Honey Business Model | How Does Honey Make Money?

Honey receives affiliate commissions from merchants when consumers discover savings and make a purchase.

Honey also earns money from its Honey Gold program, which earns a fee when a customer visits a partner store and provides members with a digital coupon to use at checkout. PayPal purchased Honey for $4 billion in cash in 2020.

What is Honey?

Honey is a browser plugin that scrapes the web to find its users the best offers. The business partners with over 30,000 retailers in various sectors, including apparel, electronics, and travel.

Honey earns money from affiliate fees on each coupon redeemed through its extension.

Honey, founded in 2012 and headquartered in Los Angeles, has developed into a market leader in the browser extension space.

PayPal purchased the company in late 2019 for $4 billion in cash, making it LA’s biggest technology exit to date.

How Does Honey Work?

Honey is a browser extension that searches the site for deals and coupons. As the consumer completes the checkout process, certain discounts are added automatically to the order.

The primary benefit to the customer is that he or she is not required to spend hours searching the web for coupons. Subscribing to and using Honey is as clear as it sounds.

To begin, the user downloads the extension from the Chrome, Firefox, Safari, Edge, or Opera browsers. The customer then continues to browse for whatever product he or she wants.

Following that, when you reach the checkout page, click on the Honey extension and allow it to search for the best deals on your behalf. If it discovers a suitable deal, it will choose the one that offers the greatest savings.

Honey collaborates with over 30,000 retailers across various categories, including apparel, electronics, groceries, and travel.

Additionally, users can save desired products within the extension and be notified via the Droplist function when Honey discovers a discount for that product. Additionally, the extension compares prices across various Amazon sellers and displays the lowest price for any given product.

Finally, users can enroll in Honey Gold, enabling them to win a digital currency (dubbed Gold, if you hadn’t guessed) and redeems it for gift cards. The gift cards are redeemable at over 5,500 participating merchants, including Microsoft, eBay, and The Home Depot.

If you’re not a fan of using a desktop laptop, Honey also offers smartphone applications for Android and iOS.

Honey reports that its customers save an average of $126 a year on average while receiving a 17.9 percent discount on each order.

History of Honey

Honey was founded in 2012 by George Ruan and Ryan Hudson in Los Angeles. Before founding Honey, Ruan was instrumental in the exit of several startups, both as an employee and a founder.

Meanwhile, Hudson, who earned his undergraduate degree from Cornell and later added an MBA from MIT, took the safer path.

He worked in various technology and venture capital-related roles, including analyst, associate, and project manager, across various industries.

He founded his first company, YouShoot, in the mid-2000s. It pioneered the nation’s first event-specific digital camera rental service.

Consequently, Business Week called him one of the “Top Young Entrepreneurs In Technology” in 2005 – alongside Facebook founder Mark Zuckerberg.

Hudson came up with the idea for Honey after attempting to order pizza for himself and his children. He searched for a suitable coupon on the internet but was unable to find one.

Hudson and Ruan invested $50,000 each in the company and produced a working prototype in less than six weeks. However, the app’s launch was not as sweet as Honey’s.

Honey was released “accidentally” when an engineer hired to assist with bug testing the technology posted a connection to the extension on Reddit. Although the launch did not go as planned, it was nevertheless successful. 

Honey got more than 200,000 users and close deals with over 100 merchant partners within a year of its launch. However, the team was not yet profitable and was selling its discount offers for free at the time.

Additionally, no investor was able to invest in the startup. At the time, most venture capital funding was directed toward startups focusing on mobile commerce (such as Poshmark).

The idea was that everything that could do in the desktop space had already been done and that the market was effectively saturated.

Due to a lack of funding and revenue, Honey was forced to get creative with its cost structure, resulting in Hudson finding work once more. From 2013 to 2015, he worked at OpenX as a product manager.

Meanwhile, Ruan was attempting to keep the company going with the assistance of a few current team members and interns. The founders

However, as with any other prominent entrepreneurial tale, perseverance is often the determining factor in success. The founders continued to refine the product and grow the platform’s user base over the next few years.

