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WeWork IPO Shows It's the Most Magical Unicorn

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Re: WeWork IPO Shows It's the Most Magical Unicorn

#151

Post by buboard »

bcherny wrote: post #93
jngreenlee wrote: post #77

Earlier quoted context omitted.

I really like your analysis here and it made me think. Ultimately, for control of many of these issues, a localist approach is superior..understand the local culture, etc. Maybe a coworkery in La Jolla would have surfboard racks and a tacit understanding that surfing comes first...so allowance for wet gears (and showers) might be needed. Maybe a location in Boulder has community climbing gear and/or a bouldering wall…

Like any big, multi city real estate broker, the benefit of scale is diversification over local real estate markets, and less risk. A single WeWork in one city is risky due to fluctuations in real estate, economics, labor supply, competition, etc. a thousand locations are less risky, since the company can still exist even if a local market tanks for a year.

OTOH setting up a coworking space is not risky for real estate owners. Couple of desks and a coffee machine. Wework may be setting itself up to be airbnb'd by everyone who has available space in the future.

Re: WeWork IPO Shows It's the Most Magical Unicorn

#152

Post by ageitgey »

mpswardle wrote: post #141
tomhoward wrote: post #69

I have a bit of knowledge of the co-working industry. I’m good friends with the founder of the first and long-dominant tech/creative co-working space in my Australian city, and I served on its advisory board in the past couple years, through what turned out to be a distressed sale of the business to its landlord, after it became insolvent and unsalvageable. There are several fundamental flaws with the concept that ma…

>1) Difficult/unpredictable/uncontrollable customer retention I don't think this is the case in a lot of WeWorks anymore, i work in a WeWork and the majority of companies are now bigger corporates. Goldman Sachs just took 2 floors in the WeWork next to us. It's actually quite hard to find a largeish Co-Working space in London as it moves so quickly and so much space is being taken by corporates buying entire floors.

One WeWork in London (125 Shaftesbury Avenue) even "closed" to the public as Facebook leased out the entire facility.

As far as I can tell, WeWork is not really a coworking business. It's a large-scale office space leasing business that uses coworking as advertising.

Re: WeWork IPO Shows It's the Most Magical Unicorn

#153

Post by Traster »

BackwardsTurtle wrote: post #112
tomhoward wrote: post #69

I have a bit of knowledge of the co-working industry. I’m good friends with the founder of the first and long-dominant tech/creative co-working space in my Australian city, and I served on its advisory board in the past couple years, through what turned out to be a distressed sale of the business to its landlord, after it became insolvent and unsalvageable. There are several fundamental flaws with the concept that ma…

I've been involved in real estate and the coworking scene in Shanghai for the last 3 years and you've hit the nail on the head. Customer retention is even worse here, as so many spaces keep opening up and offering huge discounts to move in. At first WeWork kept their price the same at an average of 3,000RMB desk/month (600AUD per month), then local competition came in at under 2,000RMB, then WeWork did 3-6 months fre…

I don't think Landlords are winning from this. In fact I think it's interesting that this dynamic is actually going to hose landlords the worst.

Right now we have a situation where companies like WeWork are creating huge amounts of demand by offering extremely low rents to tenants on short leases and renting spaces from landlords on long term leases at high prices. This is stimulating the creation of more office space.

If this continues for a long time, great landlords are rolling in it! But if we're right about how this is going to go - these companies are going to run out of money, and when they do run out of money, they're just going to fail to pay those long term leases. The landlords are the ones left holding the bag - they'll have a load of office space with broken contracts, that there's no demand for, because all the demand was stimulated by renting it out at a loss.

At that point the bottom will fall out of the market. Landlords will be stuck with a load of broken contracts, tenants will have unrealistic expectations and demand will collapse as people go back to working in cafes etc.

Re: WeWork IPO Shows It's the Most Magical Unicorn

#154

Post by ageitgey »

OkGoDoIt wrote: post #128

One thing I never see mentioned in any analysis of WeWork is Regus, which does more or less the same thing but with less fanfare. They’ve been running coworking spaces and short term office rentals around the world for a long time. Do the two companies have similar business models? Can we look to Regus’s long history to better analyze WeWork’s prospects? It’s not like WeWork invested co-working spaces, so I don’t und…

I've worked at a lot of different WeWork locations in different cities and countries. They are essentially Starbucks for working - you get the exact same product in every location and it is "good enough". The overall product is definitely designed for a younger generation, but it is very easy and fast to use.

