Startup knows code for coupons

Ryan Hudson was trying to order pizza online for his two children when he was prompted to enter a coupon code at checkout.

Hudson knew better than to bother searching for a discount. His kids were hungry and he didn’t have time to scan the Internet for coupons that had either expired or didn’t apply to the cheese pizza he wanted to order.

“And then it hit me. Why can’t I just automate the process?” said Hudson, a computer engineer turned entrepreneur.

The software Hudson cobbled together that night would form the basis for a startup he co-founded called Honey.

The company offers a free extension for Google Chrome, Firefox and Safari that aggregates discount codes for whichever shopping site a user visits.

When it comes time to buy, the extension applies any code it finds that saves the most money. Since there’s no need for

customers to navigate away from a checkout page in search of coupons, shoppers who use Honey’s extension are 55 percent more likely to complete a transaction, the company says.

Honey’s extension works with thousands of online stores. The company’s 5 million users save an average of $32 a month. Users this year have saved $170 million, more than the $109 million saved all of last year.

Honey compiles information about the coupons that work and the ones that don’t through its users (kind of like how drivers feed traffic data to Waze). The company says it does not share that data with any third parties.

In addition to its extension, Honey operates a website promoting shopping deals, which garners 10 million unique monthly visitors.

“We see a lot of opportunity to make it easier for people to shop across stores,” said Hudson, 37, who started the company in 2012 with George Ruan. “There hasn’t been anybody helping the average consumer solve this problem.”

The company makes money from commissions earned by directing users to specific merchants. Honey splits those commissions with users who sign up for a no-cost rewards program called Honey Gold.

Hudson and Ruan scraped together $100,000 to start the company, but have since raised $40.8 million in venture backing — most from a previously unreported $26 million Series C funding round in March led by Anthos Capital.

Bryan Kelly, managing partner at Anthos, said Hudson and Ruan never pitched the startup to his firm. Rather, Anthos employees discovered Honey because they were hooked on the extension.

“Their approach is genius,” Kelly said. “They’re not asking the consumer to do anything other than save money. The experience is frictionless.”

Hudson and Ruan said Honey is profitable, but declined to disclose its revenue.

Honey currently offers discount deals for 21,000 online merchants. About 9,000 of those merchants pay Honey commissions for delivering sales, including Macy’s, Target and Walmart.

Amazon, however, isn’t one of them — and that represents Honey’s biggest risk. The online retailing giant currently commands 37 percent of all U.S. e-commerce sales, according to Needham & Co.

By 2021, that number is expected to reach 50 percent, leaving Honey with even fewer merchants as potential partners.

Still, Honey has found a way to stay relevant to Amazon shoppers by including a price-tracking feature in its coupon code extension. The tracker, called Droplist, can be programmed to notify Honey users when an item’s price on Amazon has fallen to a desired level so they can pounce on the purchase.

Honey is available only on desktop — which explains why Hudson and Ruan failed to interest investors when they started. Despite the mobile revolution, Honey’s founders argued comparison shopping still lived — and lives — on desktop.

“Most Americans have 20 years’ experience of comparison shopping on their desktops,” said Ruan, 38. “So our thesis was it was very difficult to get people comfortable checking out on one site only. It’s very hard to do comparison shopping and look up coupons on your phone.”

David Pierson is a Los Angeles Times writer.