Facebook Continues Acquisition Spree with New Monetization Marriage
On Friday in addition to its trading debut, Facebook (NASDAQ:FB) acquired the mobile commerce startup Karma, a maker of apps for gifting friends and family. Karam announced the deal on its official blog.
The terms have not been disclosed but the company’s 16 employees will join Facebook. From the transaction, it will help the social media giant increase its monetization on mobile platforms–an area that the company has openly said is a weakness.
Facebook said in a statement about the transaction in TechCrunch, “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.”
From the deal, Facebook will also receive two very experienced leaders that can build and monetize mobile apps: Karma’s chief executive Lee Linden and his co-founder Ben Lewis. The two were the force behind Tapjoy, a company that had an impact for distributing and money-producing mobile games. The two also have product management experience from Google (NASDAQ:GOOG) and Microsoft (NASDAQ:MSFT). They are also childhood friends and have been in business together for years.
Karma will also bring a solid product to Facebook. It has completed a venture fund round with the heavy hitters of Sequoia Capital, Kleiner Perkins Caulfield & Byers, Felicis Ventures and the CrunchFund. For Karma, through Facebook’s 901 million users, it will have an opportunity to build partnerships with different brands but whether or not it will run autonomously, similar to the Facebook Instagram acquisition, remains to be seen.
In 2011, Facebook (NASDAQ:FB) also acquired the early group messaging app named Beluga that it subsequently became Facebook Messenger.
According to TechCrunch, this deal makes sense for a few reasons. Facebook needs help in creating revenue for its mobile platform. Karma’s leadership built Tapjoy into a $100 million annual runrate business for the distribution and monetization of an app. Now they’re focusing on mobile commerce. Facebook has yet to determine how to successfully make money with mobile apps.
Facebook has previously tried gifting but it was virtual. After beginning with a gifts store, it switched to a broader-based virtual currency offering named Credits; this allowed purchases of virtual gifts and goods from other developers. It also has attempted direct commerce with Deals, a Groupon (NASDAQ:GRPN) competitor, but its was an expensive and large scale model when looking at Groupon’s margins.
With Karma’s physical good gifting, it could be a good marriage for Facebook (NASDAQ:FB). The company already knows users’ friends, their birthdays and interests. Now, it could offer gift ideas, who should receive and give them while allowing users to pay for them with credit cards. And then take a nice cut from the transaction.