Friends With Gift-Card Benefits

With the advent of Facebook, we’re all getting a lot more birthday wishes than we used to: Fifth-grade pal you haven’t seen in 20 years? Check. Cubicle mate from two jobs ago? She remembered too.

So many well wishes, so few ways to give pals actual gifts or—from a business perspective—to get well-wishers shopping for their own. Enter Carl Fritjofsson, and his cofounders at Swedish startup Wrapp who came up with the concept of a social gift-card app that would let people give friends gift cards through Facebook.

Wrapp was a pilot program in Sweden that launched in mid-September and two months later grabbed $5.5 million in Series A funding from Skype founder Niklas Zennström’s venture capital firm Atomico, with Zennström simultaneously grabbing a seat on the board. Fritjofsson’s cofounders include Spotify's founding chief technology officer Andreas Ehn and Rebtel's founding chief executive officer, Hjalmar Winbladh.

The company plans to bring its services to the United States sometime in the first quarter of 2012, moving into a market that is increasingly eyeing social commerce through methods such as social sharing via peer recommendations as a way to drive business.

“It’s a simple innovation for gift cards. They are a $100 billion industry in the U.S., yet the biggest innovation has been a move from paper cards to plastic,” says Fritjofsson. “By digitalizing gift cards [and offering them via social media], we make it more interactive for the person who sends it and the person who receives it. We also see gift cards as an excellent mechanism for triggering people to go into stores.”

How Wrapp works? Users must sign up for the app, available on iPhones or Android. Once they do, they are alerted to which friends have birthdays coming up this week or this month and can send those friends gift cards from participating retailers via email or text, through smartphones, or the Internet.

The retailers are chosen not by the gift-giver, but by the retailer, which selects which type of consumers it wants to target with its freebies. This is based upon the friend’s demographic information, such as gender, age, and “social graph,” which is Facebook-speak for the people they’re friends with and the connections they care about. Based upon that graph, the app gleans what type of gift card might be suited for the individual, and voila, a gift from a specific retailer who wants to market to that sort of consumer is provided.

Retailers can offer the cards in whatever denominations they’d like, and they do so at no cost to Wrapp, because for them, it brings in business. They might give a card for, say, $10—and it’s then up to the gift-giver whether he or she would like to add any extra money to the gift card.

Once the gift card is given and the friend accepts (by downloading the Wrapp app), news of the gift is posted on the gift recipient’s wall, and other friends can add to the amount given. Only one unique gift card from a retailer can be given to the friend.

There are already apps for gift-card storage and sites that digitize gift cards, but this mix of free and paid gift cards and the social element are what make Wrapp unique, says Fritjofsson.

Wrapp makes money in two ways: Whenever someone buys or adds to a gift card via Wrapp, it gets a cut and sends the rest to the retailer. It also makes a percentage for each of the free gift cards that pass through the app, so long as the free gift card is redeemed. That level varies by retailers, but it’s done on a percentage basis and is typically around 10 percent of the gift card value.

In Sweden, the app started out with a half-dozen retailers and moved on to about a dozen large retailers and nonprofits, for which friends can donate to charities. It has 33,000 signed members and active members, which gives it access to some 4 million Facebook users who are friends of those members, Fritjofsson says.

The company has seen 30 percent week-over-week growth in gift-card redemptions in the Swedish pilot. In the United States, it’s in talks with retailers such as H&M and Ikea to see if they’ll want to offer gift cards through the site.

Fritjofsson was part of the team that brought Groupon to Sweden, and the other members of the team were also with various digital ventures.

“We looked at the phenomenon of Groupon and realized that it’s gone extremely well for them and that they’re targeting a huge market,” Fritjofsson says. Wrapp sees itself as going after a similar market with gifts that, for retailers, could be the kind that just keep on giving.

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Teresa Novellino writes for Portfolio.com