Among them were workers at Anthos Capital, a Silicon Valley venture capital firm, who regularly used the app and raved about it to managing partner Bryan Kelly. Anthos was the one who approached Honey and became an early investor in the venture.

Honey was able to make a few crucial hires with the additional funds, propelling the organization to new heights. Their Head of Partnerships, a seasoned industry veteran, negotiated lucrative agreements with hundreds of merchant partners.

Additionally, the extension’s continued development facilitated many of Honey’s interactions with merchants.

In essence, Honey was often able to increase a merchant’s likelihood of making a profit by incentivizing consumers to purchase discounted items.

Honey’s rapid growth resulted in the largest startup exit in Los Angeles history. PayPal revealed in November 2019 that it would acquire Honey for a whopping $4 billion in cash.

Hudson and Ruan benefited handsomely from the contract, pocketing $1.5 billion (Ruan earned approximately $900 million, while Hudson pocketed $600 million).

Despite the company’s remarkable rise to prosperity, it faced a few additional impediments along the route. In 2018, rival RetailMeNot sued Honey for alleged patent infringement, alleging that Honey plagiarized portions of its technology stack.

Additionally, immediately after the acquisition launch, Amazon issued a statement advising customers to uninstall Honey. The e-commerce behemoth cited “intelligence concerns,” claiming that user data would be at risk.

Interestingly, Amazon has its brand of Honey called Amazon Assistant, implying that conflicting agendas are at work here. Additionally, the company has shown in the past that its fears about user privacy are, at best, a pleasant public relations stunt.

Today, Honey boasts a monthly active user base of over 17 million through its various applications. The business employs approximately 700 employees across six offices in the United States and Australia.

If you’re wondering where the name came from, we often consult our significant other before purchasing. We’d inquire, “How will those Nike shoes look on me, honey?” – and the expansion of the business is a reflection of these conversations.

How Does Honey Make Money?

Honey earns money when a consumer redeems a coupon using their browser extension. Also, Honey earns from affiliate commission paid by Merchant, which is a certain percentage of the final sales price.

The affiliate commission is calculated based on the transaction between Honey and its merchant partner. According to the company, the majority of commissions vary between 0.5 and 10%.

Commissions can also hit up to 20% in higher-margin categories, such as luxury apparel.

Honey does not deal directly with merchants (for example, Nike) but with so-called affiliate networks. Affiliate networks are sites that serve as agents for other businesses. They assist with promoting their goods and managing the affiliate program (in this case, Honey).

Honey partners with over twenty affiliate networks, including eBay, Rakuten, Groupon, Commission Junction, and ShareASale.

The company has created a range of free tools and a cashback program to aid in the platform’s development and retention.

For example, Honey’s Droplist function compares prices across the Amazon website and notifies consumers when a better deal becomes available.

On the other hand, the company splits its commissions with its users through its cashback program Honey Gold. This encourages users to visit the platform more often.

Other businesses that rely on partner commissions have previously taken a similar approach. Credit Karma, which offers a free credit score update and various other complementary resources, is entirely funded by partner fees earned through supporting credit card companies and other financial institutions.

What is Honey Business Model?

Honey operates based on an affiliate marketing business model, in which a company receives a percentage fee on sales of a merchant’s product.

As part of this revenue-generating strategy, Honey receives a small affiliate fee if a user of the Honey service (coupon or Honey Gold) purchases from one of its partner merchant stores.

Honey users can “pull coupons directly from the affiliate network as well as monitor purchases, conversions, and commissions” using this model.

As a result, Honey adds value to its consumers through savings and cashback. Who, however, are these customers?

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Who Are Honey Customers?

Honey’s target market is the eCommerce space. Product and service consumers strive to save as much money as possible on any offering by locating the most cost-effective offers available.

