With the meteoric rise of new technology companies such as Alibaba, Tencent and Bytedance, investors around the world are looking for the next unicorn that can help them get rich quick. But as the spectacular collapse of WeWork has shown, too much enthusiasm over tech-labelled start-ups may quickly lead to disappointment. The cash-strapped company’s downward spiral is proof that one should never judge a book by its cover.
For the uninitiated, WeWork rents office space, installs amenities, and then subleases it to companies in need of extra short-term office space, such as Facebook and Goldman Sachs. According to the prospectus of its failed initial public offering (IPO), WeWork’s claim to being a “tech company” lies in having 1,000 engineers, product designers, and “machine learning scientists” among its 12,500-strong staff. It has since laid off 2,400 employees.
Valued at US$47 billion before the recent IPO fiasco, it seems that many people bought into the company’s claims initially.
But as many realists pointed out, WeWork is in fact nothing more than a hyped-up real estate company. Other than the fact that they are able to provide short-term leases to companies who would be unwilling to take a long-term lease of the same unfurnished property, WeWork offers little additional value to their customers.
Unlike an online service platform that enjoys low variable costs for each new customer they take on (it costs almost nothing for Facebook to store the data of one more person), WeWork is physically limited by the space they own and have to bear huge expenses for each new working space they open.
What’s more, while tech brands such as TikTok are able to create value for existing customers for every new customer that joins (the objective of a social network is to reach as many people as possible), WeWork’s proprietary network is unable to do the same because many alternatives, such as Slack and Microsoft Teams, already exist and are able to do a better job.
Now with WeWork likely to be worth almost nothing, at least according to ex-SoftBank chief Bill Ackman (Tokyo-based SoftBank owns about 80 per cent of the company), it is clear that many people were able to see through its guise.
Reports say WeWork is considering giving up office floors in several locations in Hong Kong.
The obvious lesson here is that we should not take marketing claims at face value. While Hongkongers are mostly financially literate, it would be prudent to conduct thorough research before jumping on to every investment trend that comes by. It is always better to be safe than sorry.