ContrariLand

A lot of people hav offered some really interesting and humorous takes on the WeWork S-1.  My personal favorites:

• Most humorous: Scott Galloway
• Most bullish (even then, only a couple of paragraphs are bullish): Ben Thompson
• Most even-handed: Antony Slumbers

There is not a lot to add on top of these thinkers, but I have 5 insights thoughts to share.

1. Regardless of the valuation, the conflicts and humorous “elevated consciousness”, the creation of WeWork has been a good thing for its customers and the real estate industry.  At the very least, it has acted as an after school special to the big players, scaring them straight to recognize that times are changing and they better get to stepping.
2. It is tempting to think there is a whole lot going on behind the curtains, and that a $40+ billion valuation can’t be due solely to lease arbitrage.   One helpful approach is to look at the acquisitions they have been making.  For the most recent examples, they are reportedly talking to SpaceIQ  (workspace analytics), and invested in Waltz (something of a crowdfunding company), Prolific Interactive (brand marketing), Teem (office management) and Euclid (tracks people’s behavior).  These acquisitions suggest they are building a full office back office, supporting “Powered by We” (the most compelling part of the company, in my opinion)
3. Like Apple with the iPhone, the bet is that a combination of superior software and average hardware is more attractive than simply excellent hardware.  In this, I think they are probably right.  Given that workers spend the vast majority of their working day inside their office or cubicle, I have found it confusing why real estate developers and investors spend so much time thinking about building exteriors and lobbies.  This desire to help “members” where they actually spend their time is logical.
4. However…. there are lots of other companies solving this problem as well and it is hard to see how WeWork has a sustained competitive advantage.  Capital and brand  have both been a differentiator to date, but are those both sustainable?  I doubt it.  In a business with low switching costs and high customer acquisition costs, this runs the risk of being commoditized (although I think niche players can differentiate)
5. Is there a network effect in coworking?  The main advantages to scale are a) being able to quickly learn what people want and how they are using their space and b) network effects you can offer to your members.  While I think they are taking advantage of the first, how valuable is the network really?  Are a lot of people staying in a WeWork in New York on Monday and in LA on Wednesday?  Maybe, but even if they are, it seems like this could be disintermediated in a “ClassPass” fashion.