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Is WeWork the real deal?

Happy Monday everyone! As some of you have probably seen, I was in Iran for the week, so this post re
Is WeWork the real deal?
By Alex Barrera • Issue #25 • View online
Happy Monday everyone! As some of you have probably seen, I was in Iran for the week, so this post remained in suspended animation until yesterday. I hope you enjoy today’s take on WeWork, their importance in the Real Estate business and what impact is this having on a whole generation. We’re heading into a new age of urban development and consumption. We don’t need to like it (My GenX gene flares up), but we need to understand it. Enjoy and please share what you think!
7 minutes read.

Is WeWork the real deal?
Photo by Charles Etoroma on Unsplash
Photo by Charles Etoroma on Unsplash
The way our generation is living is changing. It stands to reason that our needs as individuals are also shifting. However, we resist acknowledging that change is affecting more than just our news consumption habits.
One of those spaces that we refuse to recognize is the transformation of work. The most significant testimony of this shift is the rise of coworking spaces. And within that movement, one brand outshines the rest, WeWork. With a 4.5 billion dollars war chest and a 20 billion dollar valuation, it’s becoming hard to ignore. 
Number of coworking spaces worldwide from 2005 to 2018 - Statista
Number of coworking spaces worldwide from 2005 to 2018 - Statista
For many, though, WeWork remains a mistake, or a fluke and coworking is just another millennial fad. Detractors are quick to point out that WeWork is an over-glorified Regus. A reseller of office space catered to the hipster echelons of tech society. This speed of judgment is preventing us from understanding why WeWork matters.
The company started as a coworking space but limiting its scope to that is myopic. Many journalists and professionals, though, are quick to dismiss WeWork’s innovative approach.
“WeWork’s coworking spaces give entrepreneurs space to work, and come equipped with amenities like free beer, stocked fridges, and Foosball tables.”

How WeWork became the most valuable startup in New York City
Let’s start with the obvious. WeWork isn’t only about space. If it were, then it wouldn’t have become one of the fastest growing coworking spaces in the world. The devil lies in the details.
Yes, the organization sells space, but not just any space. It acts as a broker between landlords that need to fill their space and companies that are looking for affordable office rents.
Most coworking companies pick any affordable space that allows them to offer cheap rent. This isn’t the case with WeWork. There is a careful study around where and what to rent. This alignment with the space providers allows them to negotiate what others can’t. 
Restricting WeWork’s value to real estate though is still too narrow. The company has been focusing on building community since day one. It’s not about the office; it’s about the sense of belonging. The attention to their tenant’s culture is one of the linchpins of WeWork’s success.
For all the talk about the importance of corporate culture, few organizations achieve healthy ones. In true cargo cult fashion, most companies try to mimic the fancy designs they see elsewhere. Plastering the office with motivational quotes, dropping bean bags or adding ping pong tables won’t do the trick.
WeWork’s attention to community and the fostering of an outstanding culture is unique. As sound designers, they’ve taken a human-centric approach and built their offerings around them.
An excellent example of this is their floor design and architecture. Every corner, every room, every desk is accounted for. They analyze from foot traffic to room occupancy. Nothing is random. They know that building a comfortable environment is critical for culture.
They get things wrong too. This isn’t an ode to the wonders of WeWork either. Growth, especially the one WeWork is undergoing, tends to derail specific details in favor of scale. But overall, their global footprint, design, and attention to certain important aspects of the decentralized office are winning the day.
Maybe one of the most undervalued aspects of the company is this affinity with the rise of the decentralized office. They listen, analyze and react to the new needs emerging from it. They understand the way work is changing, and they’re offering their own Amazon Web Services for the new workers.
It’s tempting to talk about entrepreneurs and startup employees as the new workers. It’s was equally attractive to think that only young people would use and want an iPhone. RIM learned their lesson. Many realtors, coworking owners, and companies are learning their lesson too.
New workers are everywhere. They’re not circumscribed to entrepreneurs. Remote, decentralized professionals are cropping everywhere. Technology is making “working at the local office” a thing of the past. Global competition is forcing companies to slim down their core employees and relay on vertical independent workers. These professionals work globally, require mobility and non-binding contracts. WeWork understands this better than anyone and is happy to oblige. 
Owning the value chain
But the most impressive aspect of the company isn’t the coworking; it’s culture, or it’s their understanding of the future of work. The most remarkable point is the vertical integration of their value chain. WeWork isn’t a coworking company; it’s a data startup.  
The Aleph Report
The Aleph Report
The company deploys an extensive IoT network in its buildings. Not only they track foot traffic or room occupancy, but they also analyze how people use their workspaces when they come and go, etc.
Construction Tech
Their data team then crunches these numbers to inform the lower end of their value chain. They’re capable of scouting and vetting their locations semi-automatically. Not only that, they are capable of locking it in and put it into production at tremendous speeds.
“Notably, the company can add space so quickly due to its construction chops and operational efficiency. After a location has been scouted and vetted, and a lease or co-management agreement is in place, the company can accept tenants in as few as 4 months, and on average does so within 9 months.”

