Tink Labs: A Unicorn From Hong Kong?

This opinion piece offering random thoughts on Tink Labs's potential to reach unicorn status (+$1 billion valuation). We also not so randomly looked at the product.

Brief Introduction

Tink Labs is a Hong Kong based company founded in 2012 by Terence Kwok (CEO), and the core business appears to focus on placing a smartphone in every hotel room around the world. The product itself is called Handy.

Image Source: PSFK

Handy is currently available in Hong Kong, Singapore and a couple of other cities (such as London). The smartphone becomes relevant to the travelers, who can use the device to access wireless internet and for the hotel to promote their services. Other third parties such as tourism boards can also participate.

As per Handy’s website, these are the "services" for hotel guest with a handy phone:

  • Unlimited local & international [BY:outgoing} calls
  • Free internet access
  • Destination-specific content
  • Exclusive promotions for hotel offering
  • On-the-go hotel concierge service

As for hotels, they are provided with, what we believe to be, a subscription service access to a dashboard to enable customization of Handy's GUI:

  • Call-to-action features suite to drive revenue
  • Comprehensive guest analytics package
  • Seamless integration with hotel PMS networks
  • Integrated TripAdvisor guest feedback system

Initial Traction & Pivot

Tink Labs is a positive tale of traction with at least one known pivot. The original focus has been to provide handy to incoming travelers at airports. However, the company understood quickly that travelers just wanted to get out of the airport. The pivot turned out to a new target audience: hotels.

It does make more sense as a distribution point. First, the guest will check-in and this is obviously inevitable. Second, the guest receives the room keys but what is next matters...Handy. Handing over Handy to the guests comes at a really marginal cost (of effort) to the hotel.

Product Review

Handyphone Image Source: Author

The main advantage of Handy is the unlimited internet, and customized Android operating system. However, the phone is also a bit bulky which makes it inconvenient for a traveler. Having an extra cable would have been pretty useful, had the battery ran out and needed charging on the go.

Product Innovation

At hardware level, the company is building a product suite to ensure diversification of its revenue streams, and appeal to a niche customer group who might use Handy to, for example, remote control the TV. It has to constantly innovate to bring quality phone to travelers. By virtue of its business model, Tink Labs has a longer time window to execute on new product (e.g. Handy smartphone) since its business does not rely on phone sales.

At software level, the company develops its custom OS for Handy and dashboard/control panel for hotels and other clients. The custom OS could be improved at User Experience for travelers to enjoy best of both worlds:
1. Remain connected at all time, and
2. Have a great user experience on the OS to discover localized information for travelers of all genres.

Tink Labs' Business Model (Simplified)

Revenue Model

It seems that the company's revenue model is fairly straightforward:

  1. Subscription model for hotels, which should include the hardware (i.e. Handy) and Software (i.e. Services to customize Handy's interface, manage the phones, upload hotel's services, packages, images among others). Where Hardware as a Service meets with Software as a Service, there is a solid revenue potential in view.
  2. Advertisement model for partners such as restaurants, theme parks, or tourism board which would have their apps or packages available on the app's UI.
  3. Partnership model (profit/revenue sharing) with other hardware companies. Beneficial if Tink Labs and the partner wants to co-leverage on their available products and each other's distribution channels.
  4. Platform model which could be co-aligned with its advertisement model. The reasoning is that Tink Labs' partner would wish to get some major 3rd party partners to pay to have their apps preloaded on Handy.
Value Proposition

Handy becomes incredibly useful for travelers if

  • the number of hotels providing the smartphone goes up,
  • the number of partners goes up [i.e. destination specific content] on top of the mentioned Handy's benefits.

On the other hand, hotels benefit from having an additional line of communication linking them to their guests, especially when guests are outside of the hotel premises. Hotels could advertise any of their existing services (e.g. dining, spa etc.) to their guests through Handy.

Partners & Channels

Hotels are both a key partner and key channel. First, the hotel provides access to Handy to its guests. Second, sponsored content from 3rd party companies are distributed via Handy. Indirectly, the hotel still plays a role.

Tink Labs also hires sales and business development team to speed up the process. Internally, the Tink Labs success would rely on its ability to build a solid sales machine. There are a couple of routes here: B2B Enterprise (large hotel groups), B2B SMB (Smaller hotel groups, potentially very localised) and B2B2C (for strategic partnerships with 3rd party companies).

We would not be surprised if Tink Labs work with the likes of Airbnb or HomeAway in the future.

Key Activities

Tink Labs team is most likely to be pushing for sales and account management to hotels and partners, providing customer support and maintaining the bespoke software. It can be assumed that such company will have its own R&D team in the future (if not already) in order to keep innovation in the space.

Cost Model

We ran a quick calculation beneath on the unit cost of a Handy phone, based on the manufacturing cost of an Apple iPhone 5 and a SAMSUNG Galaxy S6 Edge.
IphoneSamsungCostStructure The cost of producing an iPhone 5 and iPhone 6 is almost the same, while the S6 costs significantly more.

Where does Handy stand?

With Foxconn as a stakeholder (invested in Tink Labs via FIH Mobile Ltd), we could expect Tink Labs to have a significant cost advantage in smartphone production. We used iPhone 5 costs as a reference point, and discounted by (a theoretical) 30% since Tink Labs' core business is not to sell phone.
HandyCostStructure Maybe, the cost of producing a Handy phone might actually be even lower...

So...Unicorn or Not Unicorn?

We are no unicorn hunter or expert, yet. Tink Labs should be targeting an awfully large market, with a potential to generate fast growing returns and hit profitability.

For the analysis, we will look at 3 markets: Hong Kong, Singapore and Rest of World (Outside China). To showcase numbers, we built a simplified model represented by the graphic beneath:

TotalAddressableMarket

Since we do not know the revenue and cost structure, all of these are just assumptions.

Assuming that Tink Labs charges a monthly subscription fee of SG$37 per device, it could be raking up close to SG $9.7 million a year. An alternative model whereby the company could be charging, say, SG $5,000 per month per hotel for a pre-determined number of devices. Nonetheless, SG $9.7 million remains an impressive revenue figure for a hardware as a service type of company, where market domination could be realistic scenario. Singapore and Hong Kong are ideally positioned for Tink Labs to, not only, dominate but also experiment with new products.

Following the reasoning from the previous paragraph, Tink Labs could aim for over SG $750 million in annual revenue by capturing 10% of its total addressable market. Investors might already be lining up and believe in this company's potential. Hence, rumours around unicorn valuation is not too farfetched.

Tipping Points...

It would take the company an impressive 1,000-1,500 new hotels (with an average 100 rooms per hotel) to onboard each month for 12 months.

What could be the tipping points for Tink Labs?

  1. The distribution / sales strategy has to ramp up results by at least 1,000 hotels per month
  2. Tink Labs will require one major big wins from the Top 10 hotel chains, which altogether would amount to >100,000 rooms worldwide
  3. Beyond geographical expansion, product diversification is essential (they are already doing so)
  4. Tink Labs seems to have a good headstart relative to its potential competitors

...Closing Words

We enjoy playing around with companies (and their products) which we personally experienced. Handy came in very handy (pun intended) during a recent trip overseas with unlimited internet, and basic city information. The road ahead might be rocky, and a valuation of over USD 1 billion could be justified for the opportunity that lies ahead. With product innovation and an opportunity to create new revenue streams, Tink Labs might have a chance to become a big company from Hong Kong.

Pascal

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