Wrapp, Karma and Social Gifting: The Future of E-Commerce?

This is Part 8 of my continuing series on the most important digital advances and most interesting emerging companies. This report focuses on the growing social gifting business, led by Wrapp Facebook's Karma and other companies described below. Prior reports focused on the Cloud; Google Glasses; Crowdfunding; Retargeting, Airtime (Facebook video chat); credit card linked offers (Linkable Networks); trending social companies Wendr, ShopSocially, and Karma. Next week's report will feature more trending companies.To read the full series, visithttp://www.jackmyers.com/media-business-report

Social Gifting

If you haven't heard of social gifting yet, you will soon. It is the next biggest thing in e-commerce since Groupon, Living Social and several clones. While sites like Groupon offer discounts onbehalf of retailers, social gifting is about offering free gift cards, or gift cards to purchase and gift to friends and family via Facebook and other social media sites. According to Reuters, social gifting is the new buzzword in e-commerce, becoming an Internet phenomenon very quickly. Most recently, social gifting sites like Wrapp are becoming the hottest trends in the social media circuit. Social gifting allows friends and family to use their social media outlets for giving virtual gifts -- ones that actually have some worth. Social gifting sites and mobile phone apps provide e-gift cards for major retailers, some of which are free and some purchased.

Social gifting has been a relief for retailers and consumers who are looking beyond discount and deal sites such as Groupon, since consumers can actually purchase items they want with their social gift cards. The apps currently catching buzz are available on Facebook, which users can access through the website or more commonly, the mobile app. E-gift cards are purchased or sent to friends by individuals as well as groups through social gifting apps. Merchants like social gifting because it lets them appeal directly to the consumer, instead of paying for expensive marketing campaigns or hefty print and TV ads. Merchants also see value in using the social gifts cards as a promotional tool.

Among the social gifting sites, the leaders are Wrapp and Karma.

Wrapp

As the leading social gifting site on the market, the newly launched Wrapp is quickly gaining a solid following. Wrapp was founded in 2011 in Sweden by a team of entrepreneurs who havehelped to found additional popular sites, including Groupon, Spotify, and LinkedIn. Wrapp is well-funded with $10.5 million in capital from technology firm Atomico and Greylock.

Wrapp is available on Android and iPhone operating systems, and allows friends to exchange free and purchased e-gift cards through Facebook, as well as through their mobile phones. It's currently available to consumers in the United States, United Kingdom, Norway, Sweden, Finland, and the Netherlands, with more locations, like Canada, Japan, France, and Brazil coming soon. According to Reuters, Wrapp has distributed over 1.5 million free gift cards from almost 180,000 people. Wrapp's major retailers include:

· Brooklyn Industries - designer clothes

· Bjorn Borg - designer underwear

· GANT - American sportswear with a European flair

· Gap - casual, American clothes

· Fab - design inspirations

· H&M - affordable, quality family fashions

· Happy Socks - online designer socks

· Sephora - makeup, haircare, skincare, and more

· Spa Finder - massage, yoga, spa, fitness finder

· Rovio Entertainment - Angry Birds creator

· Warby Parker - eyewear

· Threadless - graphic tees

· The Wall Street Journal - leading business publication

· Wayfair - cookware, lighting, and furniture

· WeSC - clothing and accessories

Karma

Facebook acquired Karma shortly after they became a publicly traded company in May 2012. Karma, which was founded in 2011, allows users to send a gift card to their friends, who will be notified through Facebook, text, instant messenger, or email. The receiver of the gift can eitheraccept the gift or exchange it for another gift, or choose the option to donate the gift to charity.

Others

Wrapp and Karma aren't the only ones playing in the social gifting sandbox though. Social Gift, Drop Gifts, Groupcard Apps, and CashStar are also hoping to be early birds in a growing and trending internet sector. For instance, CashStar has an association with over 200 retailers, reports Reuters. Groupon and Living Social are indirectly in the social gifting market by enabling consumers to purchase daily deals for others as gifts. So far though, there's no hard evidence that Google is an early adopter of the social gifting craze.

Caveats of Social Gifting

While social gifting is quickly becoming the next Internet trend, it also has its detractors. For retailers, the draw to giving out free e-gift cards for social gifting purposes is that it can increase their sales, primarily because they can expect consumers to spend more than the value of the gift card. However, many times consumers will spend only what is on the gift card and not a dollar more. This makes it difficult for some retailers to find the advantage in the short term. For large retailers, this may not be an issue, but smaller businesses participating in social gifting can have a problem turning a profit.

It's also wise to keep the optimism for social gifting in check. When Groupon was a private company, it was on the list of one of the fastest-growing companies in history, and launched one of the largest IPOs in the past decade. However, its shares have decreased by about 40 percent since its debut amid concerns of its sustainability.

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