[Solar19]

Why is WeWork considered a tech company?

And what exactly is wrong with their business model? That's not clear to me from the article. It says they take long-term leases and sell short-term leases. That seems straightforward and potentially lucrative if they're adding value, making it easier to find suitable short-term office space, etc. Is it just that they're not making money doing this? Why not?

[Traster]

I think the reason you don't get an answer to this is because this is article number 100352752. WeWork isn't a tech company because there's no unique technology they use to rent out office space- which is how they make money. Their business model is "Sign long term contracts cheap, rent out to short term tenants expensive". Which is fine, but it doesn't justify their valuation (which is predicated on them 'disrupting' the office rental industry) and isn't fine - because so far they spend more money renting the office space than they do leasing it out to their tenants. So their real business model is "Rent $1 worth of office space out for 50 cents". They had no compelling path to profitability.

[streb-lo]

Isn't airbnb similarly disqualified under your definition?

[QuadmasterXLII]

Airbnb could have existed using an army of secretaries taking phonecalls and making reservations, but it would have cost more

We work could have existed with an army of secretaries taking phonecalls and it would have cost less

[Traster]

Airbnb's business is the app that connects property owners to renters. Their app is the technology, their marginal costs are 0- you can add another property to the website trivially. Their value is in the network effects in their app just like facebook. Wework actually sign rental contracts and take on the risk of not being able to fill the properties.

[frankchn]

A big difference is that AirBnB (and Uber, Lyft, etc...) don’t own or lease any of the underlying assets (apartments, cars) but are purely middlemen.

[ravenstine]

AirBnB is convenient. WeWork isn't really more convenient than existing competitors. It just has the wow factor.

[dreamcompiler]

The wow factor being embodied primarily in a Charismatic Young Narcissist (CYN) CEO. See Elizabeth Holmes.

[Lazare]

> Why is WeWork considered a tech company?

They are considered a tech company (by the people who consider them a tech company) because they say they're a tech company. And they say that because tech companies get higher valuations.

> And what exactly is wrong with their business model? [...] It says they take long-term leases and sell short-term leases.

Right. So in the good times, you can make a fair bit of money doing this, but in bad times you'll lose a lot of money, as all the short term leases drop off.

Traditionally companies in this space work around this by buying their own buildings, by having fat margins in the good times, by not making very much money, and by occasionally going bankrupt. :) It's a perfectly valid business model, but it's not super attractive to investors; it's capital intensive and not very profitable. IWC (formerly known as Regus) has about 5 times the locations WeWork does, and is worth about $3B. $3B is a lot of money, so there's nothing wrong with the business model, but it's also a lot less than the $47B people were talking about for WeWork until very recently.

WeWork is trying to find a way to do something different or cooler, in the hopes of finding a reason they should be values completely differently than IWC, but so far that's translated into renting buildings, thin margins, no profits, and no story for why what they're doing is fundamentally better or more valuable than what IWC is doing. Yes, they have a live DJ in one of their London buildings and IWC does not, but IWC is making money and WeWork is not, and I mean...you can hire a DJ if that turns out to be the critical feature missing from other office space.

> That seems straightforward and potentially lucrative if they're adding value

Right. Especially now that Adam Neumann has stepped down, there's no reason WeWork can't find their niche as another IWC. The problem is, as another IWC, there's no real reason they'll be worth even $10B (again, IWC is much larger and only worth $3B), and Softbank backed them at much higher valuations. Just because WeWork has a profitable niche doesn't mean their investors will be okay. For Softbank the difference between a $5B valuation and a $0B valuation is minimal, when they were expecting something more like $60B.

[foobar1962]

> It says they take long-term leases and sell short-term leases. That seems straightforward and potentially lucrative if they're adding value, making it easier to find suitable short-term office space, etc.

When times get tough the startups go back to their parent's garages or basements and don't renew their short term leases. WeWork is stuck with their long-term leases.

[wongarsu]

Conversely while times are good startups are willing to pay premium for short term leases, either to expand quickly if times stay good or to go back to some garage if times get tough. The business model is essentialy similar to an insurance, they make money by taking on other people's risks.

Of course WeWork doesn't operate financially like this. The business model is sound in principle, but WeWork's execution seems ill conceived (except for the personal enrichment of the CEO).