WeWork’s $20 Billion Dream
The same information is pushed to their office design process, so they know exactly what to build and how. The construction is greatly enhanced by the use of data, 3D scanning of the space and the use of Building Information Models (BIM). The organization has invested heavily in this space, acquiring two startups to speed up the automation of this first phases.
While apparently this might not be important, their operational improvements regarding speed, stock, and redesigns, allows them to lower their cost of operation and increase their competitiveness beyond many other players. Its end-to-end data approach is unique and rarely seen in the Real Estate industry. They’re applying a startup mentality to the space, not a Real Estate one, hence their valuation.  
Upstream integration
But their value chain integration doesn’t only apply to the lower part of the chain, but the upper too. The company is pushing hard beyond the coworking space. One of their early moves was to set up their service platform, WeWork Store. It’s their App Store version for the WeWork family. More locations, more customers. The more substantial their customer base, the better deals and offerings they can give at their store. The better deals they offer, the more customers they attract. Thus building a powerful virtuous cycle that speaks of their aggregation power.
The store was the first natural step. Let’s equip our residents with better tools to do their job. What else does someone need to be happy at work? Easy, personal growth. WeWork is investing heavily in education for their members. They recently bought FlatIron School, a world-class coding academy, and partnered up with 2U, an online education platform. Want to change careers? The company will give you the tools to do it from your office space. Are you under a crushing debt from school? Don’t worry, WeWork has your back with their partnership with SoFi.
The message is clear. Come to WeWork, work with us, and we can help you grow and develop your career path. Aligned with that is their offering of startup accelerator-like services under WeLabs.
There are four things someone needs to be happy at work. A great space (check), access to useful tools (check), education (check) and inspiration from others (check).
The company is doubling down on their vision of what work should look like. They’re providing all the elements that Millennials value from their job.
Amazon Web Service style horizontal integration
WeWork though operates with plenty of risks. Their business model isn’t disruptive, as it’s the same play as Regus. They make money on the arbitrage between what they pay the landlords and what they charge their tenants (2x).
The company has been hard at work to mitigate their risk. One of their best plays has been what they call ‘Power By We.’ It’s their real-estate as a service offering for corporates. Now that they’ve automated most of the value chain, they can offer these same benefits to other landlords. Corporations save on rents thanks to the operational excellence and know-how from WeWork. The company makes money but diminishes their risk as they don’t own or operate these white-labeled spaces.
In other words, they’ve built a horizontal integration mimicking Amazon Web Services (AWS). They can know leverage their initial investment and scale infinitely, keeping their costs down while diminishing their risk.
WeWork isn’t a coworking; they are the data service company for the Real Estate at large. 
Future integrations
However, their vision is to provide the ultimate experience for Millennials. I opened this article stating that the way our generation lives is changing dramatically. Work is but one aspect of this shift. A much larger one is that that encompasses our living. We don’t buy houses, we rent. We don’t stay in the same location, we move. We don’t have local friends; we have international ones.
One of the consequences of this transformation is that typical rentals don’t fit the Millennial mindset anymore.
Enter the co-living movement. What if we applied the same culture, community and space designs to living quarters instead of office space? That’s what WeWork has been trying to do with their co-living brand WeLive.
They aren’t the first ones by any stretch. They weren’t the first ones to do coworking either. Nonetheless, their know-how of this ‘co-generation’ might give them an edge on this next wave.
So far they haven’t been doing well with WeLive. Time will say if they end up owning this space too. What’s clear is that they’re experimenting in many ways around the concept.
“The companies’ new joint building in Brooklyn, Dock 72, is a 675,000 square foot Class-A building. WeWork will occupy 222,000 sq ft, while 35,000 sq ft of the building will be devoted to amenities designed by WeWork, including a 13,000 sq ft food hall, a 15,000 sq ft wellness center, lounges, conference rooms, and a rooftop conference center and event facility, among other amenities.”
“The building also will have its own app to assist in building security, conference center booking, food deliveries, and transportation updates.”

WeWork’s $20 Billion Dream
Last words
It’s easy to dismiss WeWork as the coworking company. But as we’ve seen, the company is pursuing an aggressive and ambitious strategy. They’re taking many risks, but they’re also pioneering some strategic end-to-end advantages that can give them the edge.
The most impressive aspect of WeWork is their bet on the future of the Millennial generation. They might be too early for co-living, but I do not doubt that we will see an explosion of it in the next few years.
Everyone should start watching this space up close as it will redefine many of the things we take for granted. Workspaces are one of them. Logistics is another. But residential space, transportation, ownership, dating or education are others. Radiating from a communal gathering space, myriad altered behaviors will develop and with them, new opportunities for new companies with different business models.

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Alex Barrera

The Aleph Report

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