WeWork: What can they do to make their platform even more valuable?

WeWork rides the wave of shared economy and provides cheap office solutions to SMBs and startups. But can the company become a hot spot for these companies and attract them for anything more than low rent and a cool workspace?

WeWork is a 5 year old startup that provides “space, community and services” to companies under a coworking model. Anybody who is able to pay $45 dollars a month can sign up to be a member and choose among the 30 properties the company offers in 10 different cities. Higher rate membership tiers give access to private offices within the spaces. In this post I will try to try to unlock whether the community aspect of the current offering (which I see as the network effect it is supposed to provide to its members) is as meaningful as the company claims and what it can do to leverage its unique position to make this aspect even stronger, therefore attract more members by increasing the value of their platform.

After research and talking to a friend whose 1-person company is located at WeWork Labs, the “incubator” within WeWork, I am inclined to say that the company provides some direct but mostly indirect benefits to its members for the regular membership. The value of WeWork Labs is at this stage questionable and seems an underutilized asset for reasons I will explain later.

As soon as you become a member, you are introduced to the rest of the WeWork community on the company’s proprietary social network and given a chance to say who you are and what your company does during a New Member Brunch. This not only puts you on the map but also allows you to meet with people from all walks of life, some of which may prove very useful to your business. For instance, many small businesses are in need of legal advice or have questions on what services other members use for their HR needs. The WeWork social network is exactly what these people need, because you can ask a question and somebody who has experience in the field / is using such service answers right back. You can see posts for interns that you can snatch, or even trade services with other WeWork companies. You can take part in events where a new service will be demo’ed, or just mingle with others during the social hours. You get to observe a lot of different firms and working styles, meet new people, exchange ideas, and are in an entrepreneurial environment that keeps you motivated and on your feet.

Some indirect benefits arise as a result of having members on this platform. For instance, a lot of small businesses need very similar services, such as banking, HR, web services etc. Due to the significant growth of the WeWork community, the company is able to negotiate better rates for its members from 3rd party providers (i.e. cheaper service from Amazon Web Services or TriNet if you’re a WeWork member). They have 150+ 3rd party suppliers who are willing to provide services at exclusive rates, which is something great WeWork achieves due to its growing scale.

All of this is great, but what can they do better and make their platform even more valuable / charge more for their services? I think they can make better use of their offering of WeWork Labs (their so-called “community within community”) and build a real “carrot” for other members to aspire to. It’s an open format concept designed to provide additional support for members. You get admitted to WeWork Labs only by application. Additional services include office hours with investors and industry experts (think sort of an iLab). I have been told that the application process is not rigorous, and the quality of the startups that get admitted is actually average. Think about that for a network: the value of it increases as more people use it, but even better, if more “quality” people use it. This also affects the ability of WeWork to attract the best investors and industry experts who would be in it for something more than benevolence. It’s hard to compare the Labs to a real incubator since they don’t take any equity, and so they are not very incentivized to select the best candidates either. I believe they can make their platform much more desirable / create more value for everyone by making selection into the Labs much more rigorous. They can offer better direct network effects by surrounding each company with the best of breed companies and indirect network effects by attracting better 3rd party providers that are able to add real value (i.e. funding, networking with other investors etc.) This would also cause other regular members to strive to be a part of the select bunch (i.e. the company may request self-promotion from regular members to become Labs residents on a monthly basis). This of course would cause certain changes in their business model, since they would have to hire talent to make a better selection, as well as possibly think about taking equity in the companies in exchange for a small startup money. They may then move away from simply renting office space. Any thoughts if you think this is a direction the company should take?

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Student comments on WeWork: What can they do to make their platform even more valuable?

  1. I think these are great questions! I wonder what the true value to WeWork would be from providing a more exclusive and higher quality Lab experience. It seems that the Lab is a mechanism that they are using to drive occupancy and demand for their space. If they make the program more exclusive by admitting fewer teams, it seems that they would be undermining their goal of more occupancy and therefore sales. If they did pursue this route, they do not currently have an adequate value capture mechanism in place to benefit from the improved viability of this smaller set of start-ups. In order for them to be compensated financially for this strategy, they would need to take equity. In this event, WeWork would be competing with other equity-based incubators and accelerators, which they most likely could not successfully compete against, and this approach would fundamentally change their business model from a RE company to a RE/VC company. This change in model might not be attractive to their investors who invested in them for RE returns. These investors would probably prefer to take their returned capital and choose whether or not they would like to deploy it through VC instead of having WeWork make their business model more risky by offering this product.

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