In March 2011 we reported that an iPhone photo sharing app called Color had raised a whopping $41 million in funding before it had even launched. Sequoia Capital, one of the most prominent VC firms in Silicon Valley, invested more money in Color than they had originally invested in Google. Now, just three short months later, Color is still struggling to find users while its less-funded competitors are leaving it in the dust.
Its two main competitors, Instagram and PicPlz, raised just $500,000 and $350,000 of funding — much more reasonable amounts for photo-sharing apps, we must say — but are adding users by the droves. Earlier this month Instagr.am signed its 5 millionth member. For people in the tech and business worlds crying “bubble”, there seem to be quite a few similarities between this situation and with startups that existed back in the dot-com bubble. Investors are pouring money into startups in search of the next big thing, but the companies that survive are the ones that spend money wisely and offer a great product.
Despite having 5+ million members and roughly 100 million photos, Instagram only has four employees and only recently acquired the instagram.com domain name (they started out at instagr.am).
Color, meanwhile, spent $350,000 to buy the Web address color.com, and an additional $75,000 to buy colour.com. It rents a cavernous office in downtown Palo Alto, where 38 employees work in a space with room for 160, amid beanbag chairs, tents for napping and a hand-built half-pipe skateboard ramp. [#]
In response to the general public’s disinterest in the app, Color has decided to admit defeat and “reboot”. The company recently fired co-founder Peter Pham, and is working on a new app that focuses on group messaging, recommendations, and local search (replacing the idea that had originally raised $41 million).
Luckily for the company, it’s changing course while there’s still time and money, unlike Webvan (called the largest dot-com bust in history), which burned through $1.2 billion in two short years before declaring bankruptcy in 2001. Given the market (photo sharing vs grocery), however, Color may be seen as the Webvan of the photo sharing space unless they can figure out a way to survive. Consider this: back in 2005, Yahoo acquired all of Flickr for just $35 million.