[skewart]

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 trying to lease directly - after all, at this point everyone looking for office space is going to WeWork so it's tough to find companies who want to lease directly. Once they're in this position they'll be able to bully building owners into leasing to them at very favorable rates - who else are the owners going to lease to?

The idea is that WeWork can do in real estate what cloud infrastructure-as-a-service providers like AWS and Azure are doing in computing. Most companies find it easier to build on AWS instead of running a data center directly. And data center hardware providers find they kind of have to accept the big cloud providers' terms because they don't have a lot of other people to sell to these days.

In order to believe this optimistic case for WeWork you have to believe that they are providing a useful abstraction on top of leasing office space the traditional way, and you have to believe that they won't face any deadly competition. Personally, I'm skeptical of both of those, but I think the best case for WeWork providing a really useful abstraction hinges on two things: 1) a secular shift in the way people work leading to highly flexible office arrangements (e.g. instantly spin up an office in Berlin, run it for two months, then shut it down) becoming much more attractive; 2) WeWork being able to structure lease terms in ways that are better for corporate accounting somehow (i.e. it's not a better product at the end of the day, but it looks better on the books). The best case for them winning out over competition comes down to them getting such a big lead in the amount of space they offer and brand recognition that nobody can challenge them - hence the rationale for burning a ton of money quickly to open as many locations as possible as soon as possible.

I'm skeptical and I'd argue WeWork is more likely to end up like MoviePass than AWS. (MoviePass had pretty much the same idea and playbook - burn money to get to scale and market power quickly then dictate terms to the suppliers who have been eating into your margins - and it didn't exactly turn out well.) But anything is possible.

tl;dr Long-term investors hope that if WeWork can achieve a dominant position in the global office market then they can increase their margins by both lowering their cost to acquire space and increasing the rents they charge. If they pull that off then they can rake in hundreds of billions of dollars and be worth trillions.

[mikeg8]

Thanks for this thoughtful comment, it’s the most insightful one to me so far.

[awshepard]

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?