Be a tough challenge. Although Instagram has done well to build up a community (5 million users now: http://techcrunch.com/2011/06/13/instagram-five-million-user...) . Facebook places didn't kill Foursquare, Gowalla etc, this may not necessarily kill established players like Instagram but it will make it harder for new entrants and those struggling to get established like Color.
Facebook's behemoth social graph will easily steamroll over any new effort in this space. Color/Path/Instagram will need some insane differentiation in order to win this battle.
though deep down i agree that this probably means big trouble for a lot of other companies in the photo sharing space, there are some innate differences that could keep other companies afloat (even COLOR!)
one of the big differences i can think of off the top of my head at 3am is that FB still isn't really about discovering new friends. You meet people in real life, then you friend them on Facebook. Not vice versa.
As far as I can tell, something that Color is expanding into is creating this "temporary" social network where you share photos with anybody within a certain location. It isn't as much about sharing photos with friends that you already have, as it is about discovering new people and the photos they're taking around you.
Based on widespread privacy concerns that Facebook has had to deal with, I'd say it's unlikely that this app involves social discovery. It's probably another friend, photo-sharing app, with the permissions of sharing mirroring what happens on the Facebook webapp.
Well the differentiation will come from having better control over who sees what.
Facebook is a collection of all your friends/family/people you kinda know and so fouth. We still need services that are specialized and cater to certain groups within your social circle and I can totally see Color/Path/Instagram/Whatever take and prosper from holding that position.
But then again Im not really a fan of Facebook and perhaps Im missing some core functionality that actually already exists within Facebook.
You can't tag people on Facebook in a photo uploaded from Instagram, or at least I never found a way. Facebook's own photo app will be a first-class citizen in that regard.
I think the main advantage is that people already see photos as one of Facebook's killer features. It's different than when they launched Places and Offers; photos is the reason a lot of people register for Facebook in the first place.
Assuming Color et al. have no incredible innovation up their sleeves, any data set they would be gathering is most likely a subset of what Facebook already has on their graph.
In that case, Facebook is very well positioned to execute faster and better in that space.
