WeWork Extends Their Empire to Become “The We Company”
At the beginning of the year, WeWork CEO Adam Neumann announced his company was rebranding itself “The We Company.”
He also stated, in quite soaring terms, that their mission would now be “to elevate the world’s consciousness.”
On a more immediate level, the re-brand signals WeWork’s intent to fully integrate its main co-working office business with recent WeLive residential and WeGrow educational ventures.
Oh, to be.. all things ‘we’. It’s an ambitious, possibly audacious step towards becoming a holistic lifestyle brand. But will it work?
The Story of ‘We’
The original WeWorker, Adam Neumann, was born in Israel. He grew up in a collectivist-minded kibbutz and served as an officer in the Israeli navy for years before heading to the USA in 2001.
His first new world venture, operating out of a space in Dumbo, Brooklyn (before it was cool), was designing and selling a line of padded baby clothes called Krawlers (for crawling, you see). That didn’t exactly make hay.
But it didn’t matter, because a new opportunity presented itself right before Neumann’s eyes, one nobody else seemed to notice. The building he was running his baby business out of was partially vacant, and he had a dang good idea what to do with it.
He began talking about developing a co-working space for entrepreneurs with Miguel McKelvey, a lead architect for a small firm at the same address. After hashing out the particulars of the idea, they presented a development proposal to their mutual landlord.
Much haggling ensued, but eventually, he gave them the O.K. and Neuman and McKelvey’s original co-working space, dubbed Green Desk, was open for business in 2008.
Featuring recycled furniture, eco-friendly electricity, and a congenial atmosphere where you could meet like-minded people, it was a breath of fresh air for New York’s white-collar hustlers.
In case you weren’t in the game back then, a decade ago, most rentable office spaces were… kinda really crummy. Craigslist ads for office space were likely to bring you to a forgotten and moldering corner of some run-down building, or somewhere out in the sticks that was inconvenient and lacking in basic amenities.
Green Desk became a big success story. Neumann and McKelvey sold it and pocketed a few million dollars.
They promptly re-invested it into what would become WeWork, which they founded in 2010. Neumann and McKelvey cut a deal with a landlord in Manhattan’s SoHo district for this first location. Its success begat more locations.
They started branching out into other American cities—San Francisco, L.A., Boston, and Seattle. In 2014 they went international.
There were fears that the gloomy investment atmosphere following the 2008 recession would blight the growth prospects of the company. However, in practice, the flexible, rental workspace model suited precarious times perfectly.
Meanwhile, the ever-expanding reach of WiFi (hot on the heels of the first iPhone’s release in mid-2007), and the changing conditions of the labor market were making the concept of the ‘digital nomad’ a real thing.
WeWork captured the zeitgeist by offering reasonably affordable open concept, bright and inviting spaces. They provided a ‘third’ place for freelancers and small teams to escape the cognitive confines of their tiny apartments and ‘innovation garages’, and avoid annoying the staff at Starbucks with all-day-every-day laptop and coffee outings.
At the end of 2018, WeWork counted 400,000+ paying members, who have access to desks spread out across 400 locations in 99 cities and 26 countries. That’s some pretty phenomenal growth when you consider that, at the end of 2017, WeWork had ‘only’ 175,000 members across 64 cities.
These days, they’re flexing.
Apart from the usual co-working crowd, they now count major companies like American Express, HSBC, and Salesforce among their clientele. 2018 saw them build 675,000 square foot co-working, creative, and wellness hub Dock 72 at Brooklyn Navy Yard, one of the most significant infrastructure projects in the borough in the past 30+ years.
WeWork’s market valuation is presently somewhere in the vicinity of $47 Billion USD. That makes them the second most valuable U.S. startup (Uber clings to the top spot).
How the WeWork model works
WeWork takes 10 to 15-year leases on spaces, managed with guarantees that last six to twelve months in order to mitigate the company’s risk. They frequently get an anchor tenant discount of about 10%. They need about 60% occupancy to cover costs.
The company’s locations have a significant impact on real estate values. They’ve become a means of repurposing buildings and improving their standing, as well as tracking neighborhood change and predicting gentrification.
All this ‘value adding’ gives them an oddly powerful hand when it comes to negotiating with landlords. At this point, they have serious brand power, and they hold so many leases in so many cities that they can afford to dictate terms.
