Will WeWork work in China?

上海交大巴黎高科评论 · 公众号 · · 2016-09-23 10:56

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On a Tuesday in September, Adam and his most important partner in China, John Zhao, Hony Capital CEO, were seen at the WeWork Yanping Road co-working space in Shanghai. The space was only launched on July 1 this year, but all rooms have already been rented out. Bookings for the other two locations in Shanghai being built are also strong.

John Zhao is the main force in bringing WeWork to China. In April, Hony Capital and Legend Holdings became lead investors, putting approximately $700 million into the company. It was not an easy decision. John Zhao and his team had to answer many questions, including the most challenging one: Is WeWork overvalued at $16 billion? Will the American company be able to succeed, or even just survive, in China?

WeWork in China: threats from copycats?

Sharing the title of “global giants inthe sharing economy” with Uber and Airbnb, the business model of WeWork is the simplest among the three: Take out a lease on a floor or two of an office building, chop it up into smaller parcels, and then charge companies and individuals for monthly memberships. This sub-leasing model is easily replicable—even more so in China. There are too many lessons from the past. Groupon was soon drowned in a sea of Chinese imitators and ended up withdrawing from the country. Uber may be profitable in the United States, but in China, it was dragged into a subsidy war and was bought up by its Chinese imitator Didi. There are also rumors now about Amazon’s possible acquisition by a Chinese company.

WeWork’s shared office spaces are indeed unique. Its 160-strong R&D team uses the latest technology—Building Information Modelling (BIM)— to make the most out of every layout, corner and detail. Apart from optimizing space usage, WeWork’s workspace design creates a transparent, comfortable, open and social user experience. The distinct design and vibe are standardized and brought to every WeWork location. For a space that can house several hundred co-workers, like the one on Yanping Road, only a handful of onsite-staff is needed. Cost is reduced substantially. The ideal gross margin can be as high as 60%.

Yet, all added up, are subleasing at higher prices, unique replicable space design and services, plus low labor costs enough to justify the $16 billion? Is this enough to prevent WeWork from being imitated, or even surpassed, in China?