Social gifting, which leverages connections on social networks to send gifts to friends, appeared to come into its own this year with several companies -- including Facebook -- jumping on the idea of making the digital connections we forge a little more special.
It's also a great proposition for retailers trying to get more customers into their physical stores. That's a main goal for Hjalmar Winbladh, chief executive of the social gifting service Wrapp, who saw his customers redeem more than 1 million digital gift cards in the 2012 holiday season alone.
The company offers free and paid gift cards from partners such as Sephora, GameStop and Banana Republic to its customers. The service revealed in February that it grew to more than 1 million users in just 14 months -- in less than a year in the U.S. -- and that 90 percent of all of its usage happens on smartphones.
Winbladh took some time to chat from the Wrapp home base in Sweden (the company has its U.S. offices in San Francisco) about the future of social gifting and mobile payments. An edited version of that conversation is below:
Q: How did Wrapp get started? Why is this the right time for this service?
A: I'm a mobile Internet veteran; I've done this since 1994. But a lot has come together over the last year. The technology and availability for consumers to interact using their mobile phones has really come together.
Now there are really fine solutions, both for retailers and for social gifting [companies] like Wrapp to find something that was mutually beneficial for retailers and consumers.
Q: Can you describe those benefits and how Wrapp delivers them? How have consumers reacted?
A: Everyone likes free. That's good for the consumers.
From a retailer perspective, [offering free gift cards] can drive transactions into both brick-and-mortar and online stores. In fact, it's especially good for brick-and-mortar retailers looking for ways to drive consumers into stores, and then to build on that with a good experience to increase sales.
People have really taken on casual gifting. It creates a new kind of gesture; it lives in the space between a text message or poke and a gift. It's an interesting space to be in, since it's free for you to give a gift. We've been very happy that we're seeing an inflow of partners, including with Sephora, H&M and the Gap.
Q: Are the retailers you approach completely on board with the idea of essentially giving away free gift cards?
A: Pretty much all retailers we've talked to are intrigued by the idea and the opportunity. They're mostly concerned with whether they can drive sufficient volumes into stores. We've shown that we can drive a fair bit of volume to retailers. In our best week we had 1 million gifts being sent per week. That's a pretty massive number for a new service.
Q: Facebook has also jumped into this space, after buying the gifting start-up Karma. Your service relies on Facebook's network; how does their move affect companies like Wrapp?
A: Facebook has quite a different spin on social gifting. It's more of a social e-commerce business -- to have you buy items and have them shipped to your friends. Also, we offer free gifts versus paid gifts -- which is a big difference. It's the same space, but with a different business model.
We do have respect for Facebook and for what they're going to do in the future, but we didn't really consider the business they bought, Karma, as a direct competitor. We're not targeting the same retailers, and they are more focused on products while we're concerned with driving sales to retailers.
Q: What sort of trends do you see coming in this space in the near future?
A: In two years, retailers should completely transform how they spend their marketing money. Brick-and-mortar retailers can tap into a lot of the innovation in the software industry to drive more traffic into their stores.
From that point of view, a lot of innovation that will come is in the broader retail industry.
Consumers are massively shifting to having the smartphone as their main device to connect to Internet, to carry the Internet with them.
Q: How does that help retailers?
A: [Consumers] are happy to download new applications and services and that gives retailers a much more efficient communications channel to fetch more sales into their stores.
And we're just at the start of innovation. Retailers are spending marketing dollars on non-digital channels today; I think we will see a fairly big shift away from traditional media channels.
Q: So should retailers focus on real-time deals? Location-based discounts?
A: There are a lot of different solutions. But in general, I think advertisements have to be more inviting for consumers to interact with, while intrusive advertisements will have a more difficult time getting their attention.
People like being involved in "e-moments"; it's really not about the transaction, but about making it easy for retailers to connect with the right consumer audience.
Q: Wrapp deals specifically with gift cards, but what do you make of other mobile payments such as e-wallets?
A: E-wallets and good marketing methods can work together to secure a much more efficient communication channel and reduce the friction in between retailers and consumers in general.
I think the success of e-wallets will be heavily dependent on what payments are available and interconnected to have rationale for retailers to adopt it and consumers to start using it. But for it to work, retailers have to communicate [with customers] to drive sales into their stores.