Another Flex Office Entry Faces Stiff Competition

Competition is tough, especially in a well-established market that has only grown in size. Throw in a high-tech foundation and it becomes extremely difficult to create something so different that a small company can outdistance larger ones.

A startup called The Office Exchange is facing exactly this tall hurdle. In a press release, the company calls itself “a platform allowing decision makers on both sides of the commercial real estate market to host or be a guest in available office spaces.”

“The model applies a similar approach to other commodity-sharing applications such as Airbnb, Coop, or Turo, but with the mission of helping businesses and their employees work whenever, wherever, and on their terms, without being constrained to unfavorable long-term rental contracts,” it continues.

While stating that it’s been “disrupting this market” for less than two years, it is thoroughly an early-stage startup facing much larger competitors that either are doing something exactly the same or close enough that they could squeeze hard.

The Office Exchange says it has raised seed funding. According to startup information site Crunchbase, that includes a $147,000 pre-seed round and another, amount not disclosed, from the Alabama Futures Fund, “a seed-stage venture capital fund focused on supporting and growing entrepreneurial activity and economic development in Alabama.” The company is headquartered in Birmingham, Alabama.

Currently, it is operating in three markets: Birmingham, Denver, and the San Francisco Bay area. The company claims that “this is only the beginning.”

Except, many others have begun. There’s WeWork, CBRE-backed Industrious, long-time player IWG (formerly Regus), and many more.

There is room for small companies to enter many parts of commercial real estate. But some aspects benefit from network effects. Typically associated with high tech sectors, the concept means that the more connections available to customers, the more useful the product is. A Facebook is difficult to push out of its spot in social media because individuals considering a startup realize that most people they know aren’t using it, and so the perceived value drops. The same is effectively true for large retailers. A consumer effectively gets connections to more manufacturers and more products, so shopping there becomes more convenient.

In a flex space play that looks to match office space owners and users, network effects are critical. The landlords want the largest possible group of potential customers, which can increase demand and, therefore, support higher rates. Space users want a bigger variety of choices to find options that best suit their needs.

While The Office Exchange touts its “technologically advanced platform and lower-than-industry-standard revenue splitting structure,” the companies it competes against have resources to do what they need to with technology and could undercut prices for some time and then push them up again after driving smaller competition out of the way.