While covered in the aftermath of the Facebook IPO, I think its acquisition of Karma was slightly hidden behind NASDAQ failures, IPO pricing debate and overall blessing for CNBC’s octobox.
What is Karma?
On the outside it seems to be a simple and nicely designed gifting app, but looking the UX and what is known of the back end, it could become the platform for much more within Facebook:
1. Deep integration with social graph and events. Even before its acquisition by Facebook, the Karma experience was deeply connected to Facebook, pulling up your social graph details and proposing a list of events for gift situations, from birthdays to change of work, relocation, specific posts. This is information that only Facebook has at scale with respect to social graph, and this has a lot of value since an important portion of commerce is event driven.
2. A smart way of looking at lost shopping carts. When creating a gift on Karma for the first time, there are 2 times when your credit card information will be requested: once before sending the gift – the traditional way for processing payment in ecommerce and a second time when the gift has been opened and accepted by the recipient, meaning when they opened the gift email and input their delivery details. This create a peer pressure on paying for the gift and carries no risk for Karma as they have not sent the actual gift yet. This is very different from payment companies like Klarna which actually take the credit risk of payment made after physical delivery of products.
3. Ecommerce organisation, from order management to delivery. Whether this has much value to work with the necessary scale for Facebook remains to be seen. It is actually not sure in my view that Facebook would like to keep and expend this competency. There is an important gap between being a digital only platform and building the physical capabilities to deliver a real world experience.
4. On the other hand, Facebook is looking at Facebook Credits has an important driver for future revenues. Currently they are only used for virtual goods with a 30 % tax rate taken by Facebook for the use of its credits by developers. A possible opportunity is to expend Facebook Credits to real world goods. Karma ecommerce platform could be an important stepping stone toward that. Credits could work as a closed loop currency on the platform. The difficulty in this scenario is that the 30% rate is not compatible with ecommerce. Facebook would need to maintain several different rates depending on the activity done through its platform.
Facebook has announced that Karma will remain an independent app, like Instagram. But it will not prevent it from leveraging the competencies of its team in creating a mobile social commerce experience. More than expending a full e commerce stack internally, Facebook could create a social platform for e commerce companies that would like to leverage its graph. There are challenges in this strategy. As Karma as demonstrated before its acquisition, Facebook current graph capabilities can be leveraged to create a close experience outside of its control. The difference between the two might be too thin.