Meanwhile, they’ve been attracting bigger and bigger clients by promising to cut their operational costs by “20 to 50%.”
WeWork also has a huge social impact due to its enormous community and the vast professional network it contains. They’re reaping a lot of ‘there first’ benefits of tapping into a nascent start-up culture early, and riding trends towards the decentralized office and a remote workforce.
Bundled into the company's valuation is its status as a networking venue. The company claims 70% of its clients have done business with other people in their shared spaces. Organic conversations and chance encounters are perks for many, who see real social value and ‘world-changing’ ideas emerging from this new setting.
Not only do WeWork, WeLive, and WeGrow
Neumann has said that he wants all of his company’s business ambitions “to operate in service of how we work, how we live, and how we grow.”
While WeWork is a bonafide global empire, it’s worth noting that it is still very much the early days for the other two brands: WeLive and WeGrow.
WeLive manages two residential properties so far. One’s on Wall Street in New York, and the other is located in Washington D.C. Apartments range from studio-size to four bedrooms, all are fully furnished. The buildings include a shared laundry room, wellness center, and yoga studio, as well as an espresso bar, a real bar, and trendy restaurants (the New York location even has a Momofuku Milk Bar).
The philosophy behind WeLive is to tackle urban anomie and re-introduce people to physical proximity in their social lives on a daily basis, something that’s been going slowly out the window in years past, as social media, video-on-demand services, and remote work have conspired to make us more and more isolated.
WeGrow, meanwhile, launched its first location in Fall 2018 in New York’s coveted Chelsea neighborhood. Designed by acclaimed Danish architect Bjarke Ingels, it brings the open concept, non-linear style of the WeWork office to the world of education.
The school, which accommodates children ages 3-11, is centered around a ‘meadow’ of soft padded green islands. A single, custom fluorescent light path snakes its way around the perimeter of the common area. Sculptural hanging panels use felting to absorb the shrieks of small children, keeping the general noise level down.
It’s designed to provoke curiosity and exploration, with organic, rounded surfaces and liberal use of wood and light. The environment and curriculum are intended to coax the little ragamuffins into becoming self-confident, creative entrepreneurs.
The risks ahead
WeWork has grown exponentially in the last few years. That’s causing a lot of naysayers to creep out of the woodwork, and new adversaries to present themselves.
On the animosity front, many traditional real estate brokerages are not taking kindly to WeWork’s expansion onto their turf.
There have also been some hiccups with investors. Japanese multinational holding conglomerate SoftBank (headed by the enigmatic Masayoshi Son) initially planned to put down $16 billion USD into WeWork, securing a majority stake in its operations. In January 2019, just weeks after the initial investment reports, SoftBank abruptly revised their figure down to only $2 billion.
To be fair, the rationale behind this dramatic reduction is probably not an indication of WeWork being a sketchy horse to bet on. It more likely adds up to the simple fact that SoftBank’s stock slipped a painful 22% in 2018, making it a particularly inauspicious time to empty the war chest.
More serious is the accusation from some critics that the company is severely overvalued.
Some analysts see the company’s ongoing unprofitability as it gobbles up leases, and the need to work with money-blowing corporate clients (by leasing space and/or renovating existing offices) as setting up a possible disaster. Particularly so given the flexibility of lease terms: if there was a recession, corporate clients could pull out and leave a huge space empty in a flash.
So far, only one WeWork building (in London) has been turning a profit. The business continues to make more and more revenue year after year, but it’s still losing far more than it makes.
Back in May 2017, NYU marketing professor Scott Galloway looked at the company’s valuation (which has since doubled) and noted that it implied a figure of $550,000 per customer. That made WeWork worth more than the buildings they’re hosted in.
Another commentator notes how competitors like flexible workplace provider International Workplace Group (IWG) are valued much lower, despite actually being profitable.
Barry Sternlicht, the head of Starwood Capital Group (which has $51 billion USD in assets), thinks WeWork is due for a steep and brutal, dare-I-say Bitcoin-esque correction down from its dizzyingly high valuation. Needless to say, Sternlicht refuses to touch the company with a barge pole.
Expanding rapidly has been expensive, that much is for sure. But it’s hard to say whether or not the steep growth of the company and its sky-high valuation are symptomatic of a speculative bubble.
Murmurings about the company’s dollar worth aside, the most challenging thing WeWork may face going ahead is intensifying competition.
