When budget-strapped Ryan Hudson was searching for a discount online to buy pizza for his two sons in October 2012, little did he realize that his intention to trim cost would turned into a company, Honey Science Corporation, that he founded with George Ruan to develop a browser extension to automatically search for promotional discount codes and apply them to online purchases. This utility tool became viral with 900,000 Reddit members downloading the extension during a beta testing phase.
The company today reports saving $126 annually on average per person and has attracted 17 million active users shopping at more than 30,000 merchants. On Nov 20, 2019, PayPal’s $4 Billion cash acquisition of Honey marks the largest technology investment deal in Los Angeles.
PayPal enters the space of consumer engagement with Honey
Dan Schulman, President and CEO of PayPal states: “Honey is amongst the most transformative acquisitions in PayPal’s history. It provides a broad portfolio of services to simplify the consumer shopping experience, while at the same time making it more affordable and rewarding.” This alliance is mutually beneficial. PayPal gets closer to its consumers by adding value from the start of the shopping experience with easier product discovery, price-tracking services, and automated discount services brought by Honey.
The combination of both PayPal and Honey services can increase the conversion rate of PayPal merchants that have suffered from shoppers who have abandoned their shopping cart. Finally, Honey, that focused up to now on the United States market gains an international platform with 24 million merchants and an exchange that handles 100 different currencies.
Sharing the vision of bridging consumers and merchants
This acquisition seals the alliance of two like-minded organizations. PayPal and Honey both engage merchants and customers and share the same objective of creating an enjoyable and friction less online experience with applications that are technology and platform agnostic. The Honey tool installs with two clicks onto any device that operates Firefox, Google Chrome, Microsoft Edge, Safari, or Opera. Honey tirelessly searches for all discounts available online and tries them out to find the best deal whether the least expensive vendor or the best coupon that can help the online shopper pay less for a product. Honey charges retailers between 0.5%to 10% of the sales using the coupons the app found. Similarly, PayPal applies a fix-fee and percentage-fee paid by the vendor for each financial transaction facilitated.
Intermediaries for a Win-Win transaction
PayPal cannot earn the transactional fee if the buyer does not complete a purchase. Honey brings some relief to a large pain point of the e-commerce industry. Seven out of ten online shoppers who start the checkout process abandon their shopping cart, according to a study by the Baymard Institute. For more than half of the individuals who stopped, the extra costs of tax, shipping, and added fees discourage them from completing the transaction. Honey’s browser extension may bring up a coupon to offset the added cost and help the shopper overcome the shock of those costs.
Both aim for friction less experience
Even if a discount through Honey sweetens the purchase, the buyer may still step out from the process. The e-commerce statistics show that 30 percent of customers walk away because of the burden imposed by the checkout process. PayPal has refined the art of shortening the path between selecting an item and paying for it. The seamless experience is enabled by Artificial Intelligence (AI) that observes shopper’s payment preferences. PayPal reports an 82 percent conversion rate with their Smart Payment Button that dynamically displays PayPal, Venmo, PayPal Credit, or other options right on the merchant site without the shopper being taken to another popup window to pay.
Interest driven versus promotion driven experience
Coupons have typically been used as incentives to attract customers to an online store. Honey positions coupons differently. Online customers equipped with the Honey app have an online advocate that acts as a penny-wise companion looking for opportunities while the viewer continues browsing. Honey casts a net that transcends store loyalty and pays attention to the add-on costs. It brings all shoppers to the same level of awareness of the best opportunity of the moment.
Also,for a shopper who placed items in a cart but did not follow through with a purchase, the app runs analytics tracking price history and then notifies the shopper of new discount opportunities that come up later. With Honey on board, PayPal has a chance to fulfill transactions postponed by customers who want a better deal.
Ryan Hudson wrote the first strands of the code that led to the Honey app on the same evening as his frustrating hunt for a promotional code online for a pizza. This clear understanding that “things have got to be easier” is the same wind that fuels PayPal’s strategic vision. In this journey toward creating the best online customer experience, the PayPal / Honey deal makes many happy.
Honey, who was snubbed by established large investors, raised $49M in venture funding from smaller seed-funding supporters such as Anthos Capital, Bam Ventures, Cendana Capital, Citi Ventures, Mucker-Capital, Ludlow Ventures, Plug and Play, and Wonder Ventures. This $4 Billion synergistic alignment is 81 times larger than the original investment. This is a modern-day rag to riches story that will inspire any entrepreneur.