Individual Assignment

Student ID Number(s): 2371571 – Jieyu Yi

Programme: MSc IB

Module: MSc Knowledge and Innovation Systems (Dubai)

Name of Tutor: Ahmad Bhatti

Assignment Title: Analysis on WeWork’s Disruptive Innovation

Date and Time of Submission: 26/04/2022

Actual Word Count: 1498

 Analysis on WeWork’s Disruptive Innovation

Abstract

The paper selected WeWork as it is a typical representative of the hottest sharing economy
industry. Through online information and further analysis, it identified that Wework's
disruptive innovations mainly cover the following three aspects: surpassing peers' profits,
rapid expansion and scale effect, and data-driven disruptive innovation. Next, this paper
summarizes WeWork's Unique Value Propositions both from the perspectives of tenants and
landlords. However, a successful company must be profitable in the end, this paper further
analyzes the Benefits and risks of WeWork's business model and concludes that maximizing
rental income and minimizing costs are the core elements of the success of WeWork's
model. The increase in the value of its brand and assets are the ultimate profit for WeWork.

Keywords: WeWork, Disruptive Innovation, Unique Value Proposotion, Benefits, Risks.

1. Introduction About WeWork

According to the World Bank, small and medium-sized enterprises (SMEs) represent about
90% of businesses and more than 50% of employment worldwide (The World Bank, 2019).
And on the basis of research made by Stephan and Anil, the proportion of freelancers in the
US urban population increased from 12% in 1969 to 25% in 2009. In addition, there is also a
demand for mobile offices in the market, which are mainly from temporary teams and long-
term business travel groups (Stephan J & Anil, 2011). Moreover, Fundera shows that there
are 56.7 million freelancers in the US, which comprise 36% of the total workforce (Fundera,
2020).

Therefore, the flexibility, low cost, and high-cost performance of shared offices are
increasingly matching the office needs of start-ups, small and medium-sized enterprises, and
individual entrepreneurs. Moreover, some small and medium-sized enterprises urgently
need to improve the utilization rate and office mobility. This will force them to change the
traditional leasing method and choose a shared office with a more flexible leasing method.

And WeWork came into being. WeWork provides tenants with co-working space and
services, which can convert tenants’ original fixed office costs into variable costs for small
units. Also, WeWork offers flexibility and community-based value-added services, which can
greatly reduce the overall cost of space and increase efficiency (WeWork, 2021).

2. WeWork’s Disruptive Innovation

Clayton Christensen's theory of disruptive innovation aims to describe the impact of new
technologies on a firm's existence, with simplicity, convenience, accessibility, or affordability
seen as characteristics of the initial formative stage of disruptive technologies (Clayton
Christensen, 1997). WeWork's innovation has subverted the previous business model and
has made a radical innovation to the traditional office model. Its disruptive innovation is
mainly reflected in the following three aspects:

Surpassing Peers' Profits

According to the data disclosed by WeWork, its performance is significantly higher than
Regus. In the financial report disclosed by WeWork in 2014, the occupancy rate, profit
margin and revenue scale of its single space were significantly higher than Regus. WeWork's
Community Adjusted EBITDA still delivered a profit margin of about 27% in 2018
(Bloomberg, 2018).
- From the revenue side: Wework’s disruptive innovations are mainly to increase rental

income per unit area through workplace pricing and shared services, increase leasable
area through construction technology BIM, increase the number of workstations
through IoT sensors and machine learning technology, and therefore community value-
added services will increase the rental rate of members.

- From the cost side: Wework's disruptive innovations are mainly to obtain lower rents

through long-term lease contracts, use old members to obtain new members to reduce
customer acquisition costs, and community administrators to control operating costs by
focusing on basic services.

Rapid Expansion and Scale Effect

First, in terms of engineering construction, WeWork improves the development efficiency of
new outlets through BIM and prefabricated construction. Intensive distribution of points to
exert scale effect to retain members, and use supporting business to increase member
activity.

Data-driven Disruptive Innovation

The first is location selection, big data is used to select locations and explore value
depressions, and the business composition data of the target community is used to solve the
bottleneck problem of finding locations. The second is the design, through data acceleration
as well as optimization of space design, WeWork combined with the building data collected
by BIM has formed a space design template that is constantly updated and iterative. The
third is the business model, by subverting other traditional real estate businesses through
data, and aggregating construction, business, and user behavior data, WeWork can change
the way traditional real estate businesses are carried out based on data. For example, using
construction data and business data to value properties, and then explore asset value
depressions and proactively purchase assets. Then use user behavior data to improve
operations and increase asset value.
3. Unique Value Propositions of WeWork

The greatest value of WeWork lies in connecting and empowering members through the
platform and ecology, so as to achieve them as well as the WeWork platform itself. It
emphasizes on-demand, on-reach, on-rental, and on-use convenient rental models. It greatly
reduces the time of traditional leasing and improves efficiency. WeWork has introduced a
large number of business service providers in the form of cooperation, allowing tenants to
access a large number of business resources by simply accessing the WeWork platform,
including legal, financial, financing, and other necessary services for company operations,
providing value to target users.