I've also used Regis occasionally when a WeWork wasn't nearby. It was like stepping back 30 years into the past. Instead of getting my corporate-allocated portion of predictable factory-generated open office space, I got what was equivalent to a random left-over desk at your weird uncle's small town real estate agent office 25 years ago.

The whole Regis experience felt like something from the mid-90s. It was a whole different thing than WeWork. The crowd skewed 30 years older and heavily into non-tech industries, the architecture was very "90s small office", etc. I honestly felt like I would turn a corner and see someone using a Packard Bell 486 with a giant CRT. That's how much it reminded me of working in offices in the 90s.

I'm not saying one is good and the other is bad depending on what you need. WeWork often comes off as a parody of itself and can be a ridiculous place to work. But WeWork is also something that most people in their 20s think is a "fun place" where you just "hang out with your friends" where as the Regis offices would probably feel like an old school work prison to them.

I think WeWork is probably a ridiculous business in the long run and I'm not convinced they are even a "coworking" business at all, but I'm happy to spend their VC money to get free office space as long as they want to give it out. Likewise, I can also totally understand why Regis would never excite any investor.

Re: WeWork IPO Shows It's the Most Magical Unicorn

#155

Post by pjc50 »

cm2187 wrote: post #139
tomatocracy wrote: post #46

Earlier quoted context omitted.

Sorry to disappoint you but I'm not sure I agree here. It doesn't feel much different to 2006/07 - ie peak of the cycle in real estate for the City (not to say that I think the bust will be like 2008/09 but that I think there really is a clearly cyclical element to it). The City is not a place families typically want to live because it has very little green space - and it's largely not a place marketed to families. H…

Plus I believe the City of London has a policy of avoiding owner occupied apartments blocks. Once a building is owned by 600 people, there is no way you can buy it, demolish it to build something more adapted to the new demand.

Interesting, since I knew someone who lived in a City of London owned tower block (not actually in the City proper) as an owner-occupier. It was a 60s building with flimsy single-glazed windows and unreliable lifts, which made it affordably bad in the first place.

Re: WeWork IPO Shows It's the Most Magical Unicorn

#156

Post by pjc50 »

tomhoward wrote: post #86
jngreenlee wrote: post #77

Earlier quoted context omitted.

I really like your analysis here and it made me think. Ultimately, for control of many of these issues, a localist approach is superior..understand the local culture, etc. Maybe a coworkery in La Jolla would have surfboard racks and a tacit understanding that surfing comes first...so allowance for wet gears (and showers) might be needed. Maybe a location in Boulder has community climbing gear and/or a bouldering wall…

> So, does scale lend _any_ benefit? Certainly the "network" of locations might help...but what % of tenants are really and truely jet-setters off to many major cities, versus those that stay close to home and just need a regular space out of the house. I don't think scale is that vital in this view. Spot on here. They are building for a world in which everyone is location-and-asset-independent. Don't need a car beca…

> Don't need a car because we have Uber/Lyft. Don't need a home as we have Airbnb. Don't need an office as we have WeWork. Etc.

This is the "Stand on Zanzibar" / "Future Shock" world, and it looks alarmingly plausible. Alarming because all those things are so fragile to cashflow issues and the general insecurity problems of being a renter rather than an owner. And plausible because of what's currently happening with AirBnB: because it enables arbitrage between the "residential" and "hotel" prices, it has the potential to force all residential prices up to hotel levels.

Re: WeWork IPO Shows It's the Most Magical Unicorn

#157

Post by ageitgey »

tomhoward wrote: post #69

I have a bit of knowledge of the co-working industry. I’m good friends with the founder of the first and long-dominant tech/creative co-working space in my Australian city, and I served on its advisory board in the past couple years, through what turned out to be a distressed sale of the business to its landlord, after it became insolvent and unsalvageable. There are several fundamental flaws with the concept that ma…

I don't think WeWork is a co-working business anymore and I think they silently pivoted over the last few years based on exactly the business reasons you've laid out in your comment. This is my working theory after having spent the last 2-3 years working out of a lot of different WeWorks and having a lot of friends do the same and having friends who were in the coworking business too.

WeWork and AMEX are currently offer a deal when if you get an Amex Business Platinum card, they give you unlimited hot desk access to any WeWork in the world for a year. You can work for an entire year for free (even in super high cost places like NYC, SF, London, etc.), even if you are already a paying WeWork member. All my friends and I cancelled our WeWork memberships and moved to AMEX. It's saving me >$6k this year and I get a better product than I had as a paying user.

