WeWork, once a unicorn company and the originator of “shared office”, finally failed to withstand the impact of the new coronavirus epidemic and ushered in bankruptcy.
On November 6, WeWork filed for bankruptcy protection in the federal court in New Jersey, seeking to exit more than 60 office lease contracts across North America. WeWork said that this is part of the company’s “comprehensive restructuring”, and about 92% of creditors have agreed to convert their debt into equity, thereby reducing approximately US$3 billion in debt to stabilize the company’s financial situation.
Once upon a time, in the era of surging hot money, WeWork took advantage of the “sharing economy” and quickly rose to become a global giant, until it had more than 850 stores and more than 1 million workstations in 150 cities – although it has never truly made a profit. However, with the continuous infusion of venture capital, WeWork’s valuation has reached new highs, once as high as US$47 billion.
However, the COVID-19 epidemic and the subsequent changes in working methods have had a profound impact on this “shared office” giant. At that time, the venture capital boom had passed. WeWork, which lacked the means to make a profit, was soon dragged down by heavy debt after losing the blood transfusion of venture capital, and eventually went bankrupt and reorganized.
WeWork’s bankruptcy is iconic. It is not only a failure in an era of investment frenzy, but also means that “shared office”, a business model that upholds the spirit of openness and sharing, has come to a moment that requires re-evaluation and reflection. .
Although WeWork is the most dazzling company in the “shared office” industry, the question “Can WeWork’s business model be called a shared office?” has been accompanied by WeWork’s entire process from its rise, prosperity to its final decline.
The core of the business model of “sharing economy” lies in the full integration of idle resources. However, WeWork, which appears as a pioneer of “shared office”, has always been questioned in terms of its business model. It is not so much a “shared office” , rather, it is more like a “second landlord”.
As early as the 2008 financial crisis, WeWork founder Adam Neumann took advantage of the downturn in the U.S. real estate market to rent out some idle office buildings in New York, briefly partitioned them, and rented them out to some small companies to earn the difference. This is a very traditional “second landlord” business.
Later, WeWork had no fundamental changes in its business model. It still rented floors from office buildings, transformed them into shared office spaces, and then subleased them to companies or individuals. However, on this basis, it added fashionable decoration, Things that look “cool” like free beer.
However, when this sub-leasing business was covered with the shell of the “sharing economy”, the seemingly trendy shared office had a good story at the capital level. In the previous era of prosperous venture capital and hot money, Attracted a large influx of venture capital.
It is essentially a “second landlord” business. It is unrealistic to achieve a “trillion market value”.
Among them, Masayoshi Son’s SoftBank Group is its largest investor. It is said that Sun Zhengyi finalized an investment of more than 4 billion US dollars in WeWork within 12 minutes of riding in the same car with Neumann. He also set a plan for WeWork that was more than Neumann’s “100 billion” plan. For the grand blueprint – to become a giant with a market capitalization of trillions. The enthusiasm of capital at that time was evident.
After receiving huge financing, WeWork embarked on a road of rapid expansion and once signed hundreds of long-term office leases. However, despite rapid expansion, WeWork has never made a profit and has always relied on venture capital infusions to maintain operations. Since its inception, venture capital has invested a total of US$12 billion in WeWork.
However, when the economy entered a down cycle and venture capitalists began to tighten their pockets, they discovered how unrealistic it was for WeWork, a business that was essentially a “second landlord”, to achieve a “trillion market capitalization”. Coupled with the company’s own poor management, huge losses, and the founder’s perverse management style and other practical factors, venture capital investors finally abandoned WeWork.
Even WeWork’s biggest supporter, Masayoshi Son, reduced his investment in WeWork from the initial US$70 billion to US$20 billion. In the end, he did not even deliver the US$3 billion “guarantee” and admitted that he had no confidence in WeWork. The investment was “very stupid”.
WeWork’s business model has nothing to do with utilizing idle resources.
In 2019, WeWork tried to save the situation by going public, but its severe losses and cash-burning business model were not favored by the market, and it ultimately failed to go public.
Subsequently, the global “closure” brought about by the COVID-19 epidemic sharply reduced the market demand for office space, resulting in a large number of WeWork workstations being idle. But at that time, WeWork still had to pay a total of billions of dollars in rent to various landlords. This was a fatal blow to WeWork, which already lacked profitability. The high rents quickly exhausted WeWork’s money from venture capital. funds raised.
From 2016 to the first half of 2023, WeWork suffered a cumulative loss of US$15.656 billion. In the end, WeWork had no choice but to file for bankruptcy protection, ushering in its own bleak ending.
