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Karma: a 4G provider that rewards users for sharing their data plan with strangers

Karma Hotspot

"Something is fundamentally broken in the market for mobile providers," says Robert Gaal, one of the founders of Karma, a startup that just graduated from the TechStars NY accelerator program. "We want to give everyone a mobile, 4G hotspot that lives in their pocket. It's open to everyone, and lets you pay as you go. Best of all it works no matter what carrier or what device you're using."

The Karma hotspot costs $69 and is powered by Clearwire's network, which provides WiMax 4G service in 80 major US cities. Users pay $14 per gigabyte of data they use, with no monthly fee or minimums. The twist is that Karma makes your hotspot into an open Wi-Fi network. When a new user joins, they are taken to a personalized page about the owner of the hotspot. Strangers can then sign in with their Facebook account and get 100MB of free browsing. For every user who does that, the owner of Karma gets 100MB of free data credited to his account. The company calls this "social telecom."

Today the company announced that it raised a little under $1 million from a group of venture capitalists and angel investors including Werner Vogels, Kal Vepuri, Chang Ng, Jerry Neumann, David Tisch, David Cohen, BOLDstart Ventures, 500 Startups, and Collaborative Fund.

It's an interesting time for Karma to enter the market, as the large mobile carriers are increasingly moving away from charging per call and text, their traditional streams of revenue, and becoming data wholesalers. Earlier this week, Verizon introduced its shared data plan, which provides unlimited talk and text, and also lets users purchase a single package of data they can share among their devices.

Nobody has done for mobile data what Dropbox has done for storage

The team from Karma travelled from Amsterdam to New York for the three-month TechStars program. "A decade ago, Europe was clearly the leader in cellular phones," said Gaal. "But now, with today's smartphones and tablets, America has emerged as the most mature mobile market."

A recent study found that the average smartphone user consumes 221MB of data per month. On Karma, that would work out to a monthly cost of $3.09. Verizon charges $50 for 1GB on its new shared plan and it charges users as much as $40 for each device they want to use beyond the first one. AT&T's mobile data plans charge $20 for 300MB of data and require a commitment of $50 for 5GB in order to enable the tethering that turns a device into a mobile hotspot.

While Karma has had talks with all the big providers, it won't reveal if it has any traction with bigger networks than Clearwire. The company has partnered with an ODM in Asia for the hardware and hopes to have 500 hotspots going in its first test market, New York City, by the end of the year. "Nobody has done for mobile data what Dropbox has done for storage or Google has done for email," says Gaal. "We are going to move the industry forward by creating a drop dead simple, user friendly way to consume mobile data."

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