Color Labs

What did it do?

Color Labs was a Palo Alto-based start-up that developed a mobile photo-sharing app of the same name. The app let users take photos and see photos taken by others nearby, grouping them according to the user's circle of friends.

Why did it shut down?

Raising $41 million before the product was out sent expectations sky-high; at the March 2011 launch users did not understand the app's interface or its purpose. The app started with a rating of 2 out of 5 on the App Store, and despite around 1 million downloads at launch, it had just under 100,000 active users by September 2011. Co-founder Peter Pham and product director DJ Patil left within three months of the launch. In October 2012 reports emerged that the board had decided to shut the company and that the team would move to Apple for between $2 million and $7 million, and the app was shut at the end of 2012.

The story

In March 2011 Silicon Valley was asking one question: how had a photo app that nobody had yet used managed to raise $41 million? Behind Color Labs were Bill Nguyen, a serial entrepreneur who had earlier founded the music service Lala and sold it to Apple, and Peter Pham. Sequoia Capital had put in $25 million and Bain Capital $9 million, and Silicon Valley Bank had provided $7 million in debt financing. In December 2010 the company had bought the Color.com domain for $350,000.

The app arrived on the App Store on 24 March 2011. The idea was to bring together photos taken by people in the same vicinity and group them according to the user's circle of friends. Its name was a nod to the colourful logo of the Apple II, which Nguyen said had changed his life at the age of seven. Sequoia partner Douglas Leone later revealed that the fund had invested only three days before the launch. According to reports in July 2011, Google had wanted to buy Color for $200 million before the launch, and the company had turned the offer down.

The launch was a disappointment. Users understood neither the app's interface nor its purpose, and its App Store rating started at 2 out of 5. A week later explanatory text and new tabs were added to the interface, but the first impression had already formed. In an April 2011 interview with Robert Scoble, Pham and Nguyen admitted that the launch had been a wasted opportunity; they said they had piled up a network, a mountain almost, in front of users who did not know how to use it well. Although there were around 1 million downloads at launch, active users numbered fewer than 100,000 by September 2011.

The team began to break up too. In June 2011 co-founder Pham left the company, followed by product director DJ Patil. In October 2012 reports emerged that the board had decided to shut the company; some sources denied this and spoke of a possible acquisition. The team was reported to be moving to Apple for between $2 million and $7 million. In November 2012 Color Labs announced that the app would be shut at the end of the year.

Color is a case that reminds us that product-market fit is the one thing money cannot buy. The huge investment raised before launch inflated expectations rather than the product, and when the first impression was poor, those expectations turned against the company.

Lessons for founders

• Announcing a large investment before launch raises expectations beyond what the product can carry; test the first impression with a small group of users.
• If you cannot explain in one sentence, the first time the app opens, what it is for, downloads will not turn into lasting users.
• In a product that relies on network effects, solve before launch the question of what a user sees when nobody around them is using it.

Sources

1. Color Labs (Wikipedia)
2. Color, The $41 Million App, Really Is Shutting Down Now (Business Insider, 2012-11-20)
3. Google Tried To Buy Color For $200 Million. Color Said No. (TechCrunch, 2011-07-21)

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