This has led me to visit a lot of WeWork locations:

- In my experience, most of the WeWorks in the world don't have that many "coworkers". Most of the people in the buildings are at traditional companies renting office space. The companies renting space are frequently giant corps like Netflix or Facebook getting spill-over space when their main office is full. (There are exceptions like the WeWorks in downtown SF where there are lots of coworkers, but it is not the norm.)

- WeWork places so little value on the income from shared desk "coworkers" that they will give away the product completely for free as a loss leader to grow the brand and entice more people to try out the product and rent a larger space.

- Entire WeWork locations will just "shut down" to the public if WeWork manages to lease all the space to a company like Facebook. See 125 Shaftesbury Avenue in London. Obviously they care more about leasing to a big company than running shared office space.

My take is that they are trying to be Starbucks for renting office space. This product is very convenient and it has a lot of value, but I don't think it is a "tech company" and I don't think it justifies the current valuation level because the margins aren't there. But who knows what the market will think.

But two things are crystal clear to me:

1. I would get out of the coworking business if I was trying to compete with WeWork. I couldn't possibly offer the quality of product (pretty good) at their price point (as low as $0) unless I had unlimited piles of VC money to burn.

2. If you are doing independent consulting or remote dev and don't need traditional fixed office space, you might as well help them spend their VC money by using their space.

Re: WeWork IPO Shows It's the Most Magical Unicorn

#158

Post by awshepard »

skewart wrote: post #83
kolbe wrote: post #37

What I don't get is how small some of these numbers are. Weren't some of the figures being tossed around valuing it at $40bn? And their revenues are in the low single digit billions. It's one thing to get sucked in by a company like Uber who does $50b+ in rides, and think how valuable they could be if they figured out how to earn a meaningful chunk of that pie, but WeWork earns virtually no money, and exists in one o…

The optimistic case for WeWork is that they have a shot to become an extremely powerful player in the office real estate market. The idea is that they could get to a place where most big companies looking for office space would prefer to do it from WeWork because it's better than leasing directly from a building owner. And most building owners would prefer to lease their space to WeWork because it's better than tryin…

Great analysis and comment. A question though - was MoviePass's flameout ("dictate terms to suppliers ... didn't exactly turn out well") because Hollywood/the movie industry is far more consolidated and cartel-like than expected/imagined? And more consolidated than for instance, distributed commercial building owners?

I agree network effects will come into play - the more WeWork can capture the demand side, and abstract it away from the supply side ("who else are the owners going to lease to"), the more powerful they'll become over the supply side. But are commercial owners organized enough to resist?

Re: WeWork IPO Shows It's the Most Magical Unicorn

#159

Post by samgtx »

deckard1 wrote: post #96
erikpukinskis wrote: post #89

Earlier quoted context omitted.

> Don't need a home as we have Airbnb. Don't need an office as we have WeWork. Etc. > But the market of people who live that way is [A] still small, and [B] will always be somewhat small I agree with A, but not B. To me this is a classic disruptive tech scenario. Right now living in hotels and working in coffee shops is strictly worse than having a home and an office for almost everyone. A few people who have very sp…

> Right now living in hotels and working in coffee shops is strictly worse than having a home and an office for almost everyone Maybe it's just the WeWork I've been it, but it was every bit as loud and distracting as a Starbucks. The glass fishbowl offices constantly remind you other people are walking around you. You see them, they see you. In addition, the one I was in had the bright idea of installing hardwood flo…

It surprises me that they don't offer quiet cubicles or areas of office space for quiet workers. I see noise of coworkers as a major complaint among office workers and the source of hatred for open concept offices. Do these WeWork offices not have separated work spaces?

Re: WeWork IPO Shows It's the Most Magical Unicorn

#160

Post by samgtx »

buboard wrote: post #151
bcherny wrote: post #93

Earlier quoted context omitted.

Like any big, multi city real estate broker, the benefit of scale is diversification over local real estate markets, and less risk. A single WeWork in one city is risky due to fluctuations in real estate, economics, labor supply, competition, etc. a thousand locations are less risky, since the company can still exist even if a local market tanks for a year.

OTOH setting up a coworking space is not risky for real estate owners. Couple of desks and a coffee machine. Wework may be setting itself up to be airbnb'd by everyone who has available space in the future.

But doesn't that mean that WeWork could become the AirBnB by making itself the app/website where all of these independent landlords list their office spaces and where workers go to rent them?
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