WeWork Porter’s Five Forces Analysis
Porter’s Five Forces analytical framework developed by Michael Porter (1979)[1] represents five individual forces that shape an overall extent of competition in the industry. WeWork Porter’s Five Forces is illustrated in figure below:
Threat of new entrants in WeWork Porter’s Five Forces Analysis
Threat of new entrants into the flexible workspace industry is significant. The following are the major factors that affect the threat of new entrants into the flexible workspace industry.
1. Time of entry. Increasing numbers of start-ups and solopreneurs are increasing demand for flexible workspace. Furthermore, COVID-19 pandemic has proved the inefficiency of committing to long-term traditional real estate lease agreements for many businesses. Instead, companies of all sizes increasingly prefer to flexible workspace to accommodate their changing needs for desks throughout the year. This tendency may motivate new players to enter the industry.
2. Massive capital requirements. Leasing real estate and furnishing them into creative open space is expensive. Investors may not be keen to finance such business proposals due to low profit margins and long payback periods of their investment. Massive capital requirement is a serious barrier for new entrants. WeWork’s co-founder and former CEO Adam Neumann was able to raise billions of dollars for the business by positioning the company as an internet technology company, rather than real estate company it is.
3. Lack of technological barrier. Unlike technological and manufacturing businesses there are no know-how barriers to enter the flexible workspace industry. There is no secret formula or advanced software a company needs to develop to enter the industry. Massive capital requirement is the only barrier and the absence of other barriers may attract new players into the industry.
Bargaining power of buyers in WeWork Porter’s Five Forces Analysis
The bargaining power of buyers in flexible workspace sector is paramount. The following factors, among others increase customer bargaining power.
1. Buyer’s ability to go for substitution. Buyers are able to choose substitute products and services such as building their own offices, leasing office space or working from home. Ability to go for substitution for each buyer depends on a wide range of factors such as financial circumstances, business strategy and available timeframe.
2. Lack of switching costs. Currently, switching costs for WeWork customers to shift to a direct or indirect competitor may include moving office supplies and appliances from WeWork offices to a different location. There are no massive switching costs that could de-motivate customers to look elsewhere. This situation contributes to buyer bargaining power.
3. Differentiation. Each flexible workspace provider attempts to differentiate itself so that it can appeal to needs and wants of chosen customer segment directly. For instance, flexible office space provider Law Firm Suites targets lawyers and other professionals related to the legal industry, while UK-based Orega positions itself as a hub for media companies. Companies may have less bargaining power towards flexible office space providers catering for their industry compared to office space providers in general. For example, new media companies may have reduced bargaining power towards Orega because extra soundproofing facilities are hard to find elsewhere in London.
Bargaining power of suppliers in WeWork Porter’s Five Forces Analysis
The bargaining power of suppliers in flexible workspace industry is limited. The main suppliers in this sector are landlords who lease their properties to co-working companies such as WeWork. Supplier bargaining power depends on the following and other factors:
1. Number of suppliers. There are many individual and legal entity property owners who would like to rent their properties for long-term period. WeWork has a global network of over 600 landlord relationships.[1] High numbers of suppliers increases the choice of location for co-working companies and decreases supplier bargaining power.
2. Duration of lease. Owners usually would like to lease their properties for longest period possible. Large shared space companies such as WeWork have financial resources and confidence to sign lease contracts for up to 10 years. Therefore, the majority of property owners are keen to lease their properties to large shared space companies as opposed to smaller companies that rent for their own business needs. The willingness of many landlords to contract with large shared space companies decreases landlord bargaining power.
3. Supplier switching costs. The cost of switching suppliers is massive for co-working companies. Flexible workspace providers invest hundreds of thousands, if not millions of dollars to renovate properties they lease to appeal to their target customer segment. Companies such as WeWork, Workbar and Impact Hub must operate each location for at least couple of years only to recover location renovation costs. Therefore, they try to choose each location carefully to avoid having to change locations.
WeWork Inc. Report contains a full analysis of WeWork Porter’s Five Forces Analysis. The report illustrates the application of the major analytical strategic frameworks in business studies such as SWOT, PESTEL, Value Chain analysis, Ansoff Matrix and McKinsey 7S Model on WeWork. Moreover, the report contains analyses of WeWork leadership, business strategy, organizational structure and organizational culture. The report also comprises discussions of WeWork marketing strategy, ecosystem and addresses issues of corporate social responsibility.
[1] Annual Report 2021, WeWork
[1] Porter, M. (1979) “How Competitive Forces Shape Strategy” Harvard Business Review