It’s Free but then how does Honey make money?

Last week my sister and I were ordering pizza. Okay, she was demanding, and I was looking for ways to minimize the bill. I scrolled through the list of available coupons in search of that perfect one that would lighten my pocket!

Yes, I am frugal. It turns out I am not the only one who tries to save a few bucks here and there. In 2012, Ryan Hudson was also trying hard to find a coupon to save himself at least a dollar on his dinner-time pizza.

At that moment, he realized how much time he had spent just searching for the right coupon. He thought there ought to be a better way, as it turned out, there was. That night, Ryan Hudson built a simple web browser extension to apply the eligible coupons or discounts during checkout automatically.

In 2012, Ryan Hudson and the co-founder George Ruan invested $50,000 each to develop the first working prototype. However, one of the engineers “accidentally” pre-launched the prototype by posting the extension on Reddit. Though it was not the same red-carpet launch planned by the founders, it was a success, nonetheless.

Founders reflected on the pun and positive conversation we have when we shop – “Honey, buy me this.” And thus, they named their company Honey. Honey saved tremendous time for buyers; for Honey, this meant leading in the online deal sites industry.

Honey’s olden days – Investment journey

During 2012-13, Los Angeles-based Honey garnered 200,000 users and partnered with 100+ merchant partners. The numbers looked impressive, but Honey was still not generating any revenue. Honey wasn’t getting commissions from the deals. On top of that, investors were wary of betting money on a desktop browser extension. 

With no foreseeable success, Ryan had to join OpenX as a product manager from 2013-2015. During that period, George kept the business running with a few core team members.

Things did take a turn of events when one of the users employed at Anthos Capital, a Silicon-based VC, gushed about Honey to its managing partner Bryan Kelly. Anthos later became one of the early investors of Honey. Honey ramped up hiring and signed flourishing deals with several merchant partners with a steady cash flow stream. Honey raised $49 million from key investors such as Anthos Capital, Plug and Play, Cendana Capital, and others. during its early funding stage.

How does Honey work?

Honey is a free browser extension that makes you save money online. Honey is available on Chrome, Microsoft Edge, Safari, Firefox, and Opera. Once installed, you can continue shopping on your favorite site.

During checkout, Honey will search for the most money-saving discount deal available on the net and apply the coupon on your behalf. So, you have saved the extra time and effort in scanning the web for a legitimate coupon or promotional deal, and Honey got paid for its free service.

Wait, did I say paid for free service?

Yes, you read it right. Let’s understand the working of Honey more closely and how does it make money if it’s a free service for users?

On a side note, Honey sponsors a great deal to Youtubers such as Mr. Beast and others to market its product and services.

So how does Honey make money?

One word: Affiliation

Every time a buyer buys a product via Honey’s extension, Honey gets a commission fee from the retailer. As per the company, it gets 0.5% to 10% commission from its partner merchants. In case of a high-end purchase, such as a luxurious fashion product, it charges up to 20% commission fees.

Honey has partnered with more than 30,000 retailers across the industry, from electronics to pizza delivery. Thus, there is a high probability that a buyer would get good deals on most products across websites. It is interesting to note that Honey works with 20+ affiliate networks or platforms such as eBay, Pepperjam, Impact, and many more, and not with the retailers directly.

Once a buyer has completed their purchase leveraging Honey’s services or coupons, the retailer pays the commission to Honey for influencing the buyer to make the purchase. You see, Honey entices the buyer to complete the payment by giving great deals, and it also reduces shopping cart abandonment for the retailer.

Now you exactly know how does honey make money!

Honey is not a coupon deal company, but much more.

As I write this article, Honey chrome extension enjoys a spectacular 10 million+ downloads, around 17 million members, and 160,000 reviews.

Honey has targeted the e-commerce space intensely. Honey understood early in its journey that consumers look for ways to save as much money as possible.

Honey has evolved its offerings over the years by innovative and accessible features.

