you know about them but a disaster if you bumble through the process.
For long-term commitments to a market, sure, it makes sense to own your plot. But for short-term assignments? Toes in the water? Being able to spin up an office with flown-in staff committed to for the short-term, to develop leads and/or find those skilled locals to hire, is a tactical advantage which doesn't presently exist.
Uber's product isn't rides. Uber's product is being the market-maker between riders and drivers.
Austin has a non-profit rideshare business that matches riders and drivers.
You've just described almost every company in the financial sector.
They do have some scale, and there's always the idea that you can move to a different office or reconfigure your space quickly. This has real value. Just not $50 billion worth.
Matt Stoller wrote a great post about it:
https://mattstoller.substack.com/p/wework-and-counterfeit-ca...
"Generally speaking, Softbank’s model is to manipulate private capital markets as a way of drowning out competitors with cash. For instance, there were several ‘rounds’ of WeWork investment where Softbank was buying more shares at higher valuations. WeWork ostensibly became more valuable because Son said it was more valuable, and bought shares for higher prices. And since there was no public market for these shares, the pricing of the shares was totally arbitrary. WeWork then used this cash to underprice competitors in the co-working space market, hoping to be able to profit later once it had a strong market position in real estate subletting or ancillary businesses.
Engaging in such a strategy used to be illegal, and was known as predatory pricing. There are laws, like Robinson-Patman and the Clayton Act, which, if read properly and enforced, prohibit such conduct. The reason is very basic to capitalism. Capitalism works because companies that thrive take a bunch of inputs and create a product that is more valuable than the sum of its parts. That creates additional value, and in such a model companies have to compete by making better goods and services.
What predatory pricing does is to enable competition purely based on access to capital. Someone like Neumann, and Son’s entire model with his Vision Fund, is to take inputs, combine them into products worth less than their cost, and plug up the deficit through the capital markets in hopes of acquiring market power later or of just self-dealing so the losses are placed onto someone else."
No evidence of fraud, no. But cheating is not necessarily fraud because not all rules are codified as law. There is cleverly devious cheating, like a lot of what Gates and Jobs did in the 80s. That's cheating, but it's clever and it's cute so we think of it positively.
Then there's cheating as in pretending to defy the laws of economics, which is what WeWork did. They were trying to scale out of a business that loses money on the marginal dollar. Nothing illegal about that. But together with Masa Son's spigot of Saudi cash and Neumann's rampant self dealing, I'd go ahead and qualify it as cheating.
WeWork's revenues already cover its rent costs even at just 70% occupancy.
I still don't see this "cheating" you speak of.
The social focus is indeed different but I wouldn't call that alone a massive paradigm shift.