The world is increasingly connected through trade and the movement of capital, people, and information across borders. People are moving to major global urban centers, prioritizing greater accessibility to services and increased human connection over lower living costs and property ownership.
Post-Covid, people have somehow decided to work independently on their terms. As people shift to working independently, they seek a community that provides support and social opportunities during the workday.
Post-pandemic, most employees want to work from home three days a week. Still, whenever they come to the office, they seek moments of connection, collaboration, and convenience, whether grabbing a coffee from the friendly office barista, taking a yoga break without having to leave the office, or getting to know others in the community during events.
A decade ago, WeWork founders Adam Neumann and Miguel McKelvey understood these emerging trends and decided to reinvent how people work and transform how individuals and organizations relate to the workplace.
WeWork claims it’s on a mission to elevate the world’s consciousness. WeWork has built a worldwide platform that supports growth, shared experiences, and true success. Let’s try understanding how WeWork works and makes money through this story. What are the components of WeWork’s business model?
What is WeWork? How does WeWork work?
In the wake of the 2008 global financial crisis, WeWork opened its first location in lower Manhattan in 2010 to provide entrepreneurs and small businesses with flexible, affordable, and community-centered office space. The initial vision was to create environments where people and companies could come together to do what they love.
Since then, WeWork has become a leading provider of coworking spaces, including physical and virtual shared spaces. WeWork works on a “space-as-a-service” membership business model that offers its members flexible access to beautiful spaces, a culture of inclusivity, and the energy of an inspired community.
WeWork starts by looking at space differently: as a place to bring people together, build community and enhance productivity. WeWork employs designers and architects who work to create spaces that are beautiful but simple, elevated but approachable, global yet locally unique.
WeWork has also employed community managers who foster human connection through collaboration and holistically support our members personally and professionally.
WeWork adds products and services to its platform to enhance the member experience. The entire member experience is powered by technology designed to enable members to manage their own space, make connections, and access products and services, all to increase our members’ productivity, happiness and success.
WeWork aims to build a platform that acts as a one-stop shop where members have access to all the products and services they need to enable them to work, live and grow.
WeWork is developing a network of third-party partners to address its members’ needs while offering partners a unique opportunity to reach new customers and efficiently expand their businesses to new markets at a lower customer acquisition cost.
WeWork works on a design philosophy that individuals are more productive when they can express their whole and authentic selves. Hence WeWork tries to foster collaboration by providing design elements such as exposed internal staircases, open floorplans, communal meeting rooms, and centrally located refreshments.
WeWork’s business model continually uses data analytics to improve its design and construction effectiveness, facilitating better human interaction and minimizing underutilized space. Let’s now break down various components of WeWork’s business model.
How does WeWork make money? What is the business model of WeWork?
- Higher value tenants in buildings with WeWork locations, primarily due to the economic and cultural activity WeWork generates in and around the buildings it occupies.
- As WeWork leases a significant portion of the buildings and acts as an anchor tenant, landlords may see an appreciation in property value.
- As a demand aggregator, WeWork provides landlords with a bridge to all individuals and organizations looking for space solutions.
- A collaborative culture, the flexibility to scale workspace up and down as needed, and the power of a worldwide community, all for a lower cost.
- Opportunity to energize the enterprise’s culture, spark innovation, enhance productivity, and attract and retain talent.
- 24/7 access to WeWork locations, beautifully designed workspaces, flexible workspace configurations as needed, a standard set of amenities, on-site community teams
Space-as-a-service business: This is the core of WeWork’s business model. WeWork offers individuals and organizations the flexibility to scale workspace up and down as needed. WeWork’s space-as-a-service offering aims to reduce the complexity of leasing real estate to a simplified membership model while delivering a premium experience to members at a lower price than traditional alternatives. WeWork provides the following membership offerings:
WeWork All Access: The WeWork All Access product, launched in late 2020, is a monthly subscription-based business model that provides members access to participating WeWork locations. Through WeWork All Access, members can book workspaces, conference rooms, and private offices from their phones – enabling users to choose when, where, and how they work. WeWork’s strategy is to digitize its real estate.
WeWork Workplace: A Workspace management solution that leverages WeWork’s property and technology platform. This product enables landlords and operators to power flexible spaces and provides direct access to an established customer base. The solution provides enterprises with a hybrid work experience by powering online booking, providing meaningful utilization analytics, and optimizing space across assets.
How does WeWork make money: The revenue model
WeWork makes money by monetizing its global platform through various solutions, mainly by selling memberships and providing ancillary value-added products and services to members.
WeWork made $2.5 billion in 2021. WeWork makes money primarily through three revenue streams: Membership, services, and others. Membership and services make 95% of the money WeWork makes. Revenue streams are described below.
Membership revenue represents membership fees from sales of WeWork memberships and on-demand memberships. The price of each membership varies based on the type of workplace solution selected by the member, the geographic location of the space occupied, and any monthly allowances for business services, such as conference room reservations and printing. This stream makes the majority of revenue for WeWork.
Service revenue primarily includes billings to members for ancillary business services over the monthly allowances mentioned above. Services offered to members include access to conference rooms, printing, photocopies, initial set-up fees, phone, and IT services, parking fees, and other services.
Service revenue also includes commissions WeWork earns from third-party service providers. WeWork offers members access to various business and other services and receives a percentage of the sale when a member purchases a service from a third party.
Other revenue includes design and development services in which WeWork offered on-site office management that provides integrated design, construction, and space management services. Also included in other revenue are other management and advisory fees earned.
Where did WeWork go wrong after building such a comprehensive business model?
In 2016, WeWork was chosen as one of Fortune magazine’s three unicorns to bet on and boasted a valuation of $10 billion. But WeWork has been posting a loss of ~$4bn every year for the last three years. WeWork has lost 65% of its stock value since its IPO in 2020. Where did WeWork go wrong after building such a comprehensive business model?
As soon as WeWork released its S-1 prospectus for IPO in September 2019, it became clear that WeWork was losing tons of money with this business model. The business was losing more than it was earning. WeWork’s business model was expensive.
Reports blame WeWork’s co-founder Adam Neumann for the downfall. Six weeks later, Neumann had voted to remove himself from the CEO job and given up his majority control of WeWork’s stock. The company’s proposed valuation had fallen by more than half, and the IPO had been called off entirely.
WeWork’s case study teaches why startups should accurately calculate the Total Addressable Market (TAM). WeWork was too optimistic, assuming a market opportunity of $3 trillion by including anyone with a desk job in the US. For non-U.S. cities, WeWork considered anyone as managers, professionals, technicians and associate professionals, and clerical support workers—to be potential members.
Still, the business model was not primarily why WeWork got in trouble. There were many other allegations. The Guardian has published an entire case study on what transformed WeWork from an investor darling into a pariah. I cannot comment on WeWork’s future, but I can undoubtedly say that business enthusiasts can learn much from WeWork’s business model.