Consider the following business model: you enter into long-term leases for raw office space and build out the interiors with minimal, communal designs. Then you rent out the space for as little as a month to startups and others who aren’t sure how long they’ll need it.
Sounds reasonable. But there’s a problem: if you call yourself a real-estate company you’re boring. That’s no good. However, if you call yourself a—well, something else, venture capital riches can be yours. The Wall Street Journal explains:
[CEO Adam Neumann] has said WeWork is neither a real-estate company nor a tech company. The “We Generation,” as he calls it, craves sharing and collaboration rather than isolated offices. “They’re coming to us for energy, for culture,” he said at an event this summer.
He talks of “space as a service,” a play on the concept of software as a service, in which a provider makes software available to users as they need it over the internet. He calls the company a “platform”—like a computer operating system—from which it can sell other services such as insurance or software.
Buzzwords! But the chart on the right, from the Journal, shows just how effective this can be.
And it’s not just real estate that can benefit from this. There are dozens of mundane businesses that have gotten investors excited by insisting that they can disrupt old-school industries by appealing to digitally-obsessed millennials:
Venture capitalists and mutual funds have poured billions into companies claiming they can upend traditional industries whether through the use of technology or their unique appeal to millennials. Startups in the business of selling meal kits, mattresses and razors have received tech-like valuations based on the idea their rapid growth can continue for years.
Mattresses? Yes indeed, and here comes the big segue. The “mattress in a box” business is booming, allegedly because it appeals to millennials who wouldn’t be caught dead in a department store or a mattress retailer. But guess what? It turns out that these folks are using boring, old, borderline corrupt marketing to attract business.
Have you ever wondered about the sites that come up if you google a product? www.microwaves-ranked.com. www.top-ten-sofas.com. www.best-bicycles.com. Are there really that many people around who are obsessed with all these different things? Yes indeed. And they’re obsessed because they get paid to be obsessed. David Zax tells the story of online mattress marketing in Fast Company this month:
I wanted to learn how Derek Hales had gotten into mattress reviewing, so I called him up in Arizona….In 2012, Derek messaged Samantha Niezwaag, a math teacher, on ChristianMingle.com….They got married in May of 2014.
….The young husband and wife needed a new mattress, but were shocked by the prices at the local mattress store….One of Derek’s coworkers told him about a two-year-old Phoenix-based company called Tuft & Needle, which sold its queen-size mattress directly to consumers online for just $600….A few weeks later, in September of 2014, Derek spotted an opportunity. He registered the domain Sleepopolis-Mattress-Reviews.com and threw together a quick website comparing his experiences with Tuft & Needle and Casper (he eventually migrated his content to Sleepopolis.com, which he had also registered). A week later, Derek and Samantha posted a positive video review of their Casper on YouTube.
….The question of just how much money Derek made off Sleepopolis interested everyone I spoke to….All told, these numbers suggested Derek may have been making as much as $2 million per year by 2016….Derek had made millionaires among the new mattress entrepreneurs–and he himself was one of them.
Oh yes, you need to read the whole thing. As you might guess, internet review sites are not entirely neutral in their loyalties. The result has been lawsuits, buyouts, payouts, personal feuds, and more. The story is genuinely fascinating.
So what ties these two stories together? Basically, that it’s 1999 all over again. Take a standard, boring old business. Slap it on the internet. Use standard, boring old high-pressure sales techniques. Insist that your boring old high-pressure sales techniques are actually new and innovative and will power your company through exponential growth forever. Wait for the money to roll in.
How long will it last this time? Beats me. But beware of internet entrepreneurs bearing tall tales.