How does Honey make money?

By   |   Verified by Andrew Boyd   |   Published 23rd April 2022

How Honey Makes Money
  • Honey is a browser extension that searches the web for discount codes and coupons to save your money at online checkouts.
  • Honey partners with more than 30,000 retailers across every shopping category.
  • Honey makes money by charging its partner's affiliate commissions when a user redeems a discount code or coupon through its platform.

Ryan Hudson and George Ruan founded Honey in 2012, with headquarters in Los Angeles. Ruan had plenty of experience in guiding startups through their exit strategy. PayPal acquired Honey in late 2019 for $4 billion in cash, making it the largest acquisition in the LA tech market.

Hudson came up with the idea for Honey after searching online for a discount coupon when ordering a pizza. Ruan and Hudson invested $50,000 into the project, building a working prototype in just 6-weeks. Honey reached the billion-dollar mark in savings for its users in 2022.

What does Honey do?

Honey partners with over 30,000 brands and online retailers across several categories like tech and electronics, groceries, travel, consumer goods, fashion, and more. The company offers a browser extension for Chrome, Firefox, Edge, Safari, and Opera users. It also provides mobile apps for iOS and Android users.

Honey scrapes the web for discount coupons and codes when a user enters the checkout phase of the buyer journey. The extension also compares pricing from sellers on Amazon, providing the user with the best price for the product on the site.

Honey states its users receive average annual savings of $126 on their online purchases, with an average discount rate of 17.9% per transaction.

How does Honey work?

To access Honey, users must download the browser extension for their OS. You also have the option of using the dedicated iOS or Android app. When the buyer enters the retailer's checkout, the app automatically scans the internet or website for coupons and discount codes relevant to the purchase.

The search takes seconds, issuing the user with the best discount code it can find for the product or service. Honey automatically applies the discount to their purchase when the user checks out. The primary advantage to the user is that they don't have to spend time locating discount codes of coupons online, saving them time and money on their transactions.

Honey users can sign up for the "Honey Gold" service, where they earn Honey's dedicated cryptocurrency as a reward for using the app or browser extension. Users can cash in their Honey "Gold" tokens for digital gift cards.

Honey gift cards are redeemable at any of its 5,500 partner retailers online. Some of its partners include Home Depot, eBay, and Microsoft.

How Honey makes money

Honey makes money by charging its partner's affiliate commissions for bringing them business. Let's look at the affiliate structure in detail.

Affiliate commissions

Honey earns a commission from its partners every time a user redeems a discount code or coupon through its app or browser extension. The partner pays Honey a percentage of the transaction value based on its contract negotiations with the partner.

Typically, this amount is between 0.5% to 10%, depending on the transaction volume Honey brings the partner. Luxury goods may have to pay a commission of up to 20% on the sale value.

Honey doesn't work together with its merchant partners. Instead, it uses an affiliate network. These networks are platforms acting as representatives on the company's behalf. Honey works with more than 20 affiliates, including Groupon, Rakuten, eBay, Commission Junction, and many others.

The company developed free tools for customers to search for discounts. This model and its cashback program drive more user growth to the platform while enhancing customer retention and brand awareness.

Future growth

PayPal's acquisition of Honey for $4-billion was the biggest deal in the LA tech industry at the time.

PayPal began to integrate Honey into its product ecosystem to add utility to its platform and value to its gigantic user base of 392 million shoppers.

In late 2021, PayPal announced Honey users can redeem their rewards directly through the PayPal site, adding convenience for its user base.

Competitors

Honey competes with other online rewards programs and cashback apps. Some of its biggest competitors in the shopping cashback space include the following companies.

  • Rakuten (formerly eBates)
  • Fetch Rewards
  • PriceRunner
  • Karma
  • StormX
  • Lolli
  • Savings.com
  • Shopper.com
  • ibotta