Looks Like Facebook Just Bought Some Good Karma

Facebook’s latest acquisition probably didn’t cost near as much as the one immediately prior (Instagram); it’s hard to spend $1 billion on M&A every week. But its new toy may end up having a much bigger impact on the company’s bottom line.

Shortly after its stock became available for public trading last week, Facebook announced that it had acquired Karma, a social gifting service with roughly a couple dozen employees (purchase price not disclosed).  Karma is a young company, but had already received a vote of confidence from the investor community prior to this latest ownership transfer; it raised $4.5 million in 2011 in around led by Sequoia Partners and Kleiner Perkins.

Unlike Instagram, Karma’s potential as a revenue generator is fairly obvious up front: its users are encouraged to buy gifts for their friends — and not just Farmville tractors, but real stuff, like wine, books, cupcakes and magazine subscriptions. The app connects directly to Facebook, pulls user’s friend data, and makes gifting recommendations based on upcoming events or poignant wall posts. When it sees, “Happy birthday!” or, “Congrats on your anniversary!” on a friend’s wall, Karma moves that person’s profile to the app’s front page.

That said, what good is a feature if it isn’t any fun to use? I took Karma for a spin this week to evaluate its ease of use, the robustness of its gift-giving offerings, and more generally the overall quality of the user experience. If Facebook incorporates this technology into its network in the near future, will people use it?

Based on my experience, my answer would be a firm yes. This app was accessible, useful, and fun. I’ll use it again, perhaps tomorrow. Let me tell you more about what using Karma is like.

The way Karma pulls my social data from Facebook — after asking for my permission, of course —  is quick and straightforward. I don’t have to fill out several fields with passwords and logins, just click a couple of buttons.

 The event detection software Karma uses is really impressive. From the home page, Karma suggested I check up on three friends: one having a birthday, another celebrating an anniversary, and another having a “rough day.” In each instance, I was able to quickly view the wall post Karma was interpreting, and sure enough, the app had nailed it in each case — I was taken to a wall post that said, “Congrats on three months!!” in one instance, and in another, my friend had posted to his wall, “I’m having a really bad day.”

•  There are lots of gifting options within Karma’s storefront. I can buy wine, magazine subscriptions, tote bags, fruit, books, phone covers… but one downside: there isn’t a search option, as far as I can see, so you need to have an open mind when you use Karma. But it seems like that’s the point — this is new technology that will motivate users to splurge a little bit more on their friends than perhaps they would have without it. Lots of serendipity here.

•  Ever buy a movie, or book, or app for someone on iTunes or Amazon, and been disappointed by the presentation? With iTunes, the gift email basically says, “Look, I bought you this.” Karma offers aesthetically pleasing e-cards to go along with their gifts, including room for a personalized message.

•   Best of all: delivery is straightforward. No need for your recipient to have the app installed; instead, notifications can be sent via email or text.

From a technical standpoint, I think users will find Karma’s combination of event detection capabilities, tight integration with Facebook, and relatively robust product offerings to be a compelling value proposition. But more broadly, this app just looks nice, and is nice to use.

It’s no billion-dollar acquisition, but Facebook’s purchase of Karma looks like a really interesting indicator as to how the social network can leverage its connections infrastructure to create commercial transactions where there weren’t any before.