Color: Trojan horse photo startup

March 23, 2011: 8:00 PM ET

What likely lies behind Bill Nguyen's whimsical new iPhone app

FORTUNE -- Repeat entrepreneur Bill Nguyen launches his latest company Wednesday. The name, Color, is as cute a confection as his last startup, Lala. Whereas Lala cleverly connoted that the company was a music service – Apple (AAPL) bought it in 2009 and promptly shut it down -- Color only hints at what the company does.

This could be because Color is only partly what it seems. The basics are these: Color begins its life as a free iPhone app you download and then use as a visual diary. The app records and scrolls not only all the photos you take but pics taken of you by anyone nearby as well. (Color, at this level, refers to the color of your life through photography.) It's easy to see how such a unique record of your life will 1) be nifty, infectious and viral, and 2) evoke howls of rage from privacy puritans.

To learn more about how the company sees its own invention, watch my interview with Nguyen from last week, as the company was getting ready to unveil what it has been working on since last year.

Now, back to the subject of what Color really is. Nguyen says Color eventually will sell ads, but he doesn't explain the strategy all that clearly. Something about restaurants wanting to show diners what their friends already have eaten, which doesn't make a ton of sense since the customer already is in the restaurant.

It's more likely that Nguyen is soft-pedaling his business ideas because he sees it as better that Color rack up the big usage numbers that will be necessary to turn on a powerful advertising model. Consider that if Color is successful, millions of users will be telling the company, through their use of the app, where they are. Not where they are generally, where exactly they are. Phone companies already know that, of course But it'd be freaky for them to act on that information. But what about an app to which the user already has given permission to post photos by and of the owner of the phone? Suddenly the advertising opportunities seem endless. You're at Dolores Park in San Francisco playing with your children? Here's a coupon for a discount on ice cream at the nearby Bi-Rite Creamery. Gee, you seem to wear a lot of North Face clothing which is visible in your photos. Care to try Marmot next time you shop?

What's powerful about Color is that it's a "social" site optimized for mobile devices. Just as textbook app Inkling launched only on the iPad but plans to write for other platforms, Color works for now only on the iPhone but intends eventually to satisfy users of BlackBerries, Windows smartphones and Android devices. Facebook is the king of photos, but most people think of Facebook as a Web experience. Color ignores the Web.

Location-based advertising is the next frontier. Google (GOOG) takes it seriously. So does iPhone app sensation Shazam, which just announced Shazam Friends, a sharing service that lets people  notify their network what music they're listening to. Shazam users are going from simply finding out information (what was the name of that song and who sang it) to communicating information (I'm listening to a new artist, and you should too.) Intents and desires are an advertiser's dream.

What are Color's dreams? It trumpets what it calls its "proximity algorithm," an invention that moves up the people you see and enjoy seeing in your ranking of what you view. It hired as its new head of product DJ Patil, a statistics expert who recently left LinkedIn (but hasn't updated his LinkedIn profile). . The company's top business guy is Peter Pham, a Photobucket alum and all-around networker. Nguyen says the server capacity alone to host all the photos it plans for its users to take will chew up much of the $41 million Color has raised from Sequoia Capital and Bain Capital.

Photo sites come and go. Perhaps the key for Color is if it really is just a photo site after all.

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Adam Lashinsky
Adam Lashinsky
Senior Editor at Large, Fortune

Adam Lashinsky is a San Francisco-based editor-at-large for FORTUNE, covering Wall Street and Silicon Valley. Lashinsky joined FORTUNE in 2001, after two years as a contributing columnist. Prior to joining FORTUNE, Lashinsky covered Silicon Valley for TheStreet.com and The San Jose Mercury News. A Chicago native, Lashinsky holds a B.A. in history and political science from the University of Illinois at Urbana-Champaign.

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