Path’s Billion-Dollar Aspiration

eMarketer estimates worldwide social media user base to grow from 1.47 billion last year to 1.73 billion in 2013. As global internet usage increases, the number of users accessing social media sites will continue to grow as well. Worldwide, the number of internet users is projected to increase to 3.6 billion by 2017 from 2.3 billion last year. Social media users are projected to grow to 2.55 billion by 2017. While Facebook remains the leader in social networking, a few others are making a name for themselves as well.

Path’s Offerings
San Francisco–based Path is one such player that is using the increasing adoption of mobile and internet technology to bring people together. Path was founded in 2010 by Dave Morin, co-creator of Platform and Connect at Facebook; Shawn Fanning, creator of Napster; and Dustin Mierau, co-creator of Macster. Today they have more than 12 million users worldwide using their services to create a “personal journal” about their lives. Compared with Facebook’s more than a billion users, Path is small, but it is growing rapidly.

Realizing the importance of mobile technology, Path has been designed as a Smart Journal that is accessible everywhere while keeping the task of adding and managing content simple. Content shared on Path can range from simple posts to media, including photos, music and videos. Path is well integrated with other social networks like Twitter and Facebook and lets users upload or check updates on these sites through Path. Path is more focused on sharing content with family members. While friends are part of the user’s network, Path believes that it is used mostly for sharing content among family members and would like for itself to be known as a personal network.

Additional features that make Path different include Automatic, a tool that lets Path learn about the user’s daily routine and update it automatically. Users also have access to Stickers, which are art creations by several artists which can be used to accessorize one’s Path posts. Similar to Facebook’s Poke, Path has a feature called Nudge where users can “nudge” their connections to update their journals. They have also integrated with Nike’s Fuelband that lets users record their Nike+ GPS activity such as the details of their runs on Path.

Path does not have a clear revenue model. It is working on earning revenues through sales of virtual goods and premium subscriptions. Its financials are not known, but Path has raised $42 million from several individual investors and venture funds, including Index Ventures, First Round Capital, Founders Fund, SV Angel, Kleiner Perkins Caufield & Byers, Digital Garage, CrunchFund, Redpoint Ventures and Greylock Partners. Last year it raised $40 million of these funds at a valuation of $250 million.

Path’s valuation has grown since they turned down an acquisition offer from Google. In 2011, Google had proposed to buy Path for $100 million plus an earn-out of $25 million over four years. Path decided instead to raise funds from venture firms. Path’s recent valuation is not known, but the company is said to be on the lookout for fresh funds that is said to peg the valuation at more than $1 billion. As you know, I am not convinced about the value of companies without monetization strategy.

Path’s Troubles
Path’s rise to their current status has not been without issues. Earlier this year, it was asked to pay a fee of $800,000 to the Federal Trade Commission because it uploaded complete address books onto its servers. Path realized its error and deleted the addresses soon, but it was still too late. The fine was levied because according to the FTC, Path had violated the Children’s Online Privacy Protection Act by collecting children’s personal information without consent from their parents.

Path has also been accused of spamming people to increase its user base. According to market reports, the company had engaged spamming company, Rapleaf, to identify potential new users. Path denies using such services.

Path does not seem troubled by such controversy. To continue its mobile growth plans, earlier last month it tied up with Sprint to enable its app to be available on new Sprint devices. Path will be a featured app available as a single-touch download on Samsung Galaxy S4, HTC One and Torque.

Silicon Valley is in a bit of a valuation bubble right now, and the valuation-without-revenue dynamic is back with a vengeance. A few more large exits are likely to happen before this bubble bursts.