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WeWork and Counterfeit Capitalism

mattstoller.substack.com

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Re: WeWork and Counterfeit Capitalism

#401

Post by phlakaton »

vintermann wrote: post #349
phlakaton wrote: post #314

Earlier quoted context omitted.

My mother-in-law did just that and is doing fine, thank you very much. May not be the world-beating "money in it" as you define it, but for the small business she's running it's viable.

Ask her what she thinks of Amazon and how she views the future.

Would it shock you to know these topics have already come up in the family, and have since day one? Or that she herself is an Amazon customer?

Somehow, she still finds a way to sell books and make some money, as well as highlight local authors and sell trail guides. The Barnes & Noble down the road, to be frank, seems to be her bigger headache.

Re: WeWork and Counterfeit Capitalism

#402

Post by smogcutter »

bluGill wrote: post #379
smogcutter wrote: post #346

Earlier quoted context omitted.

Huh? That’s not how I remember it at all. You ordered from the catalog and then waited three weeks. If you were going to pick up in the store, why not just go to the store instead of calling an 800 number and reading off your credit card info? There was a whole Seinfeld episode about how the only mail anyone got anymore was catalogs. Per FRED[1], monthly mail order sales doubled from 1992 to the end of 96. Obviously…

You picked up in store because there was free shipping to the sears store in town. You didn't go to the sears store in town because it didn't have very much inventory. Note that we are talking about small rural towns in the middle of nowhere. When sears started most of the population was either a farmer, or lived in a small town in farm country. If you lived in a large city you could go to a department store downtown…

Sure, but we were talking about Amazon. The state of mail order retail in the 1930s isn’t super relevant.

Re: WeWork and Counterfeit Capitalism

#403

Post by rossdavidh »

short_sells_poo wrote: post #262
rossdavidh wrote: post #243

Earlier quoted context omitted.

Two possibilities: 1) Jamie Dimon and Softbank/Saudi Arabia are the only idiots here, and everybody else just chipped in relatively small amounts; neither could be considered classically "SV VC". 2) Similar to many people deciding to all buy the same stock at the same time, bidding it up far beyond it's real value but hoping to sell before everyone else realizes it, the VC money was thinking that the sheer size of th…

Sorry I should've been more specific. I didn't mean this valuation specifically. We is really looney bin category. I mean the industry as a whole.

Oh, well in that case, it's a combination of: 1) lying, and... 2) there are no better numbers available for an early stage company. You can't go by profitability or revenue early on, because there's a lot you need to do before you get your first customer, and some of that continues to pay off. So, in the absence of reliable measures of value (a long history), they make do with the least bad method available (how much did somebody guess it would be worth).

I think also, if you have to find a place to park billions or tens of billions of dollars, it's easy to convince yourself that the $10million company you're looking at is worth a billion, or the $1billion company you're looking at is worth ten billion. The alternative is to go back to your own investors and say, "sorry, there's not enough good ideas out there to invest in, here's your money back". It's got to be hard to convince yourself that's the least bad option.

Re: WeWork and Counterfeit Capitalism

#404

Post by cosmie »

perl4ever wrote: post #285
mrkurt wrote: post #111

Earlier quoted context omitted.

It's more complicated than that. When you're the sole survivor, you have a lot of options. In Amazon's case, what they have is immense leverage over the whole supply chain. Amazon extracts higher margins from manufacturers, shipping, etc, etc. And they have enough influence that people pay them $80/year for the privilege of being a customer.

Is Amazon really much more than an arbitrage on people's desire for "free shipping" at this point? The last time I wanted to buy something online, the price plus shipping elsewhere was noticeably cheaper than with free shipping on Amazon.

The majority of shoppers do not actively price shop. If they do at all, they do so passively in the form of selecting a retailer based on perceived prices (i.e. they may not compare pricing between Target and Walmart on specific items, but they may choose to go to Walmart due to the perception of Target being more expensive).

At this point, Amazon is riding on the momentum created from their previous habituation. They built up a (true) reputation for being incredibly cost competitive for the products they carried, and enabled minimally delayed gratification in the form of 2, 1, and same day shipping. Because of this, they became the retailer of first choice and people only went elsewhere if Amazon didn't have the product they wanted.

Then they widened their inventory to items that weren't as capable of being efficiently shipped in individual units with last mile residential delivery. They also shifted more and more to holding less inventory on their own books and having third party sellers fill that void. And then had to start collecting taxes nationwide so they could more easily build out their distribution network without tax-related geographic constraints. All of which led to more and more price inflation.