Amazon Price Comparison: Honey compares sellers on Amazon and finds a similar product at a lower price. If Honey can’t find a lower price, it notifies its users that this is the best deal they can get.

Price History: Honey tracks the product pricing on Amazon for over 30,60, 90, or 120 days. It helps users to make an informed decision whether to buy the product right away or wait further.

Droplist: A handy tool that compares prices across Amazon, Macy’s, Target, and Walmart. If the buyer wants to purchase a product at a lower price, they can add it to the droplist. Honey will monitor the product for 30, 60, 90, or 120 days and notify the buyer via email when the price drops. The best part is that there is no limit on the number of items added to the droplist. The not-so-good part is that this feature is limited to US merchants only.

Honey Gold: This is Honey’s cashback and rewards program. The company rewards its customers by giving a small commission as Gold currency (not literally), redeeming as gift cards in selected participating stores.

Gift Card: This one is Honey’s latest offering! Honey creates an instant gift card of the ordered amount. This card can be purchased from Honey for less and applied when the buyer buys the product.

Advent to Mobile Space – Originally a web browser extension, Honey has now entered mobile space too. Now users can add products from different sites to a single cart. As Honey states – the extension goes with you. The app brings everything to you.

Honey claims that its members save an average of $126 yearly while getting a 17.9% average discount rate.

Honey becomes PayPal’s biggest acquisition.

Did you think that clipping coupons could never turn into a mega fortune? Well, this was proved wrong in November 2019 when FinTech giant PayPal announced its plans to acquire Honey for a handsome $4 billion, that too in cash!

For Paypal, this is largely about growing and driving engagement of its checkout and overall ecosystem, both for merchants and customers. pic.twitter.com/bnxqq8MPIq

— Tanay Jaipuria (@tanayj) November 21, 2019

Both Hudson and Ruan pocketed $600 million and $900 million, respectively. But why did PayPal pay an eye-popping $4 billion for a coupon browser extension?

Well, the answer is data. The whole acquisition was for the power of valuable data. The billion-dollar deal gave PayPal access to consumer’s buying habits. Honey is a company that is driving e-commerce. With its lucrative deals, Honey has influence over what people buy and from where do they buy. With PayPal x Honey, it can influence people how to pay for the purchase.

Deeper reach to consumers: Before Honey’s acquisition, PayPal had no idea of the customer’s journey to the payment stage. As stated by PayPal –Honey will enable PayPal to reach consumers at the beginning of their shopping journeys. With Honey’s arrays of services and rewarding programs, PayPal will assist its merchant in acquiring and converting consumers by curating hyper-personalized and optimized deals. PayPal now stands tall from the beginning to the end of the customer’s buying journey.

In 2018 alone, Honey helped millions of people save more than $1 billion.

Building on Belief: With its robust following and customer’s faith in Honey’s ability to uncover the best deals have made Honey a league apart. Furthermore, Honey has maintained strong relationships with retailers and brands, who have contributed to its success. Both- Honey and PayPal can fly high on Honey’s loyalty trait for PayPal’s extensive network of 275 million consumers and 24 million merchant accounts.

Automatic Integration: We can soon witness the integration of coupons with payment apps. Cashback, rewards, and loyalty programs will be accessible in PayPal wallet.

FinTech giants such as PayPal and Goldman Sachs are already speeding up to get into the game. In September 2020, The Wall Street Journal reported that redemptions of digital coupons in the US had surpassed the paper coupons for the first time in history. The drastic shift was due to the Covid -19 pandemic when every company started to rethink its marketing strategies to garner more digital deals and ways to retain online customers.

During Covid-19, around 80% of shoppers have actively looked for coupons or promotional deals. Consumers are willing to move to new brands if they are getting the product at a lesser price. Hence, it becomes paramount for the e-commerce and payment industry leaders to reimagine ways to maintain traffic and retain customer loyalty.

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