Facebook has acquired Karma, a mobile commerce startup, which makes apps for gifting friends and family.
The terms of the deal are undisclosed but 16 employees of the startup will be joining Facebook.
The purchase will help Facebook build up monetization prowess on mobile platforms — an area that it had said it’s admittedly weak in. The price was not disclosed.
With the deal, Facebook gets two extremely experienced leaders in building and monetizing mobile apps. Karma’s chief executive Lee Linden and its co-founder Ben Lewis were behind Tapjoy, a company that became a huge force in distributing and making money from mobile games.
Both he and Lewis were product managers at Google and Microsoft. Linden and Lewis have known each other since they were kids and have been building companies together for a couple years.
Note: This was a real product acquisition, not a lower-priced, talent-based one. Karma had done one venture round with Sequoia Capital, Kleiner Perkins Caulfield & Byers, Felicis Ventures and the CrunchFund.
The sense that we’re hearing from social product industry sources is that Karma will get Facebook’s 901 million users at its feet and more power behind building partnerships with other brands.
It’s not clear whether Karma will be left alone to run autonomously like Instagram or whether it will become a Facebook-branded product. Last year, Facebook acquired an early group messaging app called Beluga and turned it into Facebook Messenger.
This acquisition makes sense for a couple of reasons. Facebook needs all the help it can get in making its mobile platform produce revenue. Linden and Lewis built Tapjoy into what became a $100 million annual runrate business for app distribution and monetization. Now they’ve turned their attention toward mobile commerce. Facebook hasn’t figured out how to make money from mobile apps quite yet.
It’s starting to show sponsored stories in the mobile news feed, but it doesn’t have that many opportunities to make payments revenue from third-party mobile developers because it’s blocked from taking a revenue share on iOS. Android offers some possibilities but it’s quite complicated to build a rival app ecosystem like Amazon has done over the past few years with the Kindle.
Facebook has tried its hand at gifting before, although it was the virtual kind. It abandoned its gifts store in favor of working on a more broad-based virtual currency offering called Credits that would power purchases of virtual gifts and goods from other developers. It also has tried direct commerce with its Groupon competitor Deals, but obviously that is a very expensive model to operate and scale if you look at Groupon’s margins.
But the physical good gifting that Karma specialized in could be a perfect fit. Facebook already knows who your friends, when they have birthdays, and their interests. It could suggest gifts to give and who to give them too, let users pay with their credit card or credits, and take a healthy cut.
We had heard a few weeks ago that Lewis was considering taking personal time to travel the world and step down from running Karma with Linden, but apparently we were wrong. He is definitely joining Facebook with the rest of the team.
Facebook said in a statement: “We’ve been really impressed with the Karma team and all they accomplished in such a short time. This acquisition combines Karma’s passion and innovative mobile app with Facebook’s platform to help people connect and share in new and meaningful ways.”