WeWork has made quite a splash in recent months, achieving an eye-watering valuation, and generating plenty of headlines. Indeed, the company believes its future to be so bright that the We Company which runs WeWork raised around $4 billion through an IPO. But how does this prominent startup aim to make money?
Originally founded in 2010, WeWork provides shared workspaces to businesses at lower cost than would be possible if they hired the space on their own. WeWork is a classic example of the sharing economy, and has benefited from the fact that shared office space is gaining popularity rapidly.
This pioneer of the sharing economy gained a huge amount of publicity from its ideas, and rapidly grew in value. At its peak point, WeWork was valued as highly as $47 billion, and although that valuation has receded somewhat since then, it remains a company that the city deems to have huge potential.
But its public filing has not gone entirely smoothly. Figures associated with the company revealed that WeWork faces significant long-term lease obligations, and is never actually guaranteed to make a profit. The idea behind WeWork may be enticing and exciting, but it has yet to fully demonstrate that its fundamental business model can work.
Renting office space
In the long run, WeWork intends to make money by renting office space. The company purchases real estate space, sometimes merely a floor within a particular office building, and then transforms it into smaller offices and common areas. The idea behind WeWork is to provide a fully-stocked office to businesses that need the services of a full office, without incurring the expense.
WeWork has already attracted a varied and diverse client base, with independent freelancers and remote workers renting office space alongside flexible companies. Businesses that have multiple employees who need a consistent place to work, without incurring the high costs associated with urban real estate, have been particularly attracted to WeWork.
In addition to renting office space, WeWork also offers a membership model, with the most basic membership of the site costing nearly $45 per month. This offers access to WeWork offices in 200 locations, spread around 53 cities worldwide, along with access to the social network WeWork Commons, which enables entrepreneurs and freelancers to interact with one another, and exchange ideas.
Access to facilities cost an additional $50 per day, while workers can gain access to a hot desk for $220 per month, providing them a guaranteed workspace in an agreed location. Private office space begins at $400 per month, and WeWork provides high-speed Internet, printers, bike storage, coffee, and a range of other amenities and office services.
The idea behind WeWork is an intriguing one, and there is clearly a market for the company’s services. WeWork is attempting to imitate similar successes such as Uber and Airbnb. But the real estate costs associated with the WeWork operation have been astronomical, with its IPO filing indicated that the company has long-term lease obligations equal to $18 billion. And this figure will grow further still as the company continues to expand globally.
WeWork has yet to demonstrate that it actually can make money, but many will hope that its innovative business model can be successful and profitable.