This company provides inspirational, collaborative, nice office spaces for very high prices (compared to traditional office space). Their outsized profits will encourage competitors to enter the space and undercut them on price. Is there a way they can defend against that?
- Their events provide some sort of network effect and marketing
- The current group of startups provides some sort of network effect
Still, their customer base consists almost entirely of price-sensitive, savvy, early-adopters, so any new competitor would be known about without having to do much marketing, and could start without all the nice events in the beginning if the price is lower.
I just don't see how this business is defensible long-term...
I suspect that if you ask them they will say that there are network effects in that a) you can travel and use other wework spaces with a single membership and b) you get access to a community to hire from, seek advice from, network with, etc. For me those would not command a large price premium and so am incline to agree with you that it's not very defensible.
That said, a capital heavy business like this doesn't need as much defensive power as a tech company. Very few challengers will have access to the capital needed to compete with wework at scale (and there are scaling benefits here) so the competition won't be crippling.
- Their events provide some sort of network effect and marketing
- The current group of startups provides some sort of network effect
Still, their customer base consists almost entirely of price-sensitive, savvy, early-adopters, so any new competitor would be known about without having to do much marketing, and could start without all the nice events in the beginning if the price is lower.
I just don't see how this business is defensible long-term...