31 Comments

Summary:

Path, a niche mobile social network has raised $40 million in new funds. It has also drawn comparisons with Instagram, a mobile photo service that was acquired by Facebook. Many are betting it would be the next big acquisition. I disagree, and here is why.

davemorinfeature

Updated. Ever since Facebook decided that Instagram was worth $1 billion, there has been recurring talk of Path, another social service being the next big buyout target. And while I am happy for the Path team, I find the comparisons with Instagram unfounded and premature. Let’s just start with the very basic of comparisons: Path has around 3 million members. Instagram had 30 million members and added nearly a million on the day it launched its Android app. But let’s forget that and focus on how those two services actually work.

Chalk and cheese

Path, which limits the number of friends (or relationships) to 150 on its service, is designed to be limited in its nature. Like Facebook, it is based on a model of reciprocity – you can follow someone if they want to friend you. Instagram is like Twitter, and allows anyone to follow anyone without their approval (unless of course you make your account private.) That asynchronous model has allowed it to grow really fast (the sharing activity of photos on Twitter that originate from Instagram is a good indicator of its momentum.)

For Twitter, Instagram and Tumblr, the big boost in mainstream popularity has come from celebrities. Celebrities (or at least their social media handlers) like the “follower” count as it lets them define the size of the audience and their fan base. These three are a good blend of social and broadcast models. (It is one of the many reasons why Facebook bought Instagram.)

Path, on the other hand, is limited and private and as a result cannot expect the same celebrity boost like Instagram, which benefitted from the presence of the likes of Justin Beiber. The difference in the two companies is reflected in daily active usage of Path (150,000) and daily active usage of Instagram (2.2 million) according to data accumulated by app data research group, AppData. A source close to the company says that the AppData numbers are widely inaccurate and that Path has around a million daily active users.

Mainstream Mindshare

As such, Path has a big challenge ahead as it tries to capture mainstream mindshare. At the same time, the company is looking at a lot more competitors from even more niche and intimate services such as Everyme and Pair. Randall Stross ins a piece earlier this week pointed out:

These micro- and supermicro-size social networks aren’t competing directly with Facebook or even with one another. Conceivably, one could be active on all of them. But then we may bump up against a new neurological limit: the maximum number of social networks that the human brain can handle.

Stross’ conclusion should worry Path and its team. Why? Because the app at present lacks the draw or the engagement I normally experience on Instagram and other apps. I have found that it does so much that I sometimes forget to open the app, even though I intend to. Path still needs to define a singular addictive behavior and that is its challenge (and opportunity.)

The good news is that it now has about $40 $30 million new dollars sitting in its bank-account, thanks to Redpoint Ventures and other investors. The company is said to have a $250 million valuation. As expected, the funding was led by Redpoint Ventures, with Redpoint General Partner Satish Dharmaraj making the investment and joining Path’s board of directors. All existing investors are also participating in the round. News that Path was raising money was first reported by TechCrunch a few weeks ago, with the valuation and investor confirmed by Business Insider a few days later.

Buyer interest

That both Google and Facebook wanted to buy the company for a price ranging between $100 million to $200 million must have influenced the decision undertaken by Redpoint Ventures to lead a $40 million round in the company.

Of course, the politics of the venture capital industry could also have played a vital role in the funding decision. Redpoint, like neighbor Kleiner Perkins Caufield & Beyers, is increasingly getting pressured by the likes of Andreessen Horowitz and Greylock Partners. And while Redpoint is pretty good at infrastructure and IT investments, the firm has a mixed record when it comes to new post-social services. Dharmaraj has made a number of investments in the social and mobile space, including Peel, Chill, Pulse, Gogobot and Posterous, which was recently acquired by Twitter. Redpoint is betting Pair Path changes all that.

Path had previously raised 11 million in funds from the likes of Index Ventures, KPCB and other investors. When it came to market originally, Path wasn’t all that impressive and it refocused and came out with Path 2.0, that received positive reviews. Later the company was embroiled in a privacy scandal around how it was uploading address books from people’s phones to its servers.

Additional reporting for the story by Ryan Lawler.

Update: Path confirmed the funding round, saying that it “raised more than $30 million.” However, Redpoint General Partner Satish Dharmaraj did not join the startup’s board.

You’re subscribed! If you like, you can update your settings

  1. Daniel Horowitz Monday, April 16, 2012

    If I was FB, I’d be very interested in Disqus

    1. Why do you say that Daniel? Be kind enough to elaborate/

      1. Well, I think there is and has been a lot of value buried in comments. Disqus represents a way of uncovering this value and generating more. It is a social network, a reputation system, and probably at least a couple other buzzwords. It is helping us uncover and promote people and comments of value. If I find someone whom I think is insightful I can see where else they comment (i.e what other communities they are a part of) and maybe I am interested in this community as well. It’s more flexible than FB comments, as I like to use twitter as my “lightweight identity” (credit: Fred Wilson) and there are many that prefer Anon commenting. And, the commenting, liking, replying, is quietly yielding reputational value.