Anyone who purchases an item from one of Honey’s partner merchants stores and uses Honey’s services by:

locating a valid coupon and adding it to the purchase before checkout, or

Redeeming Honey Gold, a special electronic currency issued by the company as a free incentive scheme for such transactions.

At the time of its launch, Honey only functioned as an automated deal finder. However, as time went on, it came up with more inventive solutions and deals to retain its customers and maintain its position as a major player in the coupon industry.

Core Values & Mission of Honey

According to the Honey website, its goal is to “make the world fairer” by providing “everyone with the facts they need to make the right financial decisions.”

As the company states, “we equip everyone with the resources necessary to find the best deals, benefits, and overall value.” And we make them completely free and easy to use. As a result, you can still invest confidently.“

The company’s core values are organized around seven guiding principles:

• Value the Core Principles: Meant “probing deeply into why anything is the way it is.”
• Make the right decision: As said, “We often place a higher premium on what is right for members than on profitability.”
• Decide Cleverly: A place where data and creativity are combined to solve members’ problems. Additionally, the company claims to remain “scrappy” as it scales.
• Create something that makes you happy.
• Improve the lives of those around you.
• Take ownership of the result.
• Increase indefinitely: As explained as “…we push ourselves to the limits of our capabilities before we experience discomfort.” That is the place where the magic occurs.“

What are the Key Products of Honey App?

Here is the list of key products of Honey App:

Savings Finder

Honey’s primary tool was the Droplist, which “automatically discovers and applies coupon codes on more than 40,000 popular websites.”

Honey’s proprietary browser extension discovers and aggregates the best offers for its users before making a purchase.

How does it work, then?

Before checking out, click on and run the browser extension to see if any available coupons are still valid. If a coupon is discovered, Honey immediately applies it and saves you money.

Honey Gold

Honey Gold is a point-based loyalty program users earn when making such qualifying purchases at participating retailer locations.

Customers can use Honey Gold not only to find the best deals but also to earn money. Honey Gold Program is used by partner stores such as Macy’s, Groupon, Walmart, and eBay.

The Honey Gold program displays the average percentage of gold received for each purchase made at a partner store (which opted for the Honey Gold Program).

After purchasing an eligible item, Honey Gold is added to the user’s account and can be exchanged for special gift cards.

You can exchange 1000 Honey gold points for a $10 gift certificate at participating retailers.

Honey Offers

Honey Offers allow you to earn Honey Gold when you purchase qualified products in partner stores.

Honey Offers display the amount of Honey Gold earned by a customer when they purchase from a partner shop.

Honey notifies the user via email that the gold has been added to their account if the transaction is complete.

It’s worth noting that a partner store can exclude some products from the Honey Offer. These exclusions differ by shop.

Price History

Price History demonstrates “how much an item’s price has fluctuated in the past,” allowing consumers to purchase at the optimal time.

Droplist

An alert or notification system that notifies the user when there is a price drop on the selected items.

Users may use Droplist to keep track of the prices of their favorite resources and receive timely updates when prices drop.

When a consumer adds a product to the Droplist, they also can select a tracking duration of 30, 60, 90, or 120 days and the desired price drop (say, 10 percent ).

Honey then notifies you via email when the price drops to the desired amount within the defined timeframe.

Amazon Best Price

A comparison app for Amazon that examines the rates charged by various sellers on the website.

Smart Coupons

Another money-saving feature is the smart coupon, which prompts or notifies users before checkout to take advantage of free shipping or higher net savings on additional transactions.

It works by sending a  notification or prompt to its user before checkout with an additional savings option (if any such offer is available). 

A consumer can add additional products to their cart to qualify for the discount, resulting in greater savings on their final purchase.

Mobile Application.

Honey also offers a full-featured mobile app that provides the same functionality as a browser extension on your smartphone.

Honey Branded Coupons

Honey-Branded coupons are those that Honey offers to its customers in exchange for the best prices.

A partner store can elect to create a Honey Branded Coupon to entice users to make a purchase.

