{"id":3620,"date":"2017-02-20T00:36:23","date_gmt":"2017-02-20T05:36:23","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-digit\/submission\/wework-a-platform-for-creators\/"},"modified":"2017-02-20T10:11:06","modified_gmt":"2017-02-20T15:11:06","slug":"wework-a-platform-for-creators","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-digit\/submission\/wework-a-platform-for-creators\/","title":{"rendered":"WeWork: \u201cA Platform for Creators\u201d"},"content":{"rendered":"<p><strong>WeWork&#8217;s Value Creation and Capture<\/strong><\/p>\n<p>WeWork, launched in 2010, is a platform that leases shared work space to communities of entrepreneurs, freelancers, and small businesses and connects that community to business service providers. WeWork typically leases office space wholesale and subleases that space to its members at a profit. Valued at $16 billion in its latest fundraising round (1), WeWork operates office space in 15 countries and has ambitious growth plans over the next few years.<\/p>\n<p><strong>WeWork creates value in three critical ways: <\/strong><\/p>\n<ul>\n<li>Providing <strong>physical workspace<\/strong> for its members, including the ability to travel and work in WeWork locations around the world<\/li>\n<li><strong>Connecting members to business service providers<\/strong> at negotiated discounts, allowing members to access healthcare, HR solutions, payments processing, and more at reduced rates (2)<\/li>\n<li>Serving as a <strong>platform for local and virtual community<\/strong>: WeWork facilitates social events, workshops, and industry meetups to allow members to expand their networks and ultimately enhance their business<\/li>\n<\/ul>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-3622\" src=\"https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2017\/02\/wework-overview-pitch-deck-300x224.jpg\" alt=\"\" width=\"333\" height=\"249\" srcset=\"https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2017\/02\/wework-overview-pitch-deck-300x224.jpg 300w, https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2017\/02\/wework-overview-pitch-deck.jpg 440w\" sizes=\"auto, (max-width: 333px) 100vw, 333px\" \/><\/p>\n<p>WeWork captures value by charging membership rates ranging from baseline membership in the network (which allows members to access daily space rentals and services for rates starting at $45 \/ month) to renting dedicated desks and private offices (starting at $400 \/ month and varying based on office location). Although more recent revenue figures from the\u00a0company have not been made publically available,\u00a0CEO\u00a0Neumann said in July of 2016 that he expected the company to hit a run-rate revenue of $1 billion in 2017. (3)<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-3624\" src=\"https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2017\/02\/wework-open-floorplan-300x195.jpg\" alt=\"\" width=\"337\" height=\"219\" srcset=\"https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2017\/02\/wework-open-floorplan-300x195.jpg 300w, https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2017\/02\/wework-open-floorplan.jpg 570w\" sizes=\"auto, (max-width: 337px) 100vw, 337px\" \/><a href=\"https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2017\/02\/wework-fuze-ball.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-3621\" src=\"https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2017\/02\/wework-fuze-ball.jpg\" alt=\"\" width=\"329\" height=\"219\" \/><\/a><\/p>\n<p><strong>Network Effects in the WeWork Model<\/strong><\/p>\n<p>WeWork creates network effects by serving as a platform for members to engage with each other and for business service providers to connect with WeWork members.<\/p>\n<p><em>Same-side Network Effects: <\/em><\/p>\n<ul>\n<li>Each new member that joins WeWork helps contribute to the \u201ccreative culture\u201d and member diversity, which benefits other members. Members have the opportunity to form business partnerships with their neighbors in the WeWork space or via the global community, or connect with customers in the network.<\/li>\n<li>More members could lead to better scale discounts offered by WeWork partners, while more service providers offering competing services could put downward pressure on prices.<\/li>\n<li>As more members join, the cost \/ member in a given workspace should go down (due to higher utilization of a given space). Yet, increased demand could also put upward pressure on prices for all members.<\/li>\n<li>Additional members could also lead to a more crowded work environment and longer wait times for shared resources like printing or conference rooms.<\/li>\n<\/ul>\n<p><em>Indirect Network Effects: <\/em><\/p>\n<ul>\n<li>More services offered on the WeWork platform benefits members through expanded offerings, while more members increase the customer pool for service providers<\/li>\n<li>If there is competition among service providers, that could drive prices down (for example, if there are multiple banking\u00a0partners, they would likely compete on price for WeWork customers). Similarly, greater member numbers could drive prices up without a commensurate increase in service providers. (again, basic supply and demand)<\/li>\n<\/ul>\n<p><strong>Do WeWork\u2019s network effects offer a sustainable advantage? <\/strong><\/p>\n<p>In my view, although WeWork has pioneered the model of flexible, shared office space, the network effects created by the model are not strong enough to sustain WeWork\u2019s advantage in the long-run.\u00a0 Fundamentally, do members chose WeWork because of the network it offers, or because the workspace itself is superior (or in some cases, the only option)?\u00a0 Moreover, how much do the negative effects of crowding offset the positive network effects?<\/p>\n<p>The WeWork model is highly replicable, and several competitors have already emerged. For example, real estate developers are using LiquidSpace to market flexible spaces directly to tenants and provide a quick, standard lease that saves developers and tenants time and legal expenses. LiquidSpace takes a 10% cut of the rent every month. (4) Moreover, if WeWork\u2019s margins are sufficiently attractive, commercial real estate developers could directly replicate its offerings\u00a0and cut out WeWork alltogether. Given that WeWork rents office space via long-term lease contracts and subleases the space at higher prices shorter periods of time, it would be interesting to see how many of WeWork\u2019s long-term leases are up for renewal in the next ~5 years. Shorter lease agreements would make them more vulnerable to property owners pushing WeWork out of established locations.<\/p>\n<p>Multihoming is also simple and low-cost on both sides of the platform: WeWork service providers have no barriers to work with other platforms or directly with businesses, and WeWork members (customers) could easily rent space from other providers as they expand.<\/p>\n<p>In summary, as demand for flexible workspaces continues to increase in the US and globally, WeWork is well-positioned for continued growth. \u00a0Yet, the network effects created by the platform do not seem sufficient to prevent new entrants from entering the market, which seems poised to evolve into a fragmented market of multiple successful players.<\/p>\n<ul>\n<li>(1)\u00a0<a href=\"https:\/\/www.bisnow.com\/national\/news\/office\/everything-you-need-to-know-about-wework-61951\">https:\/\/www.bisnow.com\/national\/news\/office\/everything-you-need-to-know-about-wework-61951<\/a><\/li>\n<li>(2)\u00a0<a href=\"https:\/\/www.wework.com\/benefits\">https:\/\/www.wework.com\/benefits<\/a><\/li>\n<li>(3) https:\/\/therealdeal.com\/2016\/07\/13\/weworks-neumann-takes-more-cautious-tone-on-unicorns-revenue-projections\/<\/li>\n<li>(4) https:\/\/www.fastcompany.com\/3058351\/as-wework-rises-so-does-the-airbnb-of-office-space<\/li>\n<li>(5) https:\/\/www.wework.com\/plans\/private-office<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>WeWork: A platform for work space, community, and business services<\/p>\n","protected":false},"author":1283,"featured_media":3625,"comment_status":"open","ping_status":"closed","template":"","categories":[426,389,1178,1179,745,344],"class_list":["post-3620","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-direct-network-effect","category-indirect-network-effects","category-office","category-service","category-space","category-wework"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-digit\/assignment\/growing-businesses-in-the-age-of-platforms\/","yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - 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