A handful of players -- one of them named Facebook -- have worked hard over the past year to create a new category of business known as social gifting. Facebook saw enough opportunity that last spring it snapped up a startup called Karma and built what became Facebook Gifts -- a way for any of Facebook's billion-plus users to send a gift a friend, whether it's a bottle of wine, an iTunes gift card or an item of clothing.
Square, meantime, added gift cards this month to Square Wallet to help its battle with PayPal. And a startup called Gyft, backed by Google ventures, has built a mobile system that lets you manage, buy and redeem gift cards. But the emerging giant in social gifting is a company called Wrapp, a Stockholm-based startup that counts Silicon Valley superstar Reid Hoffman both as an investor and board member.
The company, which has an entirely different -- and arguably more clever -- business model than Facebook Gifts and the others, is on a tear. CEO and co-founder Hjalmar Winbladh tells me people are now sending Facebook friends Wrapp gift cards at a rate of 1 million a week, thanks largely to a huge jump in business due to the holidays. And of those, people are redeeming about 100,000 Wrapp gift cards a week -- making it, according to Wrapp, the most used digital wallet in the world.
Whether or not that's the case, the stats are impressive, especially for a company got its start in the spring of 2011 and only launched seven months ago in the U.S., which is now Wrapp's largest and fastest-growing market. The big growth at Wrapp, which has raised $10.5 million, comes as the company has been aggressively signing up retail partners. In the weeks leading up to Christmas, for instance, the company has been adding a new retailer every day -- and the key appeal for the potential gift-giver: many of gift cards don't cost you a penny.
This is brand-building for the Facebook age -- a shrewd model, as CNET wrote about last spring, that is about helping brick-and-mortar stores as much as it is about boosting e-commerce. And that's one reason retailers are signing up so fast.
It works like this: You sign up for Wrapp, either on the Web site or via the mobile app, by connecting directly to your Facebook account information. Wrapp notifies you of each friend who's having a birthday, say, or who's gotten engaged. Then, because of the targeting options it gives its retail partners, Wrapp will match its offers with information about the person you want to send a gift card. The choices you'll see for a woman 18 to 25 are different than those for a man in his 40s.
While many of the cards are free, there is also an option to add more money. So you can chose to give a free $6 H&M gift card to a friend for Christmas, or you can make it for more, as any real friend would. Once you pick the offer, you write a message, press the Give button and you're done. Your friend gets a notice on her Timeline, and it shows up in the news feeds of mutual friends (although there are options to send it directly through e-mail or SMS). If you receive a gift, Wrapp requires you to download the app to redeem it.
The beauty of the model, though, is not how it works for the user, but the way Wrapp has pitched the deals with all its retail partners. Companies gladly give away cards of a certain value because they know full well that people tend to add value or that when they come to the store to redeem the card, they usually spend more than what's on the card.
"In terms of competition, we're quite alone," says Winbladh. "We don't have direct competitors in any scale like we have."
Wrapp now boasts more than 180 brands, including Banana Republic, Toys R Us and Zappos, And Wrapp is also now partnering with Givex, a Toronto-based gift and loyalty card company that will soon give Wrapp a slew of new partners; Givex works with household brands such as Wendy's, Nike, McDonald's and Marriott hotels.
Winbladh's next goal, though, is to strike deals with Google and others pushing digital wallets so that Wrapp can be built into e-wallets. Ideally, you'd go to check out at Gap and the gift card would be reduced from the price automatically. Wrapp is doing a test in Sweden with PayPal to help PayPal lure customers. PayPal will add money to gift cards paid for through its mobile payments service instead of through a credit card.
"In 2013, one of the biggest plays around will be the e-wallet," said Winbladh. "Square, PayPal, Apple's Passbook, Google. There are a lot of initiatives in the market, and everyone knows that tying transactions to smart phones is instrumental in driving revenue. So if we can be linked to them, it will drive more sales in our stores."
And that would be a sweet gift for Windbladh and his investors.