WeWork, SoftBank and the Vision

"WeWork is a working community. When Facebook was launched, no one understood its power." - Masayoshi Son on the WeWork investment in a CNBC interview. [08/03/19]

I. MORE THAN MEETS THE EYE

If I had to summarize the ultimate objective of 'The We Company' (WeWork) and the Vision, I would use the phrase - "More than meets the eye." At the surface, it is easy to say the following:

WeWork: "Co-working start-up" - Fox Business (2017) [1], "Real estate company valued like a tech company" - CB Insights (2019) [2] (*)

The Vision Fund Thesis: Interviews such as [3] seem to indicate SBVF is pouring capital behind the "Augmented Humans" thesis i.e. Humans + AI. Masayoshi has himself stated that all SBVF backed companies use AI.[4] This has led many to believe (me included) that WeWork is a "smart real estate" company, but is it really?

The genesis of this article was the remark passed by Masayoshi which I quoted at the outset.

I'd like to start off by asking you to see this snapshot of 'The We Company' ecosystem:

I'd love to hear your first thoughts; but this article is (unfortunately) a one-way dialogue. If you are confused, don't worry - the above picture is not supposed to make sense until I present my hypothesis below.

II. MY HYPOTHESIS REGARDING 'THE WE COMPANY'

# 1: 'Real estate' (i.e. co-working and co-living space) is NOT the (ultimate) product, rather it is an enabler (an intermediary product).

# 2: An omni-channel professional and/or social network is the product/service that 'The We Company' is selling.

"A (social and business) network for augmented humans." - My hypothesis regarding the 'The We Company' offering.

Let's begin by revisiting the ecosystem snapshot above and focus on the "business network" -

Ask yourself - "What is missing within the network on the left that the network on the right provides?" Permanent physical hubs. (**)

Digital platforms (or services) such as LinkedIn, Twitter and Skype provide businesses and professionals with the means to connect globally, to share thoughts and to meet other professionals. In my opinion, these platforms suffer from one key limitation - a lack of physical presence.

In part, LinkedIn has been able to address this through LinkedIn Local [5]. Though it appears to be well received [6] - these host driven events do not have a permanent location or presence.

This is where WeWork comes in - 617 hubs in 102 cities [7]. The 'co-working space' enables like-minded individuals to congregate at a permanent location.

Recall that WeWork allows single membership [8] and corporate membership i.e. you can become part of the global network community as an individual - similar to a professional network like LinkedIn.

I'm not a psychologist - but ask yourself this - would you engage an individual as a business partner without having met them? You've probably met someone at a networking event and said - "would be great to have them on board!"

This is where MeetUp, acquired by WeWork for $200M in 2017 [9], comes into play. MeetUp is an app that allows users to organize events - in this case, at WeWork locations. These events could be social but also serve the purpose of business networking - just like LinkedIn and Twitter let you reach out to people and companies, MeetUp takes it a step further by facilitating in-person business interactions.

Let's assume you meet a potential business partner/partner firm and wish to explore a business idea at WeWork, you may want to visit an incubator or accelerator. Enter WeWork Labs [10]. For the skeptics, WeWork Labs was launched in India in October 2018 and 11 of 31 start-ups incubated went on to raise $5.5M [11] [12].

You could easily argue that start-up ideas generated outside of the We Company ecosystem can also be incubated at the WeWork Labs. You're correct here - but you, as an entrepreneur, may want to set up at the WeWork Labs because of the presence of other start-ups/companies within the WeWork premises (partnerships, advice and a lot more)... this is starting to sound a bit like the network effect right?

This is a closed loop ecosystem for entrepreneurs, professionals and corporates. Here's how the network effect plays out - as you observe more people working out of a WeWork office in your city, hear about interesting events held at WeWork locations and read about successful start-ups coming out of the WeWork Labs, you may be increasingly enticed to join this network. This seems oddly familiar right? Well, I just described how you may have joined LinkedIn or Twitter.

I will close this part of the discussion by displaying the business ecosystem along with the network effect. In the figure below, some of the ecosystem entry points could also be influenced by the network effect. Remember, the key component of the business ecosystem by 'The We Company' is the physical presence (WeWork).

It's easy to see a similar idea extends to the "social network" that 'The We Company' is trying to build. (***)

Most social media platforms today are attempting to substitute social interaction (which I believe has a strong physical component) by encouraging live-streaming of video content, scrolling through endless memes and much more.

