Why co-living isn't just a Silicon Valley reinvention of roommates
A teardown of co-living and why I think it's striking a chord with nomads.
At the tail end of 2017, The Guardian posted an article with the headline "Silicon Valley thinks it invented roommates. They call it 'co-living'".
The TL;DR is: Just because Silicon Valley takes an existing idea and privatize it, doesn't make it something new.
It didn't seem like the author had a personal vendetta against co-living, it probably just happened to be an example she used to explain a bigger point. But when I read the article it struck me that I don't think everyone gets co-living.
On the surface, co-living seems like an overpriced room for privileged people, but then companies like Roam or Stayawhile are raking in VC money to target the mid-term rental space.
At Kin, we've also put our bet on co-living by building a simplified booking management app tailored for co-living spaces.
So what's going on here? Does co-living provide real value, and is there a market worth pursuing?
What makes co-living valuable
Before you can understand why people are paying for co-living, you gotta understand that products aren't just about utility, but the entire customer experiences in getting a job done.
IKEA is the perfect example.
On the surface, IKEA sells furniture. But IKEA has understood something critical; they aren't in the business of selling furniture but in the business of helping you furnish your home.
This is subtle, but it makes all the difference.
A normal furniture store sells you furniture, but IKEA helps you with every single job involved in furnishing your home.
Need to figure out if the couch fits your living room? Boom, here's a tape measurer.
Hangry after you've spent all day in IKEA? Boom, here's some food.
Need to transport your new stuff? Boom, here's cheap delivery options.
(This is the idea behind Jobs To Be Done theory, if you're interested check out Competing Against Luck by Clayton Christensen)
Applying JTBD to Co-living
You might think "Sure, but aren't there a ton of products that meet people's accommodation needs?".
If you don't know the target market it might seem that way. Let's have a look at how the accommodation market used to look:
Tourists that travels for short periods of time. These travelers fall into two categories, high-end and low-end. Hotels and hostels solve their problems. In the last five years, Airbnb has also entered the scene, meeting similar needs.
These are the average renters. They want a long-term deal and landlords try to lock contracts for as long as they can. They usually furnish their space and pay utilities themselves.
Business travelers either stay long- or short-term, and companies often give them deals on hotels or furnished apartments.
This is a simplified model, and I'm sure there are more edge cases, but this covers the broad strokes of the market, except for a new and obscure type of traveler.
Enter 'The Nomad'
The Nomad has a few key traits:
- Works in tech either as a freelancer, entrepreneur or remote worker.
- Has a hyper-flexible lifestyle and travels a lot between cities or countries
- Often stays for months at a time, so they can't always commit to long-term contracts
- Works from home, co-working spaces or cafés
- Often travels alone
How do I know so much about this segment? Well, both I and my co-founder David have traveled the world full-time working remotely the last 3-5 years.
The job we need to get done is 'Have a place to stay short- to -mid-term.'
Just like with our IKEA example, that job comes with a lot of smaller jobs that currently aren't being met by what's on the market.
Since we work remotely and don't want long-term contracts, we need:
- A place to work from (good wifi, no distractions, good chair and table)
- Furnished apartment, preferably with great wifi
- Flexible move-in and -out
- Community and like-minded people
Renting a room in Airbnb is a good alternative I know many nomads use. The problem with Airbnb is that traveling alone can sometimes be isolating, and when you don't have a base, building long-term relationships can be hard.
Add Airbnb's rising prices and varying amenities, and renting a room there isn't as ideal as it might sound.
This is where co-living saves the day. Co-living spaces provide:
- Flexible move-in and -out
- Spaces to work from
- Lots of like-minded people
- Often fully furnished
As a nomad, this is very convenient. When we come to a new city just checking-in to a co-living space is a preferred choice.
The rise of the nomad
So how many nomads are there? We now know there is a need for the product but are there enough people willing to buy?
One estimate done by the company Minaal said ‘millions’. But it’s a hard question to answer and it depends on how you decide to classify a nomad.
Another way to look at the problem is that there are currently about 180 co-living spaces(Check out our master list of co-living spaces here), and unless they are able to run at a loss there has to be enough people to fill those spaces continiously.
Some of them don't directly target nomads, You+ and Harbour, the two biggest co-living companies in the world, are targeting lonely youth in big Chinese cities, so nomads aren't the only segment that fit the model.
But the big question is, how many nomads will there be in the future?
Peter Levels did a talk in 2015 where he made the bold claim that there would be one billion nomads by 2035.
He reasoned that by calculating the increase of freelancers, decrease in flight prices and the rise of internet speeds, we should see a surge of nomads.
Personally, I think this estimate is the way too optimistic. It's easy for people like us to believe that everyone must want to live this lifestyle, "because why wouldn't they, it's fantastic!".
But if you look at companies that are fully remote like Automattic, the company behind WordPress, out of their 616 employees only 10 or so are traveling nomads.
I've seen the same trend in companies I've worked for.
Most people enjoy being close to family, have a home base and not need to worry about the crappy internet speeds.
But there is a particular type of weirdo that would thrive as a nomad, and as opportunities grow with more remote positions and better infrastructure for freelancers, I have no doubt the number of nomads will grow.
Co-living isn't just about the room and the price, but the community and the small jobs they solve for a certain part of the market. My prediction is that that segment will grow and a few companies will profit heavily.
If you're interested in more thoughtful articles on co-living, drop your email below and get signed up for our newsletter, The Co-living Digest.
We only send a few emails a month with tips & tricks for co-living space owners, marketing tactics and summaries on market trends.