But Wikipedia says it best[1]:

"New behaviours can become automatic through the process of habit formation. Old habits are hard to break and new habits are hard to form because the behavioural patterns which humans repeat become imprinted in neural pathways,[7] but it is possible to form new habits through repetition."

As long as consumers default to Amazon, they'll never notice how uncompetitive some of their product pricing has become. And as long as Amazon's inventory keeps expanding and they get closer and closer to instant gratification from compressed delivery timelines, consumers will have little reason to look beyond Amazon and change their habits.

[1] https://en.wikipedia.org/wiki/Habit

Re: WeWork and Counterfeit Capitalism

#405

Post by polygotdomain »

bluGill wrote: post #185
polygotdomain wrote: post #72

Earlier quoted context omitted.

>Amazon saw what the marginal costs could be, and had a specific roadmap to drive investment into bringing them down. WeWork fundamentally has no way to drive down the margin on real estate in any meaningful way. Especially as a lessee. It absolutely has a way; hold landlords hostage. They've got another WeWork 4 blocks away. WeWork can walk, and leave landlords with a lot of space to lease and an expensive buildout…

I don't see how. WeWork would need to be a large player for this to work out. Landlords in office parks will rent to anyone. WeWork can threaten to walk, but the landlords can just offer the space they left to someone else - they might not supply beer, but rent is cheaper so you can bring your own and still save. Or they can offer beer if that is what customers demand. There is nothing WeWork is doing that a small La…

In comparison to nearly any other tenant, they are quite large and also structured quite differently. Other large tenants put similar pressure on tenants, with the clearest example I can think of being anchor grocery stores in strip malls.

The issue is not that landlords can't relet the space, but in the additional cost and the lost revenue of doing so. WeWork has large blocks of space, and in many cities, multiple locations within a single submarket or adjacent ones. If WeWork decides to go dark, that's a significant block of space coming to market, which will drive down market rates. Landlords know this.

The other challenge is that there may not be a prospective tenant willing to take the amount of space that WeWork has, meaning a lot of CapEx to split up the space just to make it marketable. WeWork's buildouts are expensive, and they likely will not work for many tenants, so there will likely be significant costs to the landlord to get new tenants into the space.

There's also a good chance that the spaces WeWork leases may have been hard to lease in the first place. There are reasons why you'd want to take another tenant as opposed to WeWork if you're going to be getting the same facerate for the space.

>There is nothing WeWork is doing that a small Landlord cannot

Yes and No. For an individual WeWork location, your correct. At that level, it's more of an operational concern which the landlord could potentially take over. However, you need tenants and those tenants are attracted to WeWork, not the landlord itself. WeWork has the brand that brings in the leases, not the landlord. We've yet to see what happens when a WeWork location goes dark. Yes, the landlord could just take over the day to day and cut out the middle man. But it's not clear how the tenants themselves would respond to that.

The other side is that landlords don't want to operate and manage these short term leases. It's the reason why there was Regus before and why WeWork took off. The thing is that Regus wasn't really a desired tenant. WeWork has been a darling, but the tides could change quickly.

Re: WeWork and Counterfeit Capitalism

#406

Post by polygotdomain »

imtringued wrote: post #375
polygotdomain wrote: post #72

Earlier quoted context omitted.

>Amazon saw what the marginal costs could be, and had a specific roadmap to drive investment into bringing them down. WeWork fundamentally has no way to drive down the margin on real estate in any meaningful way. Especially as a lessee. It absolutely has a way; hold landlords hostage. They've got another WeWork 4 blocks away. WeWork can walk, and leave landlords with a lot of space to lease and an expensive buildout…

They can't hold landlords hostage. The best they can do is to cancel the lease and convert WeWork into an Airbnb style platform that lets the landlord rent out their office space as a workspace. This shifts most of the risk to the landlords and WeWork can simply take a transaction fee as a middle man.

Landlords don't want to do that, or else they wouldn't have had the need to rent to WeWork in the first place. Landlords like the risk profile of having an entity in the middle. There are significant operational costs of doing this, and in some cases there may be legal or tax provisions that prevent a landlord from doing so.

Re: WeWork and Counterfeit Capitalism

#407

Post by polygotdomain »

throwaway744678 wrote: post #152
polygotdomain wrote: post #72

Earlier quoted context omitted.

>Amazon saw what the marginal costs could be, and had a specific roadmap to drive investment into bringing them down. WeWork fundamentally has no way to drive down the margin on real estate in any meaningful way. Especially as a lessee. It absolutely has a way; hold landlords hostage. They've got another WeWork 4 blocks away. WeWork can walk, and leave landlords with a lot of space to lease and an expensive buildout…

My understanding is that WeWork has long term commitment with the landlords, and cannot walk out of it, thus canceling their leverage.

