The We Company, previously leading office Space-as-a-Service provider WeWork, welcomed 2019 with two big announcements:
1) an additional $2 billion investment from SoftBank valuing the company at $47 billion,
2) going forward, WeWork will be rebranded as The We Company with 3 main offerings:
- WeWork turnkey office-as-a-service
- WeLive serviced housing-as-a-service
- WeGrow extracurricular networking-as-a-service
Many in the business media have opined that given the company’s year-end 2018 annualized revenue of $2.5 billion, and likely more than $1 billion in losses (as a private enterprise, financial results are not publicly disclosed, $1 billion figure is conservative extrapolation of historical operating results reported by reputable news agencies), The We Company’s $47 billion valuation is inflated and questionable.
I have no insider knowledge of how Adam Neumann, CEO of The We Company and Masayoshi Son, CEO of Softbank view the company and its prospects, but the company is well-positioned to launch a Lifestyle-as-a-Service (LaaS) business model, which supported by its highly valuable membership network, creates: 1) a valuable business franchise with multiple high-growth opportunities and: 2) a protective moat against competitors, that rationally supports the company’s $47 billion valuation.
The We Company is superbly-positioned to deliver a LaaS value proposition to its membership network.
Hypothetical The We Company Lifestyle-as-a-Service (LaaS) Membership:
- access to available WeLive serviced housing globally - LIVE
- access to available WeWork turnkey office space globally - WORK
- free meals 3 times a day at WeLive community cafeteria - EAT
- free snacks and drinks at WeWork stocked kitchens - EAT
- preferred access to WeWork/WeLive community programming - PLAY
- preferred pricing on offerings from members/partners - LIVE / WORK / EAT / PLAY
- $5,000/month membership
While the above LaaS product description and pricing is hypothetical, it’s not difficult to imagine why the subscription would be attractive to The We Company’s fast-growing membership network of 320,000+ entrepreneurial, socially and professionally collaborative, and generally well-compensated professionals.
Especially notable is the potential for a WeLive cafeteria that serves 3 square meals a day to members. Popularized by Silicon Valley tech giants such as Alphabet and Facebook, free, gourmet meals at the company cafeteria, controversies aside, has long been a desired perk and means of attracting top-tier talent. Through its WeLive product, The We Company has the potential to bring this perk out of the office and into the home - something that is likely to be of material interest to high income, Millennial tech professionals and entrepreneurs.
At $5,000/month, each hypothetical Lifestyle-as-a-Service (LaaS) membership generates $60,000/year in recurring subscription revenue. Every 100,000 subscribers will yield $6 billion a year in recurring subscription revenue.
Thus, assuming the value proposition is fundamentally sound, the critical question is: “how many LaaS subscribers can they acquire?” While a detailed analysis of the company’s membership growth prospects is outside the scope of this opinion piece, interested individuals should note that The We Company’s 320,000+ members today is up significantly from 220,000 at the end of March 2018 (less than 1 year ago), and from just 7,000 members 5 years ago.
Valuable Relationship Network
Foundational to the above-mentioned hypothetical LaaS offering, and critical to The We Company’s prospects and valuation, is their prized membership base, and the people-to-people, people-to-company, and company-to-company relationships that the membership network has generated, and will continue to generate.
Widely understood about the company’s membership is the long-marketed WeWork value proposition - companies in close proximity to one another in a collaborative environment can more easily find partners, vendors, and customers. Professionals can network and discover career opportunities, and entrepreneurs and business executives can bounce ideas off one-another at the water cooler.
What is less appreciated is the potential for The We Company to transform its membership into a platform for venture capital, private equity, and even investment banking. Given that corporations such as Microsoft are providing significant swaths of its workforce with WeWork membership, along with leading brands like Facebook, BlackRock, Adidas, Citigroup, and Salesforce, the potential for significant investment and finance activity is not only promising, but almost inevitable. It’s not out of the realm of possibility that The We Company will branch out into providing venture capital services in the near future.
By creating this self-reinforcing ecosystem, The We Company’s membership of networked people and companies has economic characteristics similar to that of social media networks - most significantly, the “network effect”, meaning 1) the membership gets more and more valuable the greater its subscriber count, and 2) other competing networks become relatively less and less valuable.
On this topic, it’s worth noting that critics who think WeGrow, an early-age and adult ongoing collaborative learning “school” run by Rebekah Neumann (married to Adam Neumann) is a sign of reckless business ambition, are likely misinterpreting the nature and strategic purpose of the offering. WeGrow is not a traditional school per se, but a vehicle to attract parents and their children who can afford to pay $22,000/year for 2 year old toddlers, to $42,000/year for kids ages 5 through 11. This highly-prized demographic is likely to further enhance the value of The We Company’s relationship network, and through the network effect, disincentivize people from joining other LaaS networks.
This opinion piece is full of hypotheticals about The We Company’s business plan and product strategy. Predictions are a messy business, and it’s much easier to be embarrassed as opposed to celebrated when the future plays out, regardless of how well-informed the prognosticator.
The assertions articulated here largely reflect a worldview that relationships are valuable, and relationship networks, properly understood and leveraged, can be a platform for vast value creation.
I’ll be watching The We Company with great interest in the coming months and years.