There's lots to dissect here, including the larger implications for the smart home ecosystem, but first some specifics on the bankruptcy:
- It appears that there was significant mismanagement for some time, as the company ran up tens of millions of trade debt and also had a convertible note for $14 million with design consultancy Undercurrent as creditor. The company had acquired Undercurrent in April of this year.
- The story of Undercurrent acquisition probably should get a little more scrutiny from some reporters. It's not something I'm going to dig into too much here since I'm more concerned with the smart home industry implications, but needless to say, acquiring a company in April as part of a strategy shift, laying off all the employees four months later, having the founder of the acquired company going on a tweetstorm about how unhappy he is about the whole thing, and the company owing $14 million in a note that likely won't get paid anywhere close to full (assuming they will get some from sale of assets, but they're probably in line behind the VCs) deserves some scrutiny.
- The company's biggest creditor is Flextronics, which looks like it didn't get paid for the large majority of work it did for the Wink. The company owed Flextronics over $18 million in trade debt.
Ok, brush aside all the specifics of this financial mess - and it looks like a monumental mess - let's look at the specifics as it relates to Wink. Here's what we know:
- The company has indicated Wink Hub and Relay will remain in Home Depot and will continue to be offered through Amazon for the time being. However, given the fact the company's manufacturer still is owed $18 million in receivables, I have my doubts about whether there will be additional inventory built. There is a good chance that what is in the channel is inventory that will be sold off and that will be it for Wink hubs.
- Flextronics has a $15 million bid in for Wink, which effectively sets the bid floor for the auction of Wink. If Flextronics does win with its bid - and I am assuming they will unless some larger company sees significant value in Wink's IP and/or customer base - I am not sure if the company would be serious about investing in a troubled consumer-facing brand at this point. They might see an opportunity to possibly recoup some of its $18 million it is owed for work done for Quirky, but I have to wonder how serious they are really going to chase bad money with more money.
And most importantly, what are the implications for the broader smart home world?
- While there's some hope for Wink as a standalone brand if Flextronics is serious about investing (or another brand swoops in), I am going to assume that the existing inventory in the channel gets sold off and we likely will not see a Wink Hub 2 or additional product development. This effectively would mean one of the more successful upstart smart home brands could fade away.
- Even if Wink doesn't go away, the problems for the company and the platform could result in more caution around smart home in both the channel and the financial/venture community.
- On the retail channel front, I can't imagine Home Depot is very happy with putting so many eggs in the Quirky/Wink basket (remember - Wink was essentially their chosen platform for smart home hubs). Slow sales of hubs from other vendors likely will only reinforce the belief among retailers they should invest in fast-selling point solutions rather than bet big on entire systems build around hubs.
- The tech hardware renaissance has been a big investment theme among angel and venture capitalists, with connected home being a significant focus for those investing in consumer hardware. With high-profile investors such as a16z, I have a feeling Quirky could serve as a cautionary tale for those investors who have been jumping into hardware investing, and could cast a pall over the smart home in particular.
- That said, I also think there because there were question marks around significant parts of Quirky and Wink's business models - such as its crowdsourced design and manufacturing model, the below-cost pricing (sub-$50) of Wink hubs, and so on and so on - that I think many will see Quirky/Wink's failure as an exception resulting from one company's own strategy and poor management rather than as illustration of a industry-wide problem.
- I think one potential fallout from the Quirky/Wink demise could be a look to stability from bigger players looking for partners in smart home. While Apple is taking its time with HomeKit and Google is only starting down the Brillo/Weave/OnHub path, I think that they could benefit from those who got burnt by Wink or feel like they want to avoid their own Wink. Samsung with SmartThings could be another significant beneficiary for those looking for a smart home hub partner.
Bottom line, the Quirky/Wink tale has been a fascinating one to watch. Every new industry has high profile casualties and Wink is, by far, the bigger so far we've seen in the smart home. But market corrections, exits and adjustments are a necessary part of a growing industry, and this - as messy and dramatic as it's been to watch - is exactly what this is.
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