Facebook’s Acquisition of Karma Brings Mobile Commerce, App Monetization Prowess

Facebook has just acquired mobile commerce startup Karma, 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 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 are, 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.”

Karma also had a post on its own blog:

We founded Karma with the goal of adding the sentiment and meaning back into gift giving. That’s what Karma is all about. That’s what the Karma team set out to achieve.

Over the last year, we’ve built a new e-commerce platform from the ground up. We’ve been honored to partner with amazing brands to create a curated catalog of products. We made those products instantly giftable in a brand new way. And we harnessed the power of Facebook’s social network to ensure you never miss a chance to show someone you care. The phenomenal response and feedback we’ve heard from customers has more than exceeded our expectations. And we’re just getting started — today we take social gifting to the next level.

We’re thrilled to announce that Karma has been acquired by Facebook. The service that Karma provides will continue to operate in full force. By combining the incredible passion of our community with Facebook’s platform we can delight users in new and meaningful ways. As we say … only good things will follow.

Simply put, together we can celebrate life’s important moments in ways we could not before. A word of heartfelt thanks to our partners, customers, and our incredible team for helping us share Karma with so many people.

Karma Co-founders Lee & Ben

In addition, TechCrunch interviewed Karma co-founder Lee Linden at the South By Southwest conference in Austin, Texas back in March. You can watch a video of that interview, and see him walk us through a demonstration of the Karma app in person, in the clip embedded below: