What factors contribute to the profitability of WeWork in India?

WeWork Global is initiating Chapter 11 bankruptcy proceedings in the United States. However, its Indian operations have been consistently profitable from the outset and remain unaffected. What strategic insights did the India division uncover that the global organization overlooked?

In essence, WeWork operates as a real estate business with a straightforward model: lease commercial office buildings, enhance their aesthetics, rent out seats at a premium, and prioritize customer experience.

The key to WeWork India’s profitability lies in its ability to secure commercial leases at a significantly lower cost per square foot than what it charges when renting seats to companies. The gap between the commercial lease cost (₹75 to ₹120 per sq. ft) and the seat sales (ranging from ₹8,000 to ₹20,000) contributes to its financial success.

So, why did WeWork Global face bankruptcy? The global entity was positioned as a tech business with tech valuations, which, if evaluated as a real estate commercial lease arbitrage business, would be significantly less in value.

WeWork Global’s downfall resulted from behaving like a tech business, attempting to demonstrate exponential revenue scaling through technology. This approach led to the establishment of office spaces in areas with insufficient demand for the ₹8,000 per-seat offering, making it challenging to cover the high leases paid to property owners.

In contrast, WeWork India’s success can be attributed to several nuanced factors:

1. The market targeted by WeWork India is distinct, focusing on “flexible workspaces for growing businesses” rather than positioning itself solely as a co-working space.

2. Strategic pricing for short contracts encourages long-term commitments over ad-hoc bookings, contributing to revenue stability.

3. WeWork India deliberately targets large-scale customers, avoiding freelancers and small individual clients.

4. WeWork India acknowledged the limitations of its product-market fit (PMF) and intentionally concentrated its operations in metro cities, unlike WeWork Global, which struggled in Tier 2/3 US locations without admitting its business model’s failure.