The unique value proposition for tenants

fast start, no upfront fees, no running costs, lower barriers to entry for small businesses,
great location, inspiring and creative spaces, full range of community services, and most
importantly Let businesses focus on work.

The unique value proposition for landlords

Helping them lease properties on favorable terms, WeWork typically only leases a portion of
a commercial property building, allowing landlords to attract higher-value tenants in the rest
of the building with WeWork offices. At the same time, the property value of the buildings
selected by WeWork will basically appreciated. After WeWork moves in, the selling price will
increase by about 50-120%, and the rental premium will be as high as 29% (WeWork, 2022).
At the same time, the efficient WeWork platform can improve the time for customers to
settle in, reduce the vacancy rate of the property, and then improve the property return rate
from the side.
4. Benefits and Risks

Benefits
WeWork and even the entire sharing economy will bring benefits to economy, the
environment, and the society.

- Economic benefits: GCUC predicts that the number of coworking spaces worldwide will

grow from 14,411 in 2017 to more than 30,000 in 2022, and the number of coworking
members worldwide will nearly triple to more than 5 million (GCUC, 2018). We believe
with the development of coworking and other sharing economies, WeWork will bring
more economic benefits to the whole society.

- Environmental benefits: WeWork is 2.5 times more space-efficient than traditional

offices, which prevents the release of 900,000 tons of carbon emissions globally during
the manufacture of materials for these spaces. This is equivalent to the amount of
carbon dioxide produced by taking 90,000 cars off the road for a year (Carbonfund,
2022).

- Social benefits: WeWork's mission is to enhance the world's consciousness, It seeks to

address the environmental and health impacts associated with energy, materials and
products. So its fundamental benefit is to build and support healthier communities
while leaving the world a healthier and more sustainable place.

Risks
Based on the previous analysis about WeWork’s innovation, we can find below three risks:

- High channel expansion fees and membership discounts: According to statistics, in

2018, new tenants received an average of 60% discount for the first year. The first-year
rent of traditional intermediaries is only 10% discounted (WeWork, 2022), and
WeWork's customer acquisition cost is five times higher than that of traditional
intermediaries.
- Continued dwindling rental concessions: WeWork can't get as high a rental concession

in emerging markets as it can in the US. Although a long-term lease contract can still
help WeWork obtain rental discounts, the discount rate is basically equivalent to the
discount (about 10%) that the landlord gives to traditional anchor tenants, and WeWork
cannot gain more advantages on this basis.

- Difficult to maintain the environment and service standards: With WeWork's rapid

expansion, operational problems have gradually emerged. Many reviews and media
(such as Forbes, Trustpilot, Facebook, etc.) have mixed reviews on WeWork's work
environment and services. There are widespread complaints about WeWork's noisy,
cramped spaces, and inefficient service.

5. Conclusion

The real innovation goal of WeWork is to achieve asset value enhancement and realization
by building an office and life ecosystem. It mainly uses the cost value of shared space to
attract members. Although the WeWork model is new and can create great value for
customers, earning the rent difference is still the essence of the model. We agree with its
disruptive innovation model and core values, and affirm its overall economic, environmental
and social benefits. But maximizing rental income and minimizing rental and operating costs
are core elements of the success of the WeWork model. Ultimately, the increase in its asset
value is the best source of WeWork's sustainability.
 Reference

i. Bloomberg (2018) WeWork Accounts for Consciousness. Available from:

https://www.bloomberg.com/opinion/articles/2018-04-27/wework-accounts-for-
consciousness [Accessed 22 April 2022].

ii. Carbonfund (2022) WeWork. Available from: https://carbonfund.org/partners/wework/

[Accessed 22 April 2022].

iii. Clayton Christensen (1997) The Innovator's Dilemma: When New Technologies Cause
Great Firms to Fail. Boston, MA: Harvard Business School Press.

iv. Fundera (2020) 32 Surprising Freelance Statistics to Know in 2021. Available from:
https://www.fundera.com/resources/freelancing-statistics#:~:text=Overview%3A
%20Freelance%20Statistics,economy%20on%20a%20yearly%20basis. [Accessed 22 April
2022].
 v. GCUC (2018) 2018 Global Coworking Forecast – GCUC Community. Available from:
https://gcuc.co/2018-global-coworking-forecast-30432-spaces-5-1-million-members-
2022/ [Accessed 22 April 2022].

vi. Stephan J Goetz, Anil Rupasingha (2011) Self-employment and Local Economic
Performance: Evidence From US Countries. Papers in Regional Science. 92(1), 141-161

vii. The World Bank (2019) Small and Medium Enterprises (SMEs) Finance: Improving
SMEs’ access to finance and finding innovative solutions to unlock sources of capital.
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2022].

viii. WeWork (2021) What is coworking? Available from:

https://www.wework.com/ideas/workspace-solutions/flexible-products/what-is-
coworking [Accessed 22 April 2022].

ix. WeWork (2022) Landlords & Owners: Submit your Space. Available from:
https://www.wework.com/landlords [Accessed 22 April 2022].