Socialcam's Sale Deflates its Flavor-of-the-Month Social Video Sector

By Michael Carney , written on July 17, 2012

From The News Desk

Whaaaat? Come again? Socialcam is selling for how much? $60 million dollars? Not $600 million? That’s not even British pounds? Uhoh.

After months of limitless hype and frenzy over the search for an “Instagram of video” and the hope for a similar billion-dollar valuation, savvy investors and entrepreneurs surely priced the category a few zeros lower today.

This is sure to be unwelcome news in the camps surrounding Socialcam's chief competitors, Viddy and Klip.

In April, each of the three would-be champions experienced explosive growth on the back of Facebook’s Open Graph. The apps were attracting millions of new users daily and expectations soared.  Socialcam is still the No. 1 application on Facebook, with a reported 56 million monthly active, however these numbers have been trending downward. Viddy sits at number 30, with about a quarter as many MAUs. Klip doesn’t even register in the Top 500 with only 140,000 MAUs -- Incidentally, Instagram had 40 million mobile app downloads at the time of its sale.

Although each offers a slightly different solution, the three companies trade on the same currency -- namely that video is an essential social sharing medium and the winner of the space will receive untold riches.

Viddy and its rabid investors proved as much by raising a $30 million celebrity laden Series B round earlier this year a that included NEA, Goldman Sachs, Khosla Ventures, and Battery Ventures. The round was priced at a sky high $370 million valuation. Klip raised a more quiet $10 million from Benchmark and Matrix before the Open Graph and Instagram hysteria hit full swing.

Many outside the Viddy deal have described its valuation as “greedy,” “frothy,” and “problematic for future financings or exits." These investors clearly had their judgement clouded with hipster photo filters. With that bar set, only a monster exit down the road could be considered a success. This mega-round was raised in the immediate aftermath of Instagram’s gargantuan exit and unquestionably rode that hype. Since then, expectations for a similar outcome have cooled. After today’s Socialcam sale, the lone "sales comp" in the neighborhood is decidedly less rich.

“Where [the Instagram comparison] breaks down is, videography is new,” Socialcam CEO Mike Seibel told AllThingsD's Liz Gannes. “Not very many people yet feel comfortable taking videos in their everyday lives.”

Some of the problems social video players face may be inherent to the medium. As Chris Yeh wrote (and later extended his argument to Viddy as well):

“The challenge Socialcam faces boils down to the differences between text, images, audio, and video...The first two media are static and visual...In contrast, both audio and video are continuous and auditory (and in the case of video, visual). This means that it takes longer to consume, and it's impossible to scan easily. I can scan 100 Twitter posts in about 30 seconds. The same holds true for images....In 30 seconds, I can probably watch/listen to a single video or audio post...In the end, I feel like Video Twitter offers too poor a signal-to-noise ratio to be practical.”

Worse, its acquirer Autodesk is no social juggernaut. Instead, the company is best known for its professional-grade design, engineering, and 3-D rendering software. Not the kind of product portfolio and end users that scream "network effects."

Socialcam earned the worst reputation among the bunch for spamming users Facebook timelines and forcing them to download the app to see videos that were available elsewhere on the web. This fact may have reduced its brand value in the eyes of investors (in addition to declining engagement numbers). To the credit of its competitors, this tactic was not employed by Viddy or Klip.

Eighteen-month-old Socialcam raised an undisclosed seed round after spinning out from and graduating from Y Combinator early this year. The party round consisted of more than 30 investors, including Silicon Valley and Hollywood household names like Tim Draper, Yuri Milner, Ari Emmanuel, Laurene Powell Jobs, Ashton Kutcher, and Alexis Ohanian.

These investors to accepted an early exit at a disappointing valuation, and that doesn’t bode well for the competitors. Seibel described the acquisition generously as a path to more resources, freedom, and flexibility to continue going after more mobile video users. Given where the company was thought to be headed, it’s hard to see it as anything more than a fizzle.

The one thing Viddy and Klip have going for them are cash in the bank and more time to figure it out. Their flavor-of-the month sector was taken down a peg or two today in what surely marks the end of overblown valuations. There may still be an Instagram-style winner in the social video race, but whatever results these companies achieve will have to be based on sound fundamentals. Thank god for that.