How Does Honey Make Money If It’s Free?
Before we dig into how does honey make money if it’s free, let’s first briefly outline what honey actually is?
Honey is a browser extension that helps you use coupons, deals, and promo codes in a more efficient way. The app works by scraping various coupons and deals online, and when you want to buy something from a particular store, it automatically applies a previously scraped coupon or promo code.
With Honey, you can save a lot of money. But, how does Honey make money?
In a nutshell, the platform generates its revenue through commissions which are charged whenever you redeem a coupon. They also share their commission with the Honey users via the cashback program. Lastly, the app also notifies its users about price drops and provides other valuable data that will help them utilize deals in a better way.
What is Honey?
The main advantage of the Honey browser extension is that it does all the dirty work for you. Previously, a person would have to spend lots of time searching for deals, promo codes, and coupons. Nowadays, the app does all of that for you.
Furthermore, Honey instantly applies these scraped coupons when you wish to make an electronic purchase. They work with more than 30,000 retailers spread across numerous industries, which gives users numerous options.
No matter how much you like coupons and collecting them, Honey will always do a better job than you. In other words, you will never miss an offer that a company has when you use the app. There is also Honey Gold that allows you to earn additional perks just by buying from a certain store (even if there are no coupons involved).
This app is completely free. You can get it directly from Honey’s website, or you can go to a web store of a specific browser (for example, Chrome Web Store or Firefox Browser Add-Ons).
How to use Honey?
Like any other extension, Honey will appear in the extension section of your browser (upper right corner on most browsers). You will notice a letter H. If the icon turns orange, this is a sign that a specific web store supports the app. When the tool scrapes coupons, a green box will appear on top of this icon.
Keep in mind that for certain browsers, you will need to set up Honey so that it’s visible. Otherwise, it will not be shown on the bar even though it is installed.
There are small variations as to how the app is shown within different web browsers. For example, if you use Safari, it will be shown on the left side, and the coupon icon will be red instead of green. Generally speaking, the Honey extension is very intuitive, and you will quickly get a grasp of it.
Furthermore, even if you’re not looking at the icon, the window will pop up notifying you that there are coupons on a website. By clicking on Apply coupons, the tool will check all the promo codes and coupons. Once you make a purchase, the app will automatically apply a coupon with the biggest savings to that order.
Another great thing about the Honey app is that the tool will notify you if there are some other codes with a bigger discount, besides those that the app scrapped.
Now, before we talk about how does Honey extension make money, let’s say a thing or two about the company’s history.
The company was established back in 2012 in Los Angeles. Nowadays, this is not just the best coupon app in the world but one of the most sought-after browser extensions. In 2019, PayPal bought off the company for $4 billion, making it the largest tech sale in LA’s history.
It was created by George Ruan and Ryan Hudson. Honey’s concept was invented one day as Hudson was buying pizza online. He was searching for discounts and coupons but couldn’t find any. Both Ruan and Hudson invested $50,000 into the idea, and the first prototype was developed in the next 6 weeks.
Honey was leaked into public when one of the engineers left a link on Reddit. This was the company’s way of testing the app before the real launch. As expected, the software quickly gained traction via Reddit, and within its first year, it attracted 200,000 users. They also managed to attract the first 100 merchant partners.
Unfortunately, even with all these users, the company was still not making profits. Another problem was the fact that the potential investor didn’t want to invest in the idea. However, the owners continued working through these problems as they simultaneously increased their user base.
In time, the company managed to secure its investment money, and it also hired a few experts that would help propel growth. As more and more merchants flocked to the brand, it became easier to commercialize, which eventually led to PayPal buying off Honey for $4bn in 2019.
Honey’s mission and core values
According to the company representatives, it is their mission to make the world more fair by providing users with information that would allow them to make the best possible financial decisions.
Company management focuses on providing people with tools that would allow them to find the best savings and value. They wish for their products to remain free and available to everyone. On top of that, they rely on an easy-to-use concept so that all consumers can use the app regardless of their technical knowledge.
Honey’s basic values can be summed up in 7 principles:
1. Seek the core principle
The company focuses on underlying features and product specifics to uncover the basic truths.
2. Always do right
Honey wants to remain true to its principles by putting users first ahead of potential financial gains.
3. Be clever
The company utilizes all resources at its disposal. They try to apply everything they have and everything they know in order to create a better service for the clients.
4. Build things you can be proud of
As you can presume, they want to create solutions that help people.
5. Make people around you better
The creation of the app and features is just the start as the company wants to focus on its employees and their personal progress as well.
6. Own the outcome
No matter what happens, make sure to learn from your mistakes and better yourself.
7. Progress without a limit
The company representatives want to push things even further to the limit. Once you reach the limit, real progress starts happening.
How does Honey make money?
So, how does Honey app make money?
Whenever a person redeems a code, the company is able to earn via affiliate commission. In other words, the merchant who made the sale will pay a percentage of their revenue as a fee.
The commission will vary based on the deal that the merchant and Honey signed. In most cases, this fee will range from 0.5 to 10% but, in the luxury category, it can go all the way up to 20%.