The company is aware of this and has been digging into deep pockets to buy out competitors. For example, they chose to acquire China’s Naked Hub as they moved into the country’s very big, very lucrative market. The year before, they did the same with Singapore-based SpaceMob as part of its plans for expansion into Southeast Asia.
But there are a number of challengers coming for the co-working crown that just won’t back down. Some of them have even deeper pockets, and some of them have a new angle to work.
At the end of last year, CBRE Group, the world’s largest commercial real estate and investment firm, rolled out its own branded ‘flexible’ workspaces under the moniker Hana.
CBRE offers a means for landlords to create their own co-working spaces, meeting rooms, and medium-sized business accommodating team suites—all with the assurance of being affiliated with the soon-to-be global Hana brand.
The first Hana space is set to open in mid-2019 at a brand new MetLife and Trammell Crow Company development in Dallas, Texas.
Meanwhile, office, co-working, and meeting space provider Regus has been around since 1989. The company operates under IWG and is also responsible for Spaces, another creative co-working environment. Regus alone has 3,000 locations spread out throughout the world.
Fun fact: the Regus Management Group, LLC also recently sued WeWork for their ‘HQ by WeWork’ brand of spaces, which they believe infringes on the name of their own ‘HQ Global Workplaces’ product.
Another contender on the market is NeueHouse, which counters WeWork’s rhetoric of openness with a more exclusive, boutique philosophy (think Ace Hotel). It’s marketed as “a private cultural and collaborative space for prominent creatives, artists and entrepreneurs.” The keyword here is private.
Eschewing the more egalitarian rhetoric of The We Company, NeueHouse is “designed to inspire the creative mindset, cultivate curiosity, and provoke new ways of thinking,” yet do so within the boundaries of an exclusive social club.
NeueHouse requires you to submit an application for membership, and if your portfolio passes expect to lighten your wallet load significantly as the ‘Atelier’ unlimited access pass will set you back $1,250+ per month.
But lest you think this whole business model is based on snobbery, it’s worth noting that the company’s posturing is an explicit attempt to distance itself from the ‘tech ghetto’ and its “backpack brigade” (okay, so maybe that’s a bit snobby). They want to attract people who are put off by WeWork’s association with start-ups and access a new audience of co-workers from arts & culture, finance, post-production, and other not-tech industries.
Will the world embrace the We Company all-in-one solutions?
WeWork was early to the party when it came to understanding the millennial zeitgeist of favoring ‘access’ over ‘ownership’, as well as the rise of flexible space as an asset class.
In other words, it certainly seems like the company’s model is on the side of prevailing long-term societal trends. So whatever the short-term downturn may be for The We Company—in terms of losing SoftBank funding, facing accusations of overvaluation, and weathering any potential incoming economic recession—the long-term, bigger picture outlook for them still looks pretty good.
As for the rest of us, regardless of whether or not The We Company succeeds, the genie is already out of the bottle. We’re going to have to reckon with this new ‘no-friction’, integrated model of work and life.
The evolution of WeWork and the rise of market competitors is paralleled in the saga of Uber vs. Lyft (and in China, DiDi), or Airbnb vs. HomeAway. Massive resources thrown behind these incumbent vs. challenger battles spur market maturation, and furthermore indicate the importance each of these verticals will have for society going forward. They’re all part of the big picture story we’re living—a time of radical social changes, with new mega-companies fighting to become indelibly ingrained into the fabric of our day-to-day lives.
The idea behind The We Company speaks to the evolving nature of cognitive work, which has dissipated the boundaries of the office, the home, and the school. Digital work tools have increasingly de-frictionized work, and will only continue to make distributed teams and remote work more and more appealing.
In the same way that the last century was all about compartmentalization, the future looks integrated.
The We Company’s mission is nothing short of changing life itself. In soaring fashion, Neumann states:
“as we move forward, we will practice inclusivity, compassion, and open our hearts and our minds. In doing so, we can elevate ourselves and then the world.”
White-collar workers are more footloose and fancy-free than ever. We can pack our bags on a whim, leave New York for Berlin or Porto, and keep on earning our daily bread. Yet the danger of being ‘always on’, no matter what paradise you’re in, and the generally blurring boundaries of work and home life represent a real challenge of the age.
Is the solution to a #nofriction life conceding to the comfort and convenience of The We Company all-in-one model? I guess, ‘We’ shall see.