space-as-a-service-model

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

WeWork business model, claims to leverage on the space-as-as-service model. It consists of a set of services meant to sustain the growth of the companies part of the membership model, consisting 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.

Where 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 on several elements such as:

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

Let’s give a glance at this model by looking at the company that pioneered, WeWork.

Quick glance at 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 that space 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, that implies also 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 asses 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 within the other revenues, as explained below.

Quick glance at Powered by We offering

powered-by-we-revenues

Powered by We is a tier which 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, comprising also 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 in accordance with 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. Where the traditional real estate management company offers basic services for common area maintenance and a few other things.

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

Business resources:

Published by

Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which he brought to reach about a million business students, professionals, and entrepreneurs in 2019 alone | Gennaro is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate and become profitable | Gennaro is an International MBA with emphasis on Corporate Finance | Subscribe to the FourWeekMBA Newsletter | Or Get in touch with Gennaro here

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