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WeWork Isn’t a Tech Company

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Re: WeWork Isn’t a Tech Company

#171

Post by fl0wenol »

dumbfoundded wrote: post #60
mrtksn wrote: post #32

I really don't understand the negativity on HN towards WeWork. In principle, how it is different than AirBnB or Uber in regard of being a tech company? It's not like Uber or AirBnB's core compentancies are tech, I'm sure WeWork can also build a dev team making frameworks and research that some day might be used in their core business. The article argues that the difference is that Uber, AirBnB, Yelp, Twitter is a tec…

The primary difference is the marginal cost of an additional customer. The definition of a tech company (at least for investors) isn't really about technology, it's about a near $0 marginal cost of adding an additional customer. A great example of this is Facebook. For someone to sign up and start using Facebook, it really doesn't cost Facebook anything. Facebook probably only thinks about scaling in terms of orders…

Would you consider a company like Ticketmaster a tech company in that case?

What about pre-merger DirecTV?

(In the former case I think it pretty much meets the definition but is not traditionally thought of in this way; in the latter I think they are very dependent on low-margin but non-zero scaling but clearly tech-enabled in the same Netflix has become)

Re: WeWork Isn’t a Tech Company

#172

Post by milquetoastaf »

rossdavidh wrote: post #149
polygotdomain wrote: post #66

Earlier quoted context omitted.

Each WeWork office has an SPE that's just for that lease. Every landload wants WeWork on the lease, but won't get it, as WeWork tends to have significant leverage with either the space that they're going after or the desire to have WeWork on the rent roll. When things are booming, WeWork is advantageous for landlords, and appraisers/the market/potential buyers will underwrite that space positively. However, there's m…

I believe you, but in markets like Austin, TX (where I live) it seems odd that a landlord would not just hold out for a more orthodox lease, since there is some shortage of retail space and rental rates are high. What am I missing as to why they would lease to such an SPE?

The branding. You can hold out for a high "orthodox" lease like storefronts in the West Village in NYC are doing (lots of famously ritzy streets dotted with vacancies) or you can hand the problem to We and use their network effect as leadgen.

Re: WeWork Isn’t a Tech Company

#173

Post by mrtksn »

ohashi wrote: post #125
mrtksn wrote: post #93

Earlier quoted context omitted.

i’m not convinced that this is true because they can embrace the Uber or AirBnB business models to do just that. If They can be Tech companies, WeWork can too. I suspect that the value is in the brand, just like with the Uber or AirBnB. Making a booking software or mobile app is not such a big deal but they are called tech companies for some reason.

Your argument is the company can pivot post-IPO to something it's never done and it's magically a successful tech company? I feel like you didn't read the article or being purposefully dense.

But the thing that “never done” is not some technology. How this will change the status of WeWork as a tech company or not?

Also I wouldn’t call it pivot, their users even don’t have to notice a thing. They can do it concurrently. Pretty much like McDonalds owning some of the restaurants and providing franchises to the rest.

Re: WeWork Isn’t a Tech Company

#174

Post by dumbfoundded »

fl0wenol wrote: post #171
dumbfoundded wrote: post #60

Earlier quoted context omitted.

The primary difference is the marginal cost of an additional customer. The definition of a tech company (at least for investors) isn't really about technology, it's about a near $0 marginal cost of adding an additional customer. A great example of this is Facebook. For someone to sign up and start using Facebook, it really doesn't cost Facebook anything. Facebook probably only thinks about scaling in terms of orders…

Would you consider a company like Ticketmaster a tech company in that case? What about pre-merger DirecTV? (In the former case I think it pretty much meets the definition but is not traditionally thought of in this way; in the latter I think they are very dependent on low-margin but non-zero scaling but clearly tech-enabled in the same Netflix has become)

Honestly, I haven't done any research on Ticketmaster so I'll spell out my thinking more hypothetically.

Ticketmaster has a $0 marginal additional customer cost. That's great. That's the model of a tech company. The real question is where the ceiling is for scaling event offerings. I don't know if Ticketmaster has enough dominance in negotiation to basically get listings for free and 100% penetration of events. I'm sure Netflix doesn't get shows/movies for free. Most tech companies have a ceiling. Generally, that ceiling is defined by the market.

If ticketmaster already has monopolistic dominance in event tickets, there's not really a way to increase the size of the business. At that point for valuations, you start using a discounted cash flow model with some risk built in for the competition.

The reason companies like Facebook and Google show enormous multiples is because the size of their market is basically the internet. When pricing the stock, people expect Google and Facebook to continue growing. Once everyone is online, the multiples should decrease substantially.

Re: WeWork Isn’t a Tech Company

#175

Post by toomuchtodo »

rossdavidh wrote: post #149
polygotdomain wrote: post #66

Earlier quoted context omitted.

Each WeWork office has an SPE that's just for that lease. Every landload wants WeWork on the lease, but won't get it, as WeWork tends to have significant leverage with either the space that they're going after or the desire to have WeWork on the rent roll. When things are booming, WeWork is advantageous for landlords, and appraisers/the market/potential buyers will underwrite that space positively. However, there's m…

I believe you, but in markets like Austin, TX (where I live) it seems odd that a landlord would not just hold out for a more orthodox lease, since there is some shortage of retail space and rental rates are high. What am I missing as to why they would lease to such an SPE?

