space-as-a-service-model

Space As A Service (SPaaS) Business Model [WeWork Case Study]

WeWork’s business model claims to leverage the space-as-as-service model. It consists of a set of services meant to sustain the growth of the companies as part of the membership model, composed of four primary tiers: standard, configured, on-demand, and Powered by We (Custom).

This model helps WeWork achieve its vision and mission. And it flips the traditional commercial real estate model upside down.

Whereas the commercial real estate model has pretty much focused on collecting rents from tenants, with a small part related to common area maintenance fees.

The space as a service (SPaaS) model introduces a set of products and services that makes space rented only the foundation of the whole model. Indeed, with space, this membership model leverages several elements such as:

  • Data
  • Technology
  • Ancillary services spanning from health to lifestyle

Let’s look at this model by looking at the company that pioneered it, WeWork.

Quick glance at the WeWork SPaaS model

wework-space-as-a-service-model

How the WeWork Platform is structured around the space-as-a-service model, where members get access to a set of services from Insurance to Education, Technology, Lifestyle, and more. (Source: WeWork S-1)

In other words, beyond the physical locations offered by the company, WeWork also offers a set of services meant to enable members to scale their teams.

Thus, WeWork presumably leverages on technology to build a platform able to offer a set of services to deliver what the company claims as “a premium experience to our members at a lower price relative to traditional alternatives.

Thus, the core of the revenue model is a membership and on top of that, a set of ancillary, value-added products and services.

wework-members-cost-saving

WeWork claimed savings for its members, (Source: WeWork S-1 form)

As the company might leverage a growing number of members, it will be able to develop a set of products and services on top of those memberships. Thus, using the membership as an entry point for customers to build on top of it a sort of add-on model with more and more services.

The membership model WeWork launched revolves around four primary membership tiers:

  • Standard
  • Configured
  • On-demand
  • Powered by We (custom)

wework-members-tiers

WeWork members’ tiers based on its space as a service model (Source: WeWork S-1 form)

KPIs for WeWork space-as-a-service model

wework-membership-revenues

WeWork membership revenues (Source: WeWork S-1 form)

As the WeWork space-as-a-service model is based on a subscription, membership, which implies a continuous relationship with its customers, also implies a set of metrics that enable the company to track, on the one hand, its ability to reach the full capability of the buildings.

And on the other hand, to measure and track the members’ growth and sustainability.

Workstation Capacity

As specified by WeWork, “workstation capacity represents the estimated number of workstations available at open WeWork locations.

This metric helps the company assess the capacity to sell membership on the platform.

Memberships

As specified by WeWork, “memberships are the cumulative number of WeWork memberships and on-demand memberships.” Powered by We service is comprised of the other revenues, as explained below.

Quick glance at Powered by We offering

powered-by-we-revenues

Powered by We is a tier that comprises a set of customized services around the core membership, such as:

  • Design services
  • Construction and delivery capabilities
  • Cost savings in the supply chain, from furniture to supplies;  
  • Onsite community team to energize work environments;
  • Enterprise-ready technologies, also comprising workplace insights dashboards

Enterprise Membership Percentage

Enterprise memberships represent memberships attributable to enterprise members, which are organizations with 500 or more full-time employees.

As of June 1, 2019, that represented 40 % of WeWork memberships revenues.

Those enterprise members are extremely important because they sign agreements with longer-term commitments for multiple solutions across our global platform, which enhances our revenue visibility.

Run-Rate Revenue

Run-rate revenue for a given period represents the revenue recognized by GAAP for the last month multiplied by 12. That is an operating metric.

Committed Revenue Backlog

Committed revenue backlog represents total non-cancelable contractual commitments, net of discounts, which will be recognized as revenue subsequently.

Contribution Margin

The contribution is defined as membership and service revenue less location operating expenses, adjusted to exclude non-cash stock-based compensation expense included in location operating expenses. This is another key operating metric.

Key takeaways

WeWork pioneered a model called space-as-a-service. Whereas the traditional real estate management company offers basic services for common area maintenance and a few other things.

