Today, PayPal announced it’s acquiring Honey – a digital coupon player – for a hefty $4 billion. I had never heard of our used Honey yet the company claimed it has 17 million monthly active users. They define monthly users as a user who has the web tool and visited one merchant in the month. In the official announcement, the company also indicates that Honey has relationships with 30,000 merchants. 

The investor deck included some household names among these 30,000 merchants, including Walmart, Esty, Hulu, Expedia.

Name dropping aside, the bulk of Honey’s merchant relationships are with local and regional brands – food, retail, services. This makes this news fit directly into the coverage LSA/Localogy has been tracking on lately — the rapidly changing landscape of local commerce. 

So how did PayPal get to a $4 billion price tag?

While the 17 million users and 30,000 merchants are attractive assets, there must be a bigger reason to justify such a high price tag. The answer, of course, is data. 

Underneath Honey’s hood is the massive trove of data it captures as its 17 million users search for deals. The data opportunities seem rather massive. Imagine tracking the monthly shopping queries of 17 million shoppers (which could mean hundreds of millions of monthly queries) and being able to extract insights from that data. The list is long — product trends, conversion rates for offers, time spent in consideration, buying patterns by geography, offer messaging triggers — the list goes on and on. 

Presumably, there’s a large scale advertising business already operating within Honey or one that PayPal could activate. Much like what Amazon has been able to stand up in the last five years — a $10 billion business forecast to grow to $38 billion by 2023 — one can imagine a similar revenue curve happening at Honey.

Those ad messages — offers that can shift a purchase from an LG TV to a Samsung TV or a Video Only purchase to a Best Buy purchase — are potentially quite valuable. For the consumer, these offers at the point of purchase are very compelling. For the merchant, “stealing” a consumer from a competing merchant at the point of sale is similarly compelling. 

One key caveat is that Honey and PayPal will have to carefully navigate the growing privacy challenge. With CCPA (California’s regulatory instrument aimed at giving consumers more control over their personal information) kicking in next year, this may be a move by PayPal to get access to consumer data today that may not be so easily obtained next year and beyond.

The chart below was included in the investor deck. It lays out how Honey adds an important cog in what PayPal sees as the value proposition wheel. It shows that PayPal has chosen to move back so to speak into the discovery process — to be a player not just at the point of a transaction, but at the moments when transactions are being influenced.

This is a considerable step backward for PayPal, but one that is likely to yield greater consumer engagement and higher merchant loyalty. Not a bad deal for $4 billion. 

Be the first to hear news about Local, events, and research. Click here to subscribe for updates from the LSA.