Why Path is no Instagram

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 (s GOOG) 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.