WeWork leverages its platform business model to offer a set of services that range from healthcare to lifestyle to help the organizations part of its membership program to scale while keeping the real estate costs relatively low.

Related Business Model Types

Platform Business Model

platform-business-models
A platform business model generates value by enabling interactions between people, groups, and users by leveraging network effects. Platform business models usually comprise two sides: supply and demand. Kicking off the interactions between those two sides is one of the crucial elements for a platform business model success.

Marketplace Business Model

marketplace-business-models
A marketplace is a platform where buyers and sellers interact and transact. The platform acts as a marketplace that will generate revenues in fees from one or all the parties involved in the transaction. Usually, marketplaces can be classified in several ways, like those selling services vs. products or those connecting buyers and sellers at B2B, B2C, or C2C level. And those marketplaces connecting two core players, or more.

Network Effects

network-effects
A network effect is a phenomenon in which as more people or users join a platform, the more the value of the service offered by the platform improves for those joining afterward.

Asymmetric Business Models

asymmetric-business-models
In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus have a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility.

Attention Merchant Business Model

attention-business-models-compared
In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility. This is how attention merchants make monetize their business models.

Wholesale Business Model

wholesale-business-model
The wholesale model is a selling model where wholesalers sell their products in bulk to a retailer at a discounted price. The retailer then on-sells the products to consumers at a higher price. In the wholesale model, a wholesaler sells products in bulk to retail outlets for onward sale. Occasionally, the wholesaler sells direct to the consumer, with supermarket giant Costco the most obvious example.

Retail Business Model

retail-business-model
A retail business model follows a direct-to-consumer approach, also called B2C, where the company sells directly to final customers a processed/finished product. This implies a business model that is mostly local-based, it carries higher margins, but also higher costs and distribution risks.

B2B2C

b2b2c
A B2B2C is a particular kind of business model where a company, rather than accessing the consumer market directly, it does that via another business. Yet the final consumers will recognize the brand or the service provided by the B2B2C. The company offering the service might gain direct access to consumers over time.

Crowdsourcing Business Model

crowdsourcing
The term “crowdsourcing” was first coined by Wired Magazine editor Jeff Howe in a 2006 article titled Rise of Crowdsourcing. Though the practice has existed in some form or another for centuries, it rose to prominence when eCommerce, social media, and smartphone culture began to emerge. Crowdsourcing is the act of obtaining knowledge, goods, services, or opinions from a group of people. These people submit information via social media, smartphone apps, or dedicated crowdsourcing platforms.

Open-Core Business Model

open-core
While the term has been coined by Andrew Lampitt, open-core is an evolution of open-source. Where a core part of the software/platform is offered for free, while on top of it are built premium features or add-ons, which get monetized by the corporation who developed the software/platform. An example of the GitLab open core model, where the hosted service is free and open, while the software is closed.

Open Source vs. Freemium

open-source-business-model
Open source is licensed and usually developed and maintained by a community of independent developers. While the freemium is developed in-house. Thus the freemium give the company that developed it, full control over its distribution. In an open-source model, the for-profit company has to distribute its premium version per its open-source licensing model.

Freemium Business Model

freemium-business-model
The freemium – unless the whole organization is aligned around it – is a growth strategy rather than a business model. A free service is provided to a majority of users, while a small percentage of those users convert into paying customers through the sales funnel. Free users will help spread the brand through word of mouth.

Freeterprise Business Model

freeterprise-business-model
A freeterprise is a combination of free and enterprise where free professional accounts are driven into the funnel through the free product. As the opportunity is identified the company assigns the free account to a salesperson within the organization (inside sales or fields sales) to convert that into a B2B/enterprise account.

Franchising Business Model

franchained-business-model
In a franchained business model (a short-term chain, long-term franchise) model, the company deliberately launched its operations by keeping tight ownership on the main assets, while those are established, thus choosing a chain model. Once operations are running and established, the company divests its ownership and opts instead for a franchising model.

Business resources:

Leave a Reply

Scroll to Top
FourWeekMBA