PayPal aquires Honey for $4 billion

Being in the marketing tech industry, I am a keen observer of the latest happenings and generally also have a view on those. A few days back, PayPal had announced its aquisition of Honey for a mind boggling $4 billion. In this article I will try to deconstruct Honey, how it made money and what does PayPal stand to gain by acquiring Honey.

Honey’s offering – best coupon for your cart

Honey offered an interesting, yet very simple browser extension ( it also came out with a mobile app) product that allowed customers an ability to add a coupon to their cart basis the products in the cart. Coupon unavailability is one of the main reason cited by shoppers for cart abandonment.

A browser extension that allows you to save money is usually an easy sell with users. However, a browser extension is more than what it seems as it’s able to record your browsing habits even for sites not covered under its primary use case ( in this case coupon). What this means is, that as a user who has a browser extension installed, you are unknowingly sharing a lot of data with the extension. Some of the information that a browser extension can have access to are

  • Your IP address ( which means your telco, your city, state, country etc )
  • Your latitude and longitude ( your location)
  • Sites you visit. When do you visit them. (How often you visit them), how long do you stay on a site / page etc…
  • Which products do you buy. Do you have any specific preference of e-commerce site and product or a category of products. For example, you buy groceries from Walmart but electronics from Amazon.

How does Honey ( and others like Honey) make money?

Honey’s core service is around finding the best coupon for you. Which means, irrespective of where you land on the e-commerce site from, if you apply a coupon using Honey ( or a coupon provided by Honey), it will press a claim for that sale and take an affiliate fee. This fee is usually a percentage of the sale amount. Given the last mile nature of this attribution model, Honey will always stand a higher chance of getting the attribution.

Here is how it works:

  1. User lands on the e-commerce product page. Honey and likes do not care ( for their monetisation) where you land from.
  2. User uses the browser extension to apply a coupon and makes the purchase.
  3. Ecommerce company gives the attribution for the purchase to Honey.
  4. Honey collects cash from e-commerce company as per the agreed payment terms.

Why does PayPal care about this?

Well, PayPal has tons of users who use its payment services and it has quite a lot of merchants now. Payment processing is a commodity in today’s age and if PayPal is able to keep and grow its merchant side, it can make the merchants pay for not just payment processing but also collect affiliate fee from them. It can even use the intelligence and data acquired through Honey to not just send right kind of offers to right kind of users, it can even push merchants to build specific offers for specific users. This is the kind of insight that merchants usually don’t have any insight about but might not mind paying for(?), if it helps them increase net revenue and order count.

In its press release, PayPal says that this acquisition is purely about consumer side. While I would have loved to agree with that, but given the quantum of money involved am of the opinion that this needs to cut through both sides. That is, there should be a merchant side story as well, something that PayPal might not want to say out in the open, given the fact that any merchant side story about Honey will inherently mean playing with data.

At the time of acquisition, Honey had 17 million MAU ( monthly active users), which is in my view not a huge number and at a payout of $4billion, PayPal paid around $235/MAU ( that’s a lot). Honey’s audited revenue was at $100 million last year and it possibly grew 100%. At $200 million, it’s still 20x revenue that PayPal paid for Honey.

I will write more about this in future whenever something around this comes up. If you have any thoughts or questions on the opinion I have written above, feel free to comment.

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