Confidence of rapid re-leasing in the event of WeWork default (which makes sense in a high demand area like Austin).

Disclaimer: Landlord

Re: WeWork Isn’t a Tech Company

#176

Post by mrtksn »

dumbfoundded wrote: post #174
fl0wenol wrote: post #171

Earlier quoted context omitted.

Would you consider a company like Ticketmaster a tech company in that case? What about pre-merger DirecTV? (In the former case I think it pretty much meets the definition but is not traditionally thought of in this way; in the latter I think they are very dependent on low-margin but non-zero scaling but clearly tech-enabled in the same Netflix has become)

Honestly, I haven't done any research on Ticketmaster so I'll spell out my thinking more hypothetically. Ticketmaster has a $0 marginal additional customer cost. That's great. That's the model of a tech company. The real question is where the ceiling is for scaling event offerings. I don't know if Ticketmaster has enough dominance in negotiation to basically get listings for free and 100% penetration of events. I'm s…

So the tech in "Tech company" doesn't stand for technology but for "scalable"?

Re: WeWork Isn’t a Tech Company

#177

Post by hn_throwaway_99 »

momokoko wrote: post #169
rlucas wrote: post #20

It's a 1920s (pre-FDIC) bank, or a 2008-style risky financial instrument, like an Auction-Rate Preferred. WeWork's business model is "borrow short, lend long." That is, they accept very short term promises to pay (month to month leases from customers), and aggregate them to make very long term promises to pay (mutli year leases from suppliers). Keep the spread. This works as long as there are lots of customers who wi…

Because someday, if it works out, they won't be on the lease at all. Real estate owners will pay them a fee for their facility to be in the WeWork network. The current leases they hold are there to get the flywheel going on the network effect.

Is this satire?

Re: WeWork Isn’t a Tech Company

#178

Post by rbg246 »

chiefalchemist wrote: post #110
polygotdomain wrote: post #66

Earlier quoted context omitted.

Each WeWork office has an SPE that's just for that lease. Every landload wants WeWork on the lease, but won't get it, as WeWork tends to have significant leverage with either the space that they're going after or the desire to have WeWork on the rent roll. When things are booming, WeWork is advantageous for landlords, and appraisers/the market/potential buyers will underwrite that space positively. However, there's m…

> The losers in the WeWork deal are the landlords, as they're bearing a lot of the risk, and get minimal upside. Couldn't this be interpreted differently? That is, landlords are having less and less choice. Something from WW is better than an empty building. Is WW a canary of sorts? It tells us about changes in the economy (less growing small to mid-size companies in major metro area?), as well as the health and stre…

Yes and No. Part of the No answer is that as an real estate investment company your building's worth is effectively present value of future rent, so sometimes it's better to preserve the valuation of your building rather than set a new market rent which will negatively affect your building valuation which in turn affects the cost of financing your building etc etc etc

So you get an extra $1m in rent but it now costs you an additional $2m in interest costs financing your building and your share price (or the building capital valuation) has now dropped 15%.

Sorry totally simplified example...

Re: WeWork Isn’t a Tech Company

#179

Post by hn_throwaway_99 »

morpheuskafka wrote: post #133
nostromo wrote: post #24

Earlier quoted context omitted.

This isn't that dissimilar from lots of industries. Every airline that takes a loan to buy a plane is banking on future demand for air travel, for example. Or take Amazon Web Services, which is building data centers to lease out on a short term basis. Yes, there are tremendous risks involved, depending on the lease terms. But it's not at all unusual.

AWS is really a good comparison. It turned buying a server and getting an annual colo lease into "per-second" billing, and WeWork offers per-day pricing for office real estate instead of an annual lease.

Except AWS does a whole lot more than just let you rent generic EC2 instances by the hour. They have sooo, sooo, sooo many custom services that their lock-in is huge. It would be extremely painful for any sizable customer on AWS to switch (my previous comment on the subject: https://news.ycombinator.com/item?id=20339381).

No such lock-in exists with WeWork. In fact the entire reason for WeWork's existence is it doesn't have lock-in.

Re: WeWork Isn’t a Tech Company

#180

Post by crummy »

morpheuskafka wrote: post #133
nostromo wrote: post #24

Earlier quoted context omitted.

This isn't that dissimilar from lots of industries. Every airline that takes a loan to buy a plane is banking on future demand for air travel, for example. Or take Amazon Web Services, which is building data centers to lease out on a short term basis. Yes, there are tremendous risks involved, depending on the lease terms. But it's not at all unusual.

AWS is really a good comparison. It turned buying a server and getting an annual colo lease into "per-second" billing, and WeWork offers per-day pricing for office real estate instead of an annual lease.

Stratechery digs more into this comparison, which really helped me understand the value of WeWork.

https://stratechery.com/2019/the-wework-ipo/

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