Color's Epic Collapse: Why Everybody Is Loving It

Imagine this: A startup with a vibrant and successful founder arrives with the vague notion of a good idea. Venture capitalists, knowing the success of this founder, throw a bunch of money at him and his team, even without a tangible product behind it. The startup eventually releases a product that few understand or find useful. The company, reeling from bad publicity, take months to re-imagine its product before releasing a new version that is also uninspired and unloved. A few months later, the company closes for good. 

You don't have to imagine it. That is the real-life story of Color, a once-hot San Francisco startup that raised $41 million in funding before even releasing a product. Reports say that the engineering talent from Color is going to be acquired by Apple for $2 million to $5 million and the app will be shut down. No one but its investors and employees not going to Apple will shed a single tear.

Color Made Few Friends

It is always sad to see a startup die. But when the startup in question is full of pretentious people with a semi-functional, hardly interesting product, many observers can't help but smile a little bit when they belly up. The demise of Color is bittersweet - but it gives the entire tech startup scene the ability to stand on the rooftops and shout, “I told you so!”

Color started as a social picture-sharing app. The concept seemed interesting and shades of Color’s original idea have cropped up in other San Francisco startups, including Highlight. It worked something like this: When you took a picture at a particular location, you could learn about other people that have also taken pictures there. The idea, termed “an implicit social network,” intrigued many innovators and media types, including ReadWriteWeb founder Richard MacManus, who once predicted that Color would be the next Twitter. 

The thing is, nobody understood Color and it hardly worked, despite huge publicity upon its launch (mostly derived from the compant's gargantuan funding round). The Android app was quickly taken off of the Android Market (as it was known at the time) and the iOS app did not last much longer. Color went back to the drawing board.

The summer and fall passed without much news from Color, outside from vague rumbles of dissension among the top ranks. In December, Color relaunched as a mobile Facebook app for iOS and Android. 

Once again, nobody really understood. The new Color was a means of providing 30-second video status updates on Facebook. The status updates, termed “visits,” were too-often trivial and after the first round of people playing with the app, they quickly disappeared from Facebook’s users news feeds. 

The silver lining in the story of Color is that the one true aspect of value that the company held, its engineers, will likely make some money by being "acqhired" by Apple and be able to continue interesting work on photos, cloud networking and the so-called elastic social network. 

Arrogance Doesn't Buy You Favors

The real problem with Color is that it was arrogant and combative from the start. CEO Bill Nguyen had already led several startups to big exits and he used his name to land the huge investment dollars. Recent rumors hint that when things went south, Nguyen more or less disappeared from Color’s offices and abandoned the startup. The people at Color were often difficult to work with, prickly about how their product was perceived and highly defensive when faced with bad press. It seemed that the Color team expected success as its birthright, like the brat child of some noble family. 

Natural resentment surrounded Color. How could this company, without anything tangible, receive such a mammoth infusion of cash? Companies with real business plans and real users struggle to raise seed rounds of $1 million or get a $5 million Series A. Alexia Tsotsis, co-editor of TechCrunch, summed up the feeling nicely in this tweet:

When Color received its funding, the cries of “tech bubble” couldn't be silenced. A sketchy company gets way too much money and everybody says that the entire venture capital market is about to implode.

Of course, this has not yet happened.

In the end, Color was nothing but an outlier in an ongoing equation that has worked to balance itself since the dot-com burst of the early 2000s. It is also a cautionary tale for investors, hot-shot startup founders and even run-of-the-mill entrepreneurs. Develop your product first, take only the money you need to scale and try not to brag about yourself (let happy users do it for you). Color failed in all three of these area - and will now fade to black.