Bad Karma: Facebook buys, launches, and destroys one of my favorite apps

By Sarah Lacy , written on August 27, 2013

From The News Desk

Forgive me for dredging up last week's news. But I can't seem to get over my rage and the continuing destruction of one of my favorite mobile first apps ever launched: Karma.

Of all the many gifting sites and apps I've written about since the dawn of the Web -- dating back as far as RedEnvelope and including the recent flood of gifting apps -- Karma was hands-down my favorite. It was well designed and very well thought through. It astutely tapped into how people give and, more importantly, why people don't give. It curated hand-picked cool gifts, so you didn't have to come up with an idea. Its virtual "out of box experience" was clever, making an easy-to-give gift still feel thoughtful. And it cleverly came up with ways to enable you to purchase a gift in a few clicks, without knowing the recipient's mailing address or even wanting to enter your credit card right then.

I used it dozens of times. It dramatically increased my gift giving, because it was only the tiniest bit more work than simply thinking about doing something nice for someone. My nanny and I gave gifts back and forth to each other for a few months. I got Paul Carr a T-Rex tea infuser. I got Erin Griffith some socks with a map of Manhattan on them. And everyone to whom I recommended the app loved it.

Karma wasn't alone in the feeling there was a big opportunity here. A flood of gifting apps were launching on the market and many leveraged not only mobile, but Facebook Connect. After all, where do we all get wished Happy Birthday? Facebook. Made sense.

Well, it made sense except for one reason: Let's call it "the Blockbuster argument." Back when I was reporting about the IPO of Netflix, I made a stupid argument that seemed smart enough at the time. I argued that Netflix had done something novel, but it was vulnerable, because Blockbuster could put it out of business overnight if it wanted.

Little did I realize something then as a young reporter that I've since seen over and over again: Large companies have the assets to put small innovative companies out of business, but they also have the dysfunction, distraction, and red tape to totally botch any decision to take on a young 'un.

Like Blockbuster, Facebook should have been able to win at gifts with one hand tied behind its back. How on earth could it not? It didn't even try to build it from scratch. It bought the best app on the market, at least in terms of functionality, Karma. And Karma had top mobile design talent -- something Facebook lacked. Win Fucking Win. Wall Street and the press were stoked about a potential new way of monetizing 1 billion users. Gifts was seen as an easy lay-up, and all the other gifting apps trying to build businesses over Facebook would be screwed. You could close your eyes and almost hear their valuations plummeting. We asked the question, "How many startups will Facebook Gifts kill?"

Right? Wrong. As we first reported, Facebook botched the Gifts launch. It immediately hobbled the things that made Karma great. Then last week, Facebook announced it would no longer be selling physical goods.

Lee Linden, Karma's founder, now of Facebook, told AllThingsD that this was based on user feedback. I have no doubt that's true, because I tried to both buy and redeem a gift via Facebook a few times, and it was a horrific user experience. That's like asking someone if they'd rather have a Subway sandwich or a punch in the face. If they pick the sandwich, it doesn't mean they love Subway.

Beyond that, the inventory of quirky gifts wasn't the same, post-acquisition. Facebook discontinued many of the hand-picked Karma items because its scale was so large, and it had to please such a big audience. What suits a large audience? Gift cards. The most vanilla gifting experience you could imagine.

While Linden has publicly defended the move, it has to sting for him. Pretty much everything he built has been systematically dismantled since the acquisition. I remember when he pitched me on the company at its launch and how much thought he'd put into it all: The user experience, the curation, taking the friction out of gifting. I meet a lot of entrepreneurs. This wasn't someone starting a company to start it, or looking for a quick buck. This was someone trying to solve a problem. I genuinely believe he thought Facebook would help him do that. Will Facebook help with gift cards sent over Facebook? Sure. But that's hardly the magic of what Linden and his team captured.

Someone else, please, do it. Do all of it. Because Facebook has just abdicated the pole position to do anything powerful and delightful with the biggest trove of birthday reminders in the world.

Angry as I am as a user, I don't necessarily fault Facebook. That's like hating the scorpion for being a scorpion. This is a massive company, and gifting wasn't going to move the needle immediately. The company has far bigger problems and priorities. And it shouldn't have been unexpected. Facebook rarely allows small companies it purchases to keep producing the apps they were making, rather it swallows the talent up to work on what Facebook wants them to work on.

And, legitimately, designing a product that a billion people like is a wholly different challenge than designing one that a few thousand hipsters in San Francisco and New York like. Like any ecommerce company, scaling Karma would have been expensive and logistically challenging in a crowded field. As we've detailed before plenty of companies have struggled relying on Facebook's platform for distribution.

Arguably these would have been challenges had Karma sold or not sold. Even if a billion people liked assortments of gourmet salt or Manhattan socks, the scale of Facebook represents a whole host of logistical challenges to moving these items around the world.

One could twist the failure around Gifts as another blow to Facebook. It's been accused of losing its innovation edge already after the launch of "Poke," the embarrassing rip-off of Snapchat that did about as well as Facebook Gifts, as well as the lackluster launch of Facebook Home.

But really, this is just Facebook being what Facebook has become: A big company that buys things and kills them. I've even lauded Facebook for doing this effectively, and keeping the talent in the past. Maybe if we're being cynical, these companies buy things in order to kill them and take out a potential threat. But that's likely not the case with Karma -- it was tiny, and the problem was that too few people, like me, were obsessed with the app.

I get it. I've seen it a jillion times before just like any early adopter. I get it.

I just wish if Facebook was going to monetize birthday wishes with something as lame as gift cards, it wouldn't have destroyed one of my favorite apps in the process.