While time has shown that the average person can find a use for Facebook, Twitter, and Foursquare, I still find it very difficult to see how "another" social app... and a photo-sharing one at that... is going to draw the kind of crowd that would make this extremely high valuation reasonable.
I would agree that, based on numerous comments across the web, the only reason for such a high valuation is because of possible acquisition. But this article specifically mentions that the company is not interested in being acquired, so I guess I just don't "get it".
During the dot-com bubble, "eyeballs" were becoming as important a metric for companies as "revenue" or "profit". It seems to me (and others here) that we're seeing some of the same sentiment all over again.
The fact that Color will give me a 'dynamic social graph based on who I interact with frequently' does not make me want to sign up. Then again, I might not be their target market. I currently don't have much interest in sharing photos on the internet with strangers just because they are nearby.
I think that there are plenty of people interested in tech with nothing to do with any "social" aspects - it is just that social is new to the technology field and has attracted a lot of talent and money. I used to think, and still do somewhat, that "social software" is almost its own field of interest and study - which will feed into other areas of technology but still be distinct. Thankfully there are still plenty of other engineering problems to solve elsewhere (there is, isn't there?) for people like us to work on !
That's the best explanation I can come up with the success of things like foursquare, instagram, etc. and the rise of online gaming.
There were probably assholes like us saying the same shit back in the 50s though - why do these people stay inside and watch TV when they could see ART at the Cinema!?
I think humans have an inbuilt desire to worship, or believe in, something higher than themselves. Even if such desire is deeply subconscious. It manifests itself in all sorts of ways, including Apple fanboyism. Just a theory.
Btw, I think "social" is an utterly over-hyped fad, and I've predicted this on HN in the past (I'm 24, to give perspective). We could even be looked back on "social" ten years from now, the same way we look at the internet bubble ("what were we thinking?!?").