Honey, honey

This week everyone figured out that the browser plug-in Honey was, and always has been, not the best. Attribution FTW!

The Vendor Interview: Tercept

Marketecture Vendor interviews are free for a week, then require a subscription. Read more about subscription options at marketecture.tv.

Marketecture Podcast: End-of-Year special

Eric and Ari talk about the year that passed, give shout outs to the people who’ve done great stuff, and make some predictions for the new year.

Be careful what you measure

If you came out of a dark cave where you might have been living for the past twenty years and I told you there was a tech company that was an add-on to the browser that gave consumers magical coupons right when they were about to checkout on e-commerce sites, you might be forgiven for saying “Oh, you mean Gator?”

No, I mean Honey. Gator went out of business a long time ago.

The Gator analogy is not perfect since Gator just showed competitive ads to the e-commerce sites rather then giving coupons, but its close enough to rhyme (check out this amazing history of Gator, along with this gushing Wired profile.

Actually Honey is a little closer to WhenU, Gator’s second-tier rival, which is lost to history but would give consumers coupons as an incentive to install AdWare. (I may have been involved with this company at some point in the distant past, but there are no records and I will deny it.)

Regardless of our trip down memory lane, let’s do what the big-brained people in Silicon Valley like to call “first principles” thinking. Here are some questions our cave dweller might ask:

1. Where do they get the coupon codes from?

2. How do they make money?

3. Do the e-commerce sites benefit from this, or is this just a discount?

In short order, the answers to these questions are:

1. They grab the coupons from other users;

2. They hijack affiliate commissions;

3. No, this is just a discount.*

None of this requires a lot of investigative journalism to figure out.

Honey first hit my radar personally when I was doing a Marketecture vendor interview with Geoff Stupay of Clean.io (full interview, free clip). His company’s primary product is a publisher security system for blocking bad ads. But then he told me they expanded to offering a coupon-blocking service for e-commerce. I was sort of red-pilled by this conversation, as I couldn’t believe that Honey’s business model was so egregious that security companies would build products to block it, but you know, I probably shouldn’t be shocked by much.

The current excitement about this topic started with a YouTube video from MegaLag which is definitely worth watching. The video shows:

• Honey snipes last-click credit for purchases that originate from other affiliates;

• Honey takes credit even if its app does not have any coupons;

• Honey has a cash-back concept called PayPal Rewards which takes credit even if it does not provide any other value, then gives the consumer a very small percentage of purchase amounts;

• Honey allows merchants to pay them in order to control which coupons show up (i.e. don’t show the really good coupons as it will cost me too much margin)

Time for the asterisk from above (*). A merchant interviewed in the above video says she partners with them because it increases conversion. OK, this might be valid, it should be tested.

What are the incentives?

None of what Honey is doing is hard to stop if you are a merchant. You can stop paying them affiliate fees, and the problem is solved. Like many other advertising-adjacent problems, this comes down to measurement. Affiliate is based on last-click, and certainly if you look at the reporting provided by your analytics provider it will show enormous ROI and revenue from this particular partner.

What you need to know, though, is the incremental revenue from this channel. Measuring incrementality in the affiliate channel is going to be really hard, though, since you can’t control who sees the offer. Normally you might give a single affiliate partner a special coupon code to see if they drive results, but not here! You can’t even do a geo-based blackout. Probably the only way to test this would be to turn off Honey’s commissions for a month and see what happens. If any readers have experience with incrementality in affiliate marketing, I’d love to hear the approach.

Affiliate marketing is also an area that is rarely budget constrained, since it only gets paid on conversions. This could give the marketer the mistaken impression that spending on this channel is not crowding out other spend options, so there’s no downside. With Honey, though, they are taking credit for user sessions that originated in email, social, search, etc. thus systematically reducing the ROAS on those channels in two ways: The gross margin on sales goes down, and the measurement shows fewer conversions that what is deserved.

What’s a CMO to do?

Is it reasonable for a senior executive to understand any of this? This is the challenge with a lot of inside-baseball advertising stuff. The people with their actual hands on the keyboards may not understand a lot of it, to be honest. It comes down to something like “trust but verify.” Every business outcome can’t be second guessed every week. That is a recipe for stagnation.

But you have to get under the covers and look at the details on a regular basis so the whole marketing organization gets intuition for what is working and what is not. I did some projects for a company that was very well known and had a lot of organic search and YouTube traffic, in addition to a big budget for paid search. It was just pretty much impossible to figure out the ROAS on some parts of their spend. So they sucked it up and did a painful thing — just shut off all their paid spend for a week to see what happened. You don’t do that often, but every once in a while take a drastic action and get results that inform your decision making for years afterwards.

That’s what I would do. Shut off Honey from all affiliate channels for a month and see what happens to revenue. What would you do?

Reading list

• AdExchanger on Honey (link)

• YouTube video from MegaLag