WeWork and WeLive provide co-habitation spaces - both can have a work or social element depending on the situation (and time of day). Whether it's the Happy Hours, Office Hours, Lunch & Learns [13] - the idea is to bring the community together to interact, learn and have fun.

I want to delve into the "network effect" that may arise in the social context -

It seems to me that the underlying idea is to bring an individual to WeWork space or WeLive residence (perhaps through a MeetUp event) to ensure at least one of the following occurs:

1. Find friends who you get along with or share common interests with.
2. Find a "partner" - let's assume this is a business partner (****)
3. Find flatmates or roommates (potentially amongst those in 1) if required (think of moving into a new city).
4. Find a job or found a venture (possibly a result of 2). You may end up visiting the WeWork Labs.

If you observe closely, the social network by 'The We Company' appears to be a closed loop social ecosystem (similar to the business network).

I think the social and business ecosystems have a non-empty intersection; I've just chosen to presently the two independently to avoid confusion.

Hopefully, at this stage, I've been able to encourage you to think of 'The We Company' is more than a "smart real estate company" - I like to think of it as a business+social network for "augmented humans."

To give you a hint of where things may be headed, a former Google exec and her team have been hired recently [14] to take the 'WeWork' and 'WeLive' concept to a smart city - "WeCity"! Briefly go back and review the ecosystem images bearing in mind a larger circle reflective of a city.

If you've noticed, I've used the word "augmented humans" quite often above - a prelude to the next section where I will briefly discuss how 'The We Company' fits into the Soft Bank Vision Fund Investment Thesis (or Masayoshi Son's vision).

III. SOFTBANK INVESTMENT INTO 'THE WE COMPANY'

"If money was not a constraint, what would you do differently in the next 5 to 10 years?" - The "billion" dollar question posed by Masayoshi Son to investee companies. [19]

THE NUMBERS

Let's start out by examining this info-graphic mapping the SBVF investments as at 02/11/18 produced by Yahoo Finance [15].

The nature of private funding rounds make it difficult to estimate the split between Softbank and SBVF with regards to investment into 'The We Company'.

Taking information from multiple sources [16] [17] [18] (many thanks to Jack for helping out here), it seems that SoftBank and SBVF have jointly invested a maximum of $10.4 billion into 'The We Company' (plus an additional $1 billion into WeWork China). Also, the same sources indicate that SBVF investment is capped at $4.4 billion.

A GOOD FIT FOR THE PORTFOLIO

If you go back to the info-graphic above and re-categorize the WeWork investment as a social/professional network of the future, you might see how it broadens the portfolio and reveals how other investments can complement WeWork.

[Note: I have only highlighted some interesting synergies. Highlighting every possible synergy in the portfolio above could make the analysis subject to a confirmation bias; this has been addressed in the 'Shortcomings' section].

• WeWork (WeWork Labs in particular) could have a strong link with the portfolio insurance companies - every institution needs insurance and SBVF is invested into tech-first insurance players in three major geographies (USA, China/SE Asia and India). Tech-first SME focused insurance is the key here.
• The connection between Slack and WeWork is straightforward - a workforce productivity tool in the digital realm (Slack) can easily complement a productivity boosting workplace (WeWork) in the physical realm.
• ByteDance (digital social interactions, media and entertainment) is a nice complement to WeLive, MeetUp and the WeWork After Hours events. The way I think of this is university life and social media (physical + digital) - practically inseparable.

A GOOD FIT FOR MASAYOSHI

"A sandbox approach for humans + technology (i.e. augmented humans)." - My conjecture on Masayoshi's view of 'We'.

• Masayoshi's vision for the future is augmented humans i.e. humans + AI. 'The We Company' does meet the investment criteria of having an AI focus - the data it collects is used to improve workforce productivity, make the best use of real estate (space optimization) etc - CB Insights [2] has done an in-depth analysis of data usage, which I will avoid replicating.
• 'The We Company' provides Masayoshi with the testing ground (a sandbox) for the interaction between humans and technology. Every algorithm requires training data - WeWork and WeLive collect data which will be required to build AI tools to complement humans (remember, Masayoshi wants a future with augmented humans - humans is the key word here!)
• Another key element of 'augmented humans' is increased productivity - technology today enables us to do a lot more work than before (think of smartphones, factory machines etc) - WeWork could also serve as an experiment to test the outcome of a highly productive workforce.

I won't comment on 'The We Company' valuation; I personally don't know how to value a professional/social network (and remember, this is digital + physical).