Users must run Honey’s Savings Finder to redeem this coupon, automatically applying the Honey Branded Coupon during the checkout process.

Honey Tips

Honey Tips provides consumers with insightful analytical data about the Honey service available via a partner merchant shop.

When a customer enters a merchant’s store, they are presented with a notification window that contains general analytical data that helps improve the shopping experience.

Coupon success patterns, average savings, Honey Gold cashback rate, most recent active coupon codes, and eligible coupons are just some of the tips.

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Who are Honey Key Partners?

Honey’s affiliate marketing business model relies on the following main partners:

Affiliate Networks

Honey does not deal specifically with merchants. Other than that, it collaborates with its affiliate networks to generate coupons, monitor purchases, commissions, and conversions.

Some of the most popular affiliate networks that Honey works with are Groupon, Affiliate Future, eBay,  LinkConnector, Rakuten, and many more.

Partner Merchant Stores

The Partner Merchant Store includes merchant stores that partner with Honey to avail of its offerings like Saving Finder, Honey Gold, Droplist, etc. 

Honey works with 40,000+ partner merchant stores, including Macy’s, J. Crew, Lowe’s, Adidas, Stubhub, Ulta, Target, Myntra, Sephora, GameStop, Nike, Pizza Hut, Make My Trip, and many more.

Marketing Partners

It includes marketing platforms such as YouTube that help spread the word about Honey’s products to a targeted audience.

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What Benefits Does Honey Provide To Its Customers?

Honey’s powerful tools provide a wide range of benefits to its customers. The qualities that Honey provides to its consumers are as follows:

Save Money 

Honey Gold, Honey’s proprietary currency that converts to gift coupons for its partner shops, allows customers to save money using a working coupon found by Honey before checkout.

Track Prices 

Honey allows consumers to keep track of the prices of the items they add to an automated shopping cart called Droplist. They won’t have to go through the merchant store again to search for price drops; instead, they’ll only have to wait for a notification from the app.

Save Time

Honey eliminates the need to sift through a plethora of discount websites to locate the best offer – it automates the whole process and does the work for its customers on the backend, saving time.

Smart Purchases

Users can save even more money by getting prompts and updates that provide extra discounts, such as free delivery.

What is the Net Worth of Honey App?

PayPal announced the purchase of Honey for $4 billion in cash in January 2020.

According to PayPal, the inclusion of Honey in its platform enables the company to take a big step forward in its dedication to provide powerful services and resources for merchants and customers, expand beyond its core checkout proposition, and dramatically improve the shopping experience for its 300 million consumers and merchants.

What drew PayPal’s attention to Honey? There are many components, but one stands out.

Payment service firms such as PayPal usually interfere only at the end of the customer journey. They lack information and influence over the previous journeys taken by those individuals.

Honey enables PayPal to gain more insight into the deal discovery experience, potentially giving it a competitive advantage over other payment processors.

How much funding Honey Raised?

Honeyraised a total of $31.8 million in venture capital funding over four rounds of funding, according to Crunchbase. Wonder Ventures, Plug and Play, Anthos Capital, and Cendana Capital are among the notable investors in the business.

What is the Total Valuation of Honey App?

Honey was purchased by PayPal for $4 Billion in cash in 2020 and is valued currently a little above $4 Billion. 

What is the Revenue of Honey App?

According to PayPal CEO Dan Schulman, Honey generated approximately $100 million in revenue in the fiscal year 2018 while increasing at a pace of 100%. Meanwhile, Honey is already profitable.

Final Thoughts about Honey

According to Grand View Study, the global honey market is projected to reach USD 9.21 billion in 2020 and rise at an 8.2 percent compound annual growth rate (CAGR).

This astounding financial figure is credited to Honey’s creative solutions, which transformed the coupon industry and the way consumers redeem money-saving benefits.

After its acquisition by Paypal, Honey has garnered international attention to handling users’ personal details.

Honey has explained on their website, however, that their privacy policy remains in effect and that they remain committed to their users’ privacy.

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