The entity on the lease is a single SPE that is specific for that one lease. The landlords to not have the We corporation behind the lease itself. WeWork is fully aware of the possibility that their business model does not become as profitable as they've portrayed and left themselves the back door of getting out of leases. Landlords don't like it, but WeWork does not budge on this in negotiations.

Re: WeWork and Counterfeit Capitalism

#408

Post by JumpCrisscross »

davidajackson wrote: post #377
JumpCrisscross wrote: post #188

Earlier quoted context omitted.

> Why can't they be held responsible for the foolishness of their actions? Because it's politically difficult. Sometimes, infeasible. The public often pays for defrauded grandmas' mistakes. There are also positive externalities to stable business environments. Diligence costs money. Putting some of that cost on the issuer, once, is more efficient than each investor incurring it. Consistent rules around fraud and disc…

But she can buy lottery tickets without understanding that her odds of a profit are worse than jumping on an ICO? Seems hypocritical to me. I'm no expert about legal matters. I'd appreciate if someone else can chime in here. But I found this with a brief search: "To be an accredited investor, a person must have an annual income exceeding $200,000, or $300,000 for joint income, for the last two years with expectation…

> How is the SEC supposed to test that you can assess good business ideas/risk efficiently?

Diligence costs money. Legal diligence costs more money. Deep, expensive diligence is pretty much required for private market investing, setting a lower-bound threshold on transaction sizes.

Someone who can’t make that minimum size will thus either invest (a) more than they can lose or (b) based on insufficient diligence. The first leads to getting screwed and second leads to getting screwed.

Re: WeWork and Counterfeit Capitalism

#409

Post by davidajackson »

i_cant_speel wrote: post #398
davidajackson wrote: post #377

Earlier quoted context omitted.

But she can buy lottery tickets without understanding that her odds of a profit are worse than jumping on an ICO? Seems hypocritical to me. I'm no expert about legal matters. I'd appreciate if someone else can chime in here. But I found this with a brief search: "To be an accredited investor, a person must have an annual income exceeding $200,000, or $300,000 for joint income, for the last two years with expectation…

You sort of answered your own question. Yes, there are people who are smart but poor. But they are significantly outnumbered by those who are poor but don't have great financial/investment sense. Since there isn't really a good way to differentiate between the two, you have to choose between letting many people be scammed to enable the few to invest or prevent the few from investing to protect the majority.

In your argument, the sum of all wealth for the lower class is what's being optimized for here, which you claim is a good thing. We can prevent the most money loss by restricting movement of capital. I happen to disagree with this but's let's table that and look at an analogy.

Say you take that argument and apply it to education. Poor people are generally less educated. Does that mean we should optimize limited budgeting resources to only teach to the average denominator to maximize total knowledge among lower classes (increasing value among many, just as we did with your previous argument)? This means the needs of many outweigh the ability of a few to move up.

I don't think it makes sense to hold back a few ambitious people for the good of everyone, when those few are not adversely responsible for other people's losses.

Re: WeWork and Counterfeit Capitalism

#410

Post by bluGill »

polygotdomain wrote: post #405
bluGill wrote: post #185

Earlier quoted context omitted.

I don't see how. WeWork would need to be a large player for this to work out. Landlords in office parks will rent to anyone. WeWork can threaten to walk, but the landlords can just offer the space they left to someone else - they might not supply beer, but rent is cheaper so you can bring your own and still save. Or they can offer beer if that is what customers demand. There is nothing WeWork is doing that a small La…

In comparison to nearly any other tenant, they are quite large and also structured quite differently. Other large tenants put similar pressure on tenants, with the clearest example I can think of being anchor grocery stores in strip malls. The issue is not that landlords can't relet the space, but in the additional cost and the lost revenue of doing so. WeWork has large blocks of space, and in many cities, multiple l…

Many of those pressures also apply to WeWork staying in the same place.

For WeWork to leave a lot of space behind that means they are taking a lot of space elsewhere (or going out of business) Of course they can leave one space behind no problem, but that happens all the time. (though less valuable places may run into problems it was the same problem they had before). Large tenants leave all the time, it is a cost of business: you factor that into the lease terms.

If WeWork goes out of buisness that changes things, but those renting from WeWork need to do something, some will talk to the building owner about getting a lease on their current space, so it won't be as bad as you state (it won't be good either). This same can happen if WeWork decides to move: those who are using WeWork space may decide that the location is important and see about remaining in "their" space.

It will be interesting to see what happens.

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