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Wrapp Gifting Service Makes U.S. Debut

Business model marries social media with e-commerce and gives retailers a cost-effective way to prospect for new customers in the virtual gift card arena.

A Sephora virtual gift via Wrapp’s gifting service.

Europe’s gifting service Wrapp is launching today in the U.S., using a business model that marries social media with e-commerce and gives retailers a cost-effective way to prospect for new customers in the virtual gift card arena.

Wrapp, which taps into the Facebook platform, launched in Sweden in November and in Norway and the U.K. in March. Earlier this month, the service became available in Germany, France and The Netherlands.

Free gift cards available for the U.S. launch include those from a range of global, national and regional merchants: Gap, H&M, Sephora, designer underwear firm Björn Borg, Brooklyn Industries, Fab.com and streetwear firm WeSC. Another 15 merchants are expected to be added in the next few weeks.

The intellectual capital behind Wrapp consists of a team of serial entrepreneurs and venture capitalists who specialize in fast-growing technology firms with business models that can be disruptive to existing industries. They’re banking on the convergence of two major trends underway: social media and mobile.

Based in Stockholm, Wrapp was cofounded by a team of tech experts. Among them is Hjalmar Winbladh, a co-founder of Sendit, the first mobile Internet firm, which he took public in 1997, and a co-founder of Rebtel, the world’s largest independent mobile VoIP, or voice-over-Internet protocol, firm. Also involved is Fabian Månsson, former chief executive officer of H&M and Eddie Bauer, who serves as Wrapp’s chairman. Other tech experts include those involved in the digital music streaming service Spotify.

Wrapp in January completed a $10.5 million Series A funding round. The venture capital investors include Greylock Partners, which has invested in DoubleClick, Red Hat, Facebook, Groupon, LinkedIn and Pandora; London-based Atomico, founded by Niklas Zennström, who cofounded VoIP firm Skype, and Nordic firm Creandum, an investor in Spotify. Zennström, Johan Brenner of Creandum and Greylock’s Reid Hoffman, who cofounded LinkedIn, are all on Wrapp’s board.

“Wrapp addresses a serious marketing issue that retailers have been wrestling with for the last couple of years — basically, how to use social networks and mobile phones to drive profitable sales in-store,” said Månsson. “But what I think is most powerful of all, is that it’s all done through friend-to-friend marketing on your Facebook wall: Your brand being recommended in the form of a gift from one friend to another — and for all their mutual friends to see.”

According to Winbladh, more than 100,000 gift cards were redeemed in the first four months following Wrapp’s launch in Sweden in November.

The traditional physical gift card still comprises the larger market, compared with e-gift cards, those purchased online and delivered to the recipient via e-mail, a social networking site or directly to a mobile device. A white paper issued in November on “Consumer Insights into the U.S. Gift Card Market: 2011” by First Data and Market Strategies International noted that consumers are becoming more interested in e-gift cards due to speed and ease of delivery. “Those who buy e-gift cards are more likely to be single, female college graduates,” the study noted.

First Data, a payment processing technology firm, in July 2010 launched its eGift Social app as an add-on to its gift card program. That app operates differently from Wrapp in that it requires a credit card for the purchase of the e-gift that’s sent to a Facebook or e-mail account, which then has to be taken to an actual brick-and-mortar site for redemption.

Merchants who provide the gift cards via Wrapp determine the parameters, such as the demographic being targeted, whether value can be added to the card and when the gift card expires. Wrapp uses data from Facebook users who download its gift service app to drill down on who receives which gift card offers. Once a friend elects to send someone a free gift card, that merchant option is no longer available to other mutual friends to send, but they can add value to the card via any dollar amount they wish spend via their credit card.

Wrapp receives a fixed fee for every free gift card that’s redeemed, and the dollar value doesn’t hit the merchant’s books until redemption, usually as a marketing promotion cost. Redemptions can be online, via mobile or in a store. When a friend adds more money to an already gifted card, Wrapp gets a percentage of that dollar amount.

Sephora has been at the forefront of mobile in its stores and online, providing mobile checkout in a growing number of stores as well as allowing customers to scan product codes on their smartphones to see reviews while in the store. Sephora’s Bridget Dolan, vice president for interactive, said that virtual gift cards via social gifting can be a great way to attract new clients since “friends become the evangelists for the Sephora brand.”

Scott Ballantyne, chief marketing officer of Fab.com, which in January acquired New York-based e-commerce site for emerging designers FashionStake, sees Wrapp as an innovative customer acquisition tool. “This is a cost-effective way of prospecting because, socially, people share and like on Facebook and this is the sweet spot in how to acquire customers in the social platform.”