An interesting thing about the company is that they don’t necessarily work with a merchant. Instead, they rely on affiliate networks that function as intermediaries. Every affiliate network works with numerous brands by providing them marketing support. They will perform various promotional activities and manage the relationships with affiliates.
At the moment of writing this article, Honey cooperates with 24 affiliate networks. Some of the biggest ones include:
- Webgains, etc.
Honey also offers a cashback program and has its own set of tools meant to help retain customers. They are very proactive regarding their growth and experiment with various marketing channels. Among others, they performed a major YouTube campaign that initially helped them gain exposure.
One of Honey’s neat features is Droplist. This tool allows you to compare prices on Amazon. So, if the software finds a better offer for a particular item, you will get an instant notification. We also need to mention Honey Gold that allows the company to share its profits with users via cashback.
What is Honey Gold?
Basically, Honey Gold is the company’s way of retaining customers through additional incentives.
It is a reward program that gives users “Gold” currency. With Gold, you can claim a gift. Keep in mind that you won’t always get Gold; you only have a chance to get it when purchasing from certain shops.
You can get the currency based on your purchasing subtotal. In other words, Gold is calculated on the basic item price without including tax and other fees. The feature is not available on all sites. You will be able to see in your extension if a store allows this Honey feature.
Before you make a purchase, make sure to activate the function by pressing the Activate button. Once you put all the items into a basket, you will have to click on the Apply Coupons button at checkout. This will immediately activate Gold rewards. Then, the app will apply the best possible coupon, which will, besides the coupon discount, also give you a chance to get the currency.
When you make the purchase, you will notice that the Honey Gold transaction is pending within the platform’s Account Overview. You should get the currency within the next 2 to 14 days. Keep in mind that Gold is only available for certain items. There will be an exclusion list that will give you more insight as to which products give you the currency and which ones don’t.
Honey’s Gift Card deals
One of the company’s latest inventions is Gift Card deals. As the name implies, this feature allows users to get gift cards based on a specific purchasing value.
Interestingly enough, a user gets a discount when purchasing a gift card. In that sense, you also get a discount when you ultimately redeem the card. Just make sure to click on the option that would allow you to use it upon checkout. You will also need a gift card number and a valid PIN.
Basically, the discount that you get as a user comes from the merchant’s pockets. They are willing to provide these gift cards with a discount as a way of promoting their goods and making more sales.
Although a gift card is connected to a particular store, you are actually buying it from Honey. This feature is a bit different from coupon codes, but both of them are meant to save you money. Furthermore, you can utilize both a gift card and a coupon in the same store, thus getting a double discount.
The Gift Card feature is different from Honey Gold. While Honey Gold is connected to virtual currency, Gift Cards are purchased for money. Also, unlike Honey Gold purchases, gift cards come with a discount. If a store has the feature, you will be notified via a pop-up screen.
Using Honey and PayPal
Given that Honey was bought by PayPal, it makes sense that you should be able to use these two apps together.
You can use a PayPal account for Honey. Whatever type of a transaction you’re performing, whether it’s a purchase or cashback, you can utilize PayPal as the primary means of payment. It makes everything that much easier.
Although some users are worried about the potential privacy breach, the company ensures us that using Honey and PayPal together is completely safe. Unlike some other apps that use private data, Honey has not experienced any breaches, so it should be safe to use these two SaaS together.
Honey’s financial figures
According to data provided by Crunchbase, the company has managed to raise $31.8 million over time. They went through a total of 4 venture capital rounds. Some of the investors include companies like Wonder Ventures, Plug and Play, Cendana Capital, etc. All in all, they had 14 investors in total.
The last time the company was evaluated was prior to being bought off by PayPal. As already mentioned, PayPal was willing to buy it for $4 billion. While this may seem as a lot for a Google Chrome plugin, let’s have a look at some details:
- As you can presume, the company is still growing at a rapid pace. It has an average growth of 100% in the last few years. For example, in 2018, it managed to generate revenues of approximately $100 million (according to PayPal investors call).
- At the time of PayPal’s purchase, Honey was dominating the coupon plugin market. It had 10m+ users, while its closest competitors had much less. Wikibuy had around 4.5m and Ebates 3m.
- Honey’s user base is very active with over 14m monthly active users at the time.
- At the time Paypal was trading at around 7x EV/2019 Revenue. Now PayPal stands at 13x EV.
- Let’s assume that Honey did not stop its growth and was looking at a $200m revenue in 2019. That would mean that PayPal bought it for 20x EV.
- That may seem like a lot, considering that Rakuten bought Ebates for 6x EV. Now let’s imagine that Honey maintained its growth trajectory in 2020. That would mean that PayPal essentially paid 10x+ EV.
- This number doesn’t take into consideration the potential synergies that Honey has with PayPal, so the final “internal valuation” might be even better.
Other Business Models
Here are a couple of posts on business models of other companies, explaining how they make money:
- How Does Zoom Make Money – Zoom Business Model
- How Does Discord Make Money – Discord Business Model
- Venmo Business Model – How does Venmo Make Money
Honey is an app (or a plugin) that helps you to quickly find discount coupons and apply them to your purchase.
Honey acts as an intermediary between a potential client and seller. They ahve many varieties of discounts that they can apply, saving its users money while also making money for themselves in the process.