        We are talking about a network here, so it’s winner take most. I can be on one blog, and see if someone has replied to my comments on several other blogs because they are all part of disqus. This is awesome.

    2. Great point Daniel, such a move could help Facebook improve its commenting system used in sites such as Techcrunch.

    3. I refuse to comment using Facebook so if they buy Disqus I’d have to find another commenting system where my identity was protected or stop commenting altogether.

      1. Yeah, much better fit with Twitter.

  2. I am very into social media, know all the popular and unpopular networks and this is the first i’m hearing of it. If this wants to be as big as instangram and facebook etc. it needs to do more marketing and advertising! Seems like a good social media app though. Get the word out about it and it might go somewhere!!

  3. Richard M Krawczyk Monday, April 16, 2012

    It took almost two years before Instagram took off. Maybe Path just hired a new PR person to get the word out

    1. Not true Richard. I think the growth curve of Instagram was much more steep and rapid. They added a million in a few months and I think they were about 10 million or so last September.

      1. how can you say ‘not true’ and then ‘i think’. do you know or do you think? and if you think then how can you tell someone else what they think is not true?

  4. J Nicholas Gross Monday, April 16, 2012

    The idea that FB does not compete with Path does not compute. Its like saying ABC and NBC don’t “compete” b/c theoretically one could watch both stations. But if there’s nothing showing on one that I can’t find on the other, why would I bother? FB has shown itself time and time again as nimble enough to cannibalize any attractive features from “competing” sites such as they are. But, hey, I also personally think Instagram is a one-dimensional wonder/fad that would have saturated in a few months and I am astonished FB would pay that kind of money, so WTH do I know.

  5. motionblurred Monday, April 16, 2012

    I think there’s room for Path to grow. The main advantage of Instagram is that it has a great mobile interface that Facebook lacks for whatever reason. So does Path. Facebook’s main weakness is privacy and it should’ve been something Path pounced on.

  6. Companies which justify strategic acquisitions based on numbers end up being like Microsoft or Google.
    Instagram from my point of view was strategic acquisition. Mobile knowledge in users emotions as sharing being part of conversation/communication. But it still has to be fed back and influence Management (Google and Microsoft always miss that part).
    Path might be an acquire-hire, but I doubt that, which would be more like a tool to solve a specific problem (number justifications work).

  7. Gaurav Sharma Monday, April 16, 2012

    “I have found that it does so much that I sometimes forget to open the app, even though I intend to.”

    This is a great observation Om. I keep the Path app running in the background/sleep mode just so that I don’t forget about it.

    Another thing I noticed about Path’s engagement is that by design they don’t want you to use it a lot. As a user, it is not clear if they want it to used in just for certain special moments of life or every other checkin to Starbucks. When using Path I usually ask myself if this should be “Pathed” or not. However, this is not the case when using Instagram, FourSquare, Twitter or Facebook.

  8. B.N. “Nat” Kausik Monday, April 16, 2012

    Om, excellent point on Instagram’s asymmetric model a-la twitter unlike Path’s symmetric model a la Facebook. User’s tire of Facebook as the symmetric model accumulates too many “friends.”

    Facebook’s core business is sharing, and for it to acquire into its core competence as it did with Instagram should alarm shareholders. In contrast, I am not aware of a single search acquisition by Google.

    1. No “search acquisition” by Google? That’s not true – this is a single example, but there are a lot of small guys that Google accumulated along the way: http://www.eweek.com/c/a/Search-Engines/Google-Buys-Metaweb-to-Boost-Semantic-Search-467003/

      and here:

      http://techcrunch.com/2010/02/11/google-acquires-aardvark-for-50-million/

      they just never overpaid for anyone in this domain.

    2. Facebook’s core business is sharing on the Web. It’s buying it’s way into sharing on mobile. Every social company needs to pivot to mobile now, or risk being as irrelevent as AOL when the Internet hit.

      Shorter: FB is buying it’s way out of a mobile problem. I would bet that Google thought it was doing the same thing with the Milk acquisition.

    3. Let’s see:
      – Google licensed Yahoo’s Overture patents, because AdWords was possibly in violation.
      – Google acquired Applied Semantics, which is the basis of AdSense.
      – Google acquired DoubleClick, which is the cornerstone of Google’s display strategy.

      1. None of these are search.

  9. Path is not competing with Facebook or Twitter, its a completely different format. Path is a personal network, a more private and mature application, where, if people want to can share their Path activities onto the social networks mentioned. Its a great idea and concept that will to continue to grow and improve steadily.

  10. Om’s point regarding Path’s needs to define a singular addictive behavior is exactly why they won’t become a Insagram-type company. I wrote about this a couple of months back- http://bit.ly/HOj6j8 – Path is trying to aggregate these singular addictive behaviors under one service, which no one has yet to pull-off in mobile (any why Facebook needed to buy Instagram). If Path can get users to change their mobile behavior then maybe they can build the truly mobile version of Facebook. Tough road though.

Comments have been disabled for this post