The coworking ecosystem is thriving well beyond WeWork
WeWork today released its S-1 filing as part of its process of going public, revealing its financial guts to the public ahead of its IPO. The filing showed substantial growth in its revenue, accompanied by a significant increase in its losses.
WeWork said it generated $1.54 billion in revenue in the first half of 2019 with a net loss of $900 million. These on paper are pretty eye-popping numbers, though WeWork’s business is quite a different one compared to your typical tech startup. WeWork, depending on who you talk to, sits somewhere at the intersection of real estate, tech(ish), and a community network for smaller companies getting off the ground.
We looked into Brex data to get a sense of how, ahead of its IPO, WeWork is positioned competitively in the startup ecosystem. In that, we found that while WeWork has the largest share of spending among Brex customers, there is substantial competition.
Brex customers are primarily small- to medium-stage tech startups — the kind of audience WeWork will likely want to attract — though we have an increasingly broad base of ecommerce and life sciences customers. (While WeWork is a Brex partner, there is substantial spending for both WeWork and coworking spaces beyond that. The details of our partnership are included at the end of the report.)
At the time of its launch, WeWork proved that there was a market for small companies that didn’t want to work out of their living room, but weren’t big enough to warrant getting their own office. Dozens of smaller coworking spaces have popped up since then. Some are more established and are scaling across multiple cities, while others remain more bespoke in their launch cities. Some major real estate brands have even launched their own coworking spaces.
It’s not entirely surprising that WeWork will be one of the earliest coworking space companies to go public, given its operating costs and its share of spending among Brex customers. But it also might be a little surprising just how much of a percentage the long tail has when compared to WeWork.
WeWork doesn’t rule all of startup spending
When looking at the total share of spending, we can find that WeWork does control the majority of startup spending. But it doesn’t have the same kind of overwhelming share that Amazon has in cloud computing. Instead, we find that WeWork finds a considerable amount of competition in the form of Regus and those long-tail coworking spaces (which we’ll get into below).
WeWork has picked up some share at the expense (so to speak) of Regus among Brex customers. WeWork has developed new offices around the needs of smaller companies around the county. The majority of our revenue from locations in the United States was generated from our locations in the greater New York City, San Francisco, Los Angeles, Seattle, Washington, D.C. and Boston markets, which all represent major WeWork markets.
But as WeWork tries to bill itself as a community-focused company (see recent rebrand to the We Company) built around its central offices, that means that it’ll also be competing with local communities. Indeed, there may be an opportunity for smaller, coworking spaces that already have baked-in networks. Newer or smaller coworking companies could be a bit more agile on the ground when assembling communities in more targeted locations. That’s where the long tail kicks in, and why it still controls more than 10% of share among startups.
A look at the long tail of startup coworking spaces
When you zoom into that long tail in the second quarter this year, we can see that there isn’t one coworking company that controls the majority of that spend. And that makes sense: each of these companies has an opportunity to target a more narrow community. That’s probably the same approach that helped WeWork get off the ground in the first place.
If the process of building a company around shared coworking spaces is the same as making a community, the challenge for each company is to grow its community. And that growth could potentially be at the expense of the ones down the street.
Again, Brex customers tend to skew toward small- to mid-stage technology startups — but that’s the same community that really helped WeWork get started as well. That’s not to say any one of these companies will end up at the scale of WeWork and end up going public. But every startup has to start somewhere.
Most companies, at some point, will end up finding their own offices. That’s where solutions like Knotel, which was not included in this report, come in. Those offer a way to be somewhere between a separate office and working with the flexibility of a coworking space. At the same time, it’s not clear when the most successful startups have a “graduation point” where they fly the coop. (Knotel is also a partner of Brex. The details of our partnership are listed at the end of the report.)
A company like WeWork, or Regus, or Werqwise or any other will be dependent on a thriving startup ecosystem and a community that continues to bring new people in the door. More communities mean entrepreneurs have a lot of options and can find the best one that works for them. And that means that each coworking company will have to fight to provide the best experience.
This list is not exhaustive — and in fact, there are probably dozens of communities we’re missing. (You should reach out to us if so to see if there is a way we can work together!). In the end, this kind of distribution might not end up changing as new communities are continually popping up and evolving. What it does show, however, is that there is room to build an entire business around supporting those communities.
Brex examined customer spend on coworking spaces to get a better sense of the dynamics between these kinds of companies. Share of spend is defined as the total dollar amount spent on the Brex card on a specific coworking space over the total dollar amount spent on the category. “All others” in coworking spend is defined as the total spend of the long tail included in our second Brex customer spend analysis, and may not be exhaustive. Spending does not include coworking spaces paid by invoice, which may account for larger-scale spending on companies like Knotel.
Brex has also partnered with both WeWork and Knotel to offer rewards to our customers. Brex offers customers an up to 15% off list price for 6 months for any new WeWork office, subject to availability. Brex also offers a 1 million rewards point bonus for signing up with Knotel.
As part of its underwriting process, Brex maintains visibility into the spending of companies that use its products. Companies who asked that their data not to be shared were not used, and any company that does not wish to share its data for future aggregated analysis may request to exclude it from being shared in the aggregate