WeWork’s rapid reversal in fortune in September caught some analysts by surprise. The high-flying office-sharing company, then favored by gig workers and the tech elite, was gearing up for an initial public offering that was widely expected to raise upwards of hundreds of millions of dollars. Instead, within a few days it became a poster child for investor herd mentality gone amok and was scrambling for cash.
WeWork’s free fall (the company’s valuation has dropped more than 80% since January 2019) has fed a spirited discussion over what it means to be a young “tech company.” Although WeWork’s core business model — renting empty offices in bulk and turning them into coworking spaces with amenities such as yoga classes and kombucha for companies and individuals — doesn’t seem especially technology-focused, the company’s prospectus used the word technology more than 100 times, notes reporter Marie C. Baca in The Washington Post.
Taiwan-based business analyst Ben Thompson writes in Stratechery that what separates tech companies from other types of businesses is “the centrality of software.” For instance, software creates ecosystems and enables companies to eliminate both marginal costs and transaction costs. By this definition, he says, WeWork falls short. Although it uses software, WeWork “pays a huge percentage of its revenue in rent.” Moreover, he says, “it is difficult to find evidence that [its ecosystem] is a driving factor for WeWork’s business.” Notes Baca, “The issue goes beyond mere semantics. Some investors worry that the slipperiness around tech terminology and valuations could contribute to an economic bubble.”
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