It’s not a failure of shared office
The bankruptcy of WeWork has triggered the market’s reflection and questioning of the “shared office” business model. As an iterative optimization of traditional office buildings, “shared office” aims to provide the market with flexible and low-cost office space by integrating idle office resources.
The reason why it has a different kind of appeal to capital is that “shared office” is a manifestation of the “Silicon Valley spirit”: in an era when values and concepts such as “changing the world” and “geek spirit” are held high, “shared office” “Carrying the same spirit of openness and sharing, it creates conditions for entrepreneurs to communicate and interact through shared space, thereby stimulating business innovation and vitality.
This spirit of forging ahead and pursuing innovation and change was very much sought after by capital at the time. Therefore, WeWork has always called itself a technology company, not a real estate company – the latter seems “selfish” and “conservative”, full of old-fashioned atmosphere.
But in essence, WeWork’s business model has nothing to do with the utilization of idle resources. It just puts a cool and trendy coat on the sub-leasing model. The reason why it can dominate the capital market in the name of “shared office” is largely an irrational dream of capital.
In fact, some companies with similar business models to WeWork have shown good development momentum. Compared with WeWork’s aggressive expansion, IWG, which has a longer history, has a more stable business strategy: it chooses to cooperate with landlords rather than subletting to provide shared office services, avoiding heavy financial burdens; and it pays more attention to sharing Office Space’s businesses and employees provide excellent service support and have remained profitable for many years.
In addition, companies such as Knotel, Industrious, and Convene also have good operating conditions under steady business strategies, and have not suffered a cliff-like failure like WeWork. Even WeWork’s operations in China are equally stable and have not been affected by bankruptcy in North America.
In addition, outside of WeWork, some companies are exploring business models that truly uphold the “spirit of sharing.” Spacious and WorkChew, for example, rent some restaurants’ off-peak hours as office space, providing businesses or individuals with a cheaper office environment while providing additional income for restaurants.
Although this model faces many operational difficulties, such as how to convert restaurants and office spaces in a timely manner, and diners’ negative impressions of the restaurant being converted into office space, etc., compared with WeWork’s “second landlord” business, this business The model is closer to the concept of “sharing economy” making full use of idle resources.
From this perspective, the failure of WeWork does not mean the failure of “shared office”, but a waste of money after the capital boom and the bubble burst.
Any exploration of “shared office” is based on the premise that both the company and its employees need an office space.
However, in the post-epidemic era, profound changes in office methods have added many uncertainties to the business prospects of “shared office”.
After the COVID-19 epidemic, the rapid development of online working has made employees realize that work can be completed well at home, in a coffee shop or outdoors. People’s attitude towards “working at work” has undergone subtle changes, and the complete on-site office model has lost its necessity and rationality.
Research from WFH Research, a work style research organization, shows that although companies hope that employees can return to the office after the epidemic is over, only 49% of employees are willing to come to the company five days a week. Many companies have also followed this trend and adopted a new hybrid office model. Employees are no longer required to work five days a week, but can flexibly choose how to work.
This has objectively reduced the rigid demand for office space by companies and employees, and the office vacancy rate has reached the highest level in decades. For “shared office” companies whose main business is providing office space, this is a trend and challenge that cannot be ignored.
However, this changing trend may not necessarily be a crisis for “shared office”. The opportunity of “shared office” lies in the fact that remote office has applicable boundaries and cannot completely replace offline office.
Major Silicon Valley companies that value freedom and flexibility have launched a “remote working” experiment to encourage employees to work from home. For example, Google allows employees to apply for permanent remote working and has approved the applications of nearly 8,000 employees; Facebook has also launched remote working software Horizon Workrooms to follow this trend.
But it didn’t take long for these large companies to discover that remote working could not fully meet the needs of enterprises for precise operation, and many jobs had to be returned to the office space before they could be implemented.
Face-to-face communication is still the most efficient way for enterprises to conduct management, decision-making and other activities, and has become the fundamental foothold of the “shared office” business model.
As more and more companies, especially small and medium-sized enterprises, reduce their demand for office space, it is not cost-effective for them to continue to maintain heavy office space as a fixed asset. At this time, obtaining flexible and low-cost office space through “shared office” is more suitable for the current “hybrid office” trend, which provides new opportunities for “shared office” companies.
Although the business model of “shared office” shows the rationality of its existence, the exaggerated imagination of the prospect of “shared office” that was once widely popular is obviously not in line with reality.
The demand for flexible office space will always exist, but it will not account for 1/3 of all office space in 2030 as many people predict, let alone “change the world.” Just like there are applicable boundaries for online office, “shared office” also has its own development boundaries.
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