7 ms·

Color Will Be The Pin That Bursts The Startup Bubble

15 points by goldham 16y ago

I'm going to be quick. -Friend showed me app on iPhone -Noticed similarities between Color and Path, does not provide any usefulness to me -Realized I can now creep on people nearby without having to ask their name and friending them on facebook -Excitement grew with media frenzy over Color and a few friends downloading app -Downloaded app -Constantly crashed when uploading photo -App lost its novelty -App deleted from phone -Startup that created app has 41MM funding

pcolton 16y ago
To be fair, the funding probably came sometime after the app development started. I tried it as well. I can see the novelty of it -- watch in real-time what people are doing around you. It definitely has a voyeuristic aspect to it. I think all that money could also be used to consolidate the market a bit -- do we really need 30+ photos apps? PS - I'm working on a photo app. :-)
calebmpeterson 16y ago
i doubt Color will burst the bubble, but it sure seems to be a strong indicator that there is a bubble of some sort...
phlux 16y ago
Assuming the premise of your title is correct, that the bubble bursts.. what would this mean? Funding dries up because all these ideas cant make money. Valuations plummet - nobody hires and we have bust 2.0. except it is different because this time around we have a glut of seasoned developers that can build a hell of a lot of stuff. So I cant see this burst being the same -- but I see a lot of stuff being built for no / little funding.
dstein 16y ago
No, the burst will come after the Facebook IPO when they can't find a way to make the $5,000 per user per year that their stock valuation will suggest it can earn. When Facebook stock crashes and it's plastered all over the news, that'll be the start of the bust. We're a long way from that.
- DanLivesHere 16y ago
  Where are you getting $5k/user/year?
  - noodle 16y ago
    i see ~$83b valuation, and ~500m active users, putting it at around $166/user
    - bmelton 16y ago
      Is a valuation actually given with the expectation that they'll make that amount of money each year?
      - dstein 16y ago
        The value of a stock is the total future profit of a company priced in today's dollars.
        bmelton 16y ago
        So if I'm understanding correctly, if they only make $1 per user per year, and do that for the next 166 years (not adjusting for inflation,) then they're just as well off?
        A1kmm 16y ago
        Except that it is more formally the negative of the expected future loss of the company as a present value; it takes into account the probability of a given income in a given year, not the best case scenario. I would say the probability Facebook is making much in PV terms 166 years in the future is very low. Facebook has such a high value now because they have lock-in for their users; a user has a lot of Facebook friends and so can't make a unilateral decision to leave the platform and still have access to the value having their friends on the platform provides - and so that limits the threat to Facebook right now from competitors. However, there are still significant threats to Facebook longer term, and some of those threats could open Facebook up to threats from other firms with smaller costs that Facebook can't easily transition to compete with profitably long term. Facebook therefore has very good prospects short term, but this position is still relatively precarious and the probability of maintaining as many users and as much revenue decreases progressively into the future - the probability of high revenues continuing after 50 years or even 20 is so low that it is not worth taking it into account when working out the intrinsic value of a share, and profits in the near future make up a much greater proportion of the total 'area under the integral' (i.e. future profits). Formally: v = -E(L_{total}) = integral_0^infinity (integral_(-infinity)^infinity (l * P(L(t)=l)) dl) dt where v is the intrinsic value of a stock, E(L_{total}) is the expected total loss of a stock in Present Value terms, and l and t are bound variables used for time and rate of loss, L(t) is a random variable representing rate of loss at time t, and P(L(t)=l) represents the probability that the rate of loss at time t is l.
sunkan 16y ago
How come everyone misses the fact that the app doesn't make the company. I think color actually redefines "social". If these guys are successful in executing their vision, their current valuation will seem a no-brainer. I seriously don't understand all the negativity and backlash around their launch. This is coming from a guy that couldn't get their app to work. Every time I try to take my picture, the app crashes. But I don't think that really matters. Isn't this the same community that proclaims, if you are not embarrassed with your initial product release, then you haven't released it early enough. ?
- pclark 16y ago
  All of the startup mantras hacker news recites go out the window if you raise lots of capital, apparently.
  - plamb 16y ago
    And they should. There's a big difference between two guys renting a house and living of their savings accounts pre-launch and 41 million dollars and 27 employees pre-launch.
    - pclark 16y ago
      Why?
      - plamb 16y ago
        Well for one, you shouldn't have issues like the app crashing when someone tries to take a photo. 27 employees means you have plenty of QA and a testing environment. Two guys in a house means you maybe have one iPhone version to test on and no time to do thorough QA.
  - dglassan 16y ago
    ya, it applies to a team of founders living off their savings who need to push their product out and get quick feedback from initial users to set their product/service in the right direction. A team of 20+ people with $41 million in the bank has the luxury of not having to worry about missing a rent check and they have the resources to do thorough QA testing and run a beta program to get initial feedback (maybe color ran a beta program I'm not sure). Color definitely has the resources to run a 6 month beta program to get feedback and test their app....a founding team of two living off their savings may not have the time or money to do this.
curt 16y ago
Facebook valuation is only $20/user each year (profit). Simple Valuation Breakdown: Take $80 billion and divide it by an EBITDA multiple of 10 = $8 billion. Divide that by 400m users, for $20 profit/user each year. EDIT: EBITDA: Earning before income tax depreciation and amortization.
deleted 16y ago
[deleted]