IV. "NETWORK EFFECT"

I've used the word "network effect" numerous time. Hence, I feel the need to justify its use in the context of 'The We Company'. There some some great resources on the topic of network effects [19].

A network effect is characterized by:

1. Barriers to entry and exit

Entry: 'The We Company' has a war chest most companies can only dream of having; I feel its fair to say competitors do have trouble keeping up (recent acquisitions of competitors indicate so). [20]

Exit: The amenities offered by WeWork are comparable to any high-end office space. What sets WeWork apart is the ability to attract interesting start-ups and to create a community - perhaps, you do feel like you're going to miss out when you leave.

2. High retention driven by value

I'm skeptical of churn rates that are available on the internet - churn rates could he high because WeWork appeals to digital nomads, short-term visitors etc. I feel you need to look at churn rates for "anchor" tenants (larger companies) - I couldn't find data regarding this. In the absence of this information, I will assume it's okay here and clearly a low churn (if it is the case) would be the result of the value of being included in the network described above.

V. CONCLUSION

I will wrap this article up by highlighting the main points -

1. 'The We Company' perhaps isn't a smart real estate company - it's an (omni-channel) professional and social network. This potentially justifies the re-branding from 'WeWork' to 'The We Company' - sounds like a network for humans.
2. Given point 1, the WeWork investment fits well into the SBVF portfolio (synergies and a diversification into social networking of the future - physical + digital).
3. 'The We Company' could be the sandbox for augmented humans. (Think of how "high-tech" a WeWork office is - how do you behave/respond?)

VI. SHORTCOMINGS

I think it's important for me to point out some flaws in my analysis -

1. Impact of Virtual Reality (VR) and Augmented Reality (AR) on human interaction

My hypothesis rests on the idea that social and business networks today lack a physical presence. The assumption that physical presence is important may not be true in the future where digital interaction may provide the same (or better) "experience" than in-person interaction.

The notion of Extended Reality (a combination of the above) may remove the boundaries of geographical closeness entirely. [20]

2. Impact of Confirmation Bias

The evidence I have provided here is based on news and information that I had access to prior to forming the hypothesis that 'The We Company' is a social + professional network. I've done my best to minimize a confirmation bias but I may be subject to the same. It could entirely be that 'We' is only a real estate company and I've picked up noise as a pattern.

3. Outlier Ventures' (constructive) criticism of the SBVF Investment Thesis.

"Platform monopolies lead to data monopolies which lead to AI monopolies." - Jamie Burke, CEO, Outlier Ventures.

This shortcoming is restricted to my section on SBVF - Jamie wrote a great article [21] on how OV's investment thesis is precisely the anti-thesis of SBVF. I don't want to delve in too much detail here but it is good to maintain a balance in perspective.

4. Miscellaneous counter-arguments

FinTech example - physical doesn't seem to be important. You could reference challenger banks such as Monzo, Starling, N26 etc that lack a physical presence. However, I think there is a separation between financial services and social/business interaction.

Existing communication tools - you could point out that smartphones, Skype and Slack have reduced the need for corporate teams to be located in a single office. This is a great point - if you notice several blockchain projects are based on the idea of a distributed team (the Ethereum project is a great example since it may be widely known versus smaller projects). However, the WeWork and WeLive locations are spread globally - as of now distributed teams require each individual to have a physical presence somewhere (our brain hasn't be uploaded to the cloud).

DISCLAIMER

The author currently works at Insureblocks. Views expressed in this article are the authors own and do not represent those of Insureblocks, its management, its employees or its affiliates.

This article does not constitute investment or any other form advice. The author bears no responsibility in the event of financial or other loss arising from actions taken by the reader or any related party on the basis of information represented in this article. The author does have any financial interest in any firm mentioned in the article above; this article is produced for educational purposes.

For any further queries or complaints, kindly email the author at rahul@insureblocks.com

FOOTNOTES

(*) - I have the utmost respect for CB Insights. However, I would like to highlight that data may not always provide a complete picture (hopefully, this article has convinced you!) From a statistician in training (me) to a data company (CB Insights).

(**) - I'm not going to bore you with the usual statement that WeWork is collecting data to improve workforce productivity and maximize the functionality of work-spaces (office layout, for example). It is fair to say any business today is data-driven.

(***) - The phrase "relationship" has several implications - I will leave you to your own imagination but I'm sure you get the picture!

(****) - Could also be a life partner; just saying.