How WeWork Works and Makes Money

WeWork has made a name for itself – and a tidy profit – by giving small businesses and ambitious entrepreneurs a way to pursue the new American Dream. It will now also make a mark in the heart of New York City, where it has purchased the iconic Lord & Taylor building from Hudson's Bay Company (HBC.XTSE) through a joint venture, the New York Times reported. This Fifth Avenue Manhattan landmark now houses the new headquarters for WeWork.

Founded in 2010, WeWork Companies, Inc. provides shared workspace to startups at lower costs than they would spend on space of their own. With shared offices gaining popularity, WeWork is already valued at about $20 billion.

The U.S. economy is increasingly shifting toward more startups and small businesses. Modern workers want to use their creative abilities to build careers they love. And more companies are relying on a remote workforce. Those trends mean the traditional 9-to-5 workplace is changing and business needs are evolving. WeWork is trying to meet their needs.

WeWork is simply an office-leasing company. It makes money by renting office space. WeWork purchases real estate space – sometimes just a floor or two in an office building – and transforms it into smaller offices and common areas. It rents desks to individuals or groups who want the benefits of a fully stocked office without the expense of a full office.

Members include independent freelancers and remote workers who need an occasional office away from home. They may want unlimited Wi-Fi to focus on a deadline. Other customers are small businesses with multiple employees who need a consistent place to work, have meetings, and build their budding empires, but without the high cost.

The shared office culture created companies like Uber and Airbnb. This growing business culture is undoubtedly a large component of WeWork's success. But WeWork’s business model is what makes it thrive.

The most basic membership costs only $45 per month and includes access to WeWork offices in 200 locations in 53 cities worldwide. It also includes access to WeWork's social network, WeWork Commons, which enables entrepreneurs to interact and exchange ideas. However, actual use of the facilities costs an additional $50 per day, so it is best suited to those who are primarily interested in networking and only have occasional need of office space.

The company offers several plans to workers and business with varying prices. For example, a worker can get a “Hot Desk” for $220 per month which will give them guaranteed workspace in a common location. For a desk of your own in the same spot each day, the fee is $350 per month. Standard private office space starts at $400 per month. The spaces come with high-speed internet, printers, bike storage, coffee and shared front desk service. Other amenities include office supplies, water and daily cleaning services.

With prices like these, it's no wonder WeWork is raking in the profits.

Of course, WeWork's model wouldn't function if it didn't offer value commensurate with its pricing. One of the chief benefits of using a WeWork space is that everything is taken care of, from utility bills to replenishing the ink in the printer. The WeWork staff keep everything running smoothly so members can focus on their work.

In addition to providing state-of-the-art office space to a generation of workers, WeWork has developed its properties into more than workspaces. Each office location is outfitted with stylishly designed common areas that include numerous leisure activities, such as foosball, screening rooms, arcade games and bocce greens.

WeWork also provides regular opportunities for its members to meet, socialize and network, both online and offline. In addition to its popular WeWork Commons online platform, each office site hosts a number of social events, launch parties and workshops to help its members connect.

WeWork gives its members access to numerous discounts on professional services to help them grow their businesses and live healthier lives. WeWork partners with other companies to offer its members insider deals on everything from health insurance and gym memberships to human resources and printing services.

Though it may pose a threat to more traditional office leasing companies, some in the industry see WeWork as more of an opportunity. In fact, the chairman of Boston Properties, Inc. – the largest publicly traded office landlord – personally invested in the rounds of fundraising after talking with Neumann and touring one New York location. WeWork has signed on to be the main tenant in a $300 million redevelopment co-owned by Boston Properties.

Even smaller landlords don't seem overly threatened by this up-and-comer. Some assume WeWork's business model won't be sustainable if the economy takes a downturn. Others see WeWork as a sort of incubator where small businesses can grow until they're ready to move into traditional office space.