15 points by goldham 16y ago

pcolton 16y ago

To be fair, the funding probably came sometime after the app development started. I tried it as well. I can see the novelty of it -- watch in real-time what people are doing around you. It definitely has a voyeuristic aspect to it. I think all that money could also be used to consolidate the market a bit -- do we really need 30+ photos apps? PS - I'm working on a photo app. :-)

calebmpeterson 16y ago

i doubt Color will burst the bubble, but it sure seems to be a strong indicator that there is a bubble of some sort...

phlux 16y ago

Assuming the premise of your title is correct, that the bubble bursts.. what would this mean? Funding dries up because all these ideas cant make money. Valuations plummet - nobody hires and we have bust 2.0. except it is different because this time around we have a glut of seasoned developers that can build a hell of a lot of stuff. So I cant see this burst being the same -- but I see a lot of stuff being built for no / little funding.

dstein 16y ago

No, the burst will come after the Facebook IPO when they can't find a way to make the $5,000 per user per year that their stock valuation will suggest it can earn. When Facebook stock crashes and it's plastered all over the news, that'll be the start of the bust. We're a long way from that.

DanLivesHere 16y ago
Where are you getting $5k/user/year?
- noodle 16y ago
  i see ~$83b valuation, and ~500m active users, putting it at around $166/user
  - bmelton 16y ago
    Is a valuation actually given with the expectation that they'll make that amount of money each year?
    - dstein 16y ago
      The value of a stock is the total future profit of a company priced in today's dollars.
      - bmelton 16y ago
        So if I'm understanding correctly, if they only make $1 per user per year, and do that for the next 166 years (not adjusting for inflation,) then they're just as well off?
        A1kmm 16y ago
        Except that it is more formally the negative of the expected future loss of the company as a present value; it takes into account the probability of a given income in a given year, not the best case scenario. I would say the probability Facebook is making much in PV terms 166 years in the future is very low. Facebook has such a high value now because they have lock-in for their users; a user has a lot of Facebook friends and so can't make a unilateral decision to leave the platform and still have access to the value having their friends on the platform provides - and so that limits the threat to Facebook right now from competitors. However, there are still significant threats to Facebook longer term, and some of those threats could open Facebook up to threats from other firms with smaller costs that Facebook can't easily transition to compete with profitably long term. Facebook therefore has very good prospects short term, but this position is still relatively precarious and the probability of maintaining as many users and as much revenue decreases progressively into the future - the probability of high revenues continuing after 50 years or even 20 is so low that it is not worth taking it into account when working out the intrinsic value of a share, and profits in the near future make up a much greater proportion of the total 'area under the integral' (i.e. future profits). Formally: v = -E(L_{total}) = integral_0^infinity (integral_(-infinity)^infinity (l * P(L(t)=l)) dl) dt where v is the intrinsic value of a stock, E(L_{total}) is the expected total loss of a stock in Present Value terms, and l and t are bound variables used for time and rate of loss, L(t) is a random variable representing rate of loss at time t, and P(L(t)=l) represents the probability that the rate of loss at time t is l.

sunkan 16y ago

How come everyone misses the fact that the app doesn't make the company. I think color actually redefines "social". If these guys are successful in executing their vision, their current valuation will seem a no-brainer. I seriously don't understand all the negativity and backlash around their launch. This is coming from a guy that couldn't get their app to work. Every time I try to take my picture, the app crashes. But I don't think that really matters. Isn't this the same community that proclaims, if you are not embarrassed with your initial product release, then you haven't released it early enough. ?

pclark 16y ago
All of the startup mantras hacker news recites go out the window if you raise lots of capital, apparently.
- plamb 16y ago
  And they should. There's a big difference between two guys renting a house and living of their savings accounts pre-launch and 41 million dollars and 27 employees pre-launch.
  - pclark 16y ago
    Why?
    - plamb 16y ago
      Well for one, you shouldn't have issues like the app crashing when someone tries to take a photo. 27 employees means you have plenty of QA and a testing environment. Two guys in a house means you maybe have one iPhone version to test on and no time to do thorough QA.
- dglassan 16y ago
  ya, it applies to a team of founders living off their savings who need to push their product out and get quick feedback from initial users to set their product/service in the right direction. A team of 20+ people with $41 million in the bank has the luxury of not having to worry about missing a rent check and they have the resources to do thorough QA testing and run a beta program to get initial feedback (maybe color ran a beta program I'm not sure). Color definitely has the resources to run a 6 month beta program to get feedback and test their app....a founding team of two living off their savings may not have the time or money to do this.

curt 16y ago

Facebook valuation is only $20/user each year (profit). Simple Valuation Breakdown: Take $80 billion and divide it by an EBITDA multiple of 10 = $8 billion. Divide that by 400m users, for $20 profit/user each year. EDIT: EBITDA: Earning before income tax depreciation and amortization.

deleted 16y ago

[deleted]