Honey co-founder Ryan Hudson sets the record straight on viral scam accusations — and reveals his new ad-blocking startup Pi

saw your thread. Um, could you give us just like a little bit of background on you, the company, and then kind of like what inspired you to write that thread?

And then I'd love to dig through it in great detail because it's a fascinating story and uh it's one of those narratives that kind of just goes out on the internet and grows and grows and grows and I think there's a lot of uh like we need to correct the record here and that's why I wanted to have you on.

So, thanks for joining. Well, I'm talking to you guys first. So, uh thanks for inviting me on. Yeah, fantastic. Like you said, I co-founded Honey uh more than a decade ago back in 2012.

Um for the first handful of years, we had a cool consumer product, but couldn't figure out how to make it into a company that investors would uh fund. It's a browser extension. Never has really been an attractive investment space. So, yep.

Um after a few years of grinding, we finally started to piece together enough enough of a user base that we got investment. uh 2015, we kind of really started to figure out how to do the business. And from 2015 to 2020, we just had a classic but insanely uh fun time riding a hockey stick of growth.

And in 2020, sold the company to PayPal. Yeah. Um so as part of that acquisition, I stayed on at PayPal for a little while.

after that left at the beginning of 2022 even though I'd had a a diminished capacity before that but um formally left in 2022 and then uh a few days before Christmas this year all of a sudden out of nowhere there was a YouTube video accusing my former company of being a scam and uh it also pulled in a bunch of creators who we'd spent over hund00 million uh working with to promote Honey I'm sure some of the audience saw our ads over the years and uh because of that it went insanely viral and immediately uh the narrative on the company I founded completely shifted.

So it was a surprise um through the first evolution of the business model. You said you were kind of hunting for product market fit. Uh how does Honey actually make money? How did it make money at first? Has that revenue mix changed over the time that you were there pre or post PayPal?

walk me through just like the basics of the business and then we'll dig into the the what kind of the the the video is about. Yeah. So, for the first few years, the business didn't make money and that was part of the the flaw in finding investors. Yeah.

Um, we thought maybe someday we'd figure it out and had a few hundred thousand users and organic growth uh on the company just from word of mouth people uh sharing this cool new coupon tool that automatically applied coupons when you're checking out and took a a painoint that everybody had experienced and made it really easy.

Um yeah, I mean I remember using retail me not back in like 20 must see 2008 or something like that and and you'd always have to oh I'm buying something control t new tab search coupons and Honey just baked that right into the browser made a ton of sense. Um and so and so uh what was the first dollar into the business?

Like how did you make the first dollar of revenue? I guess the first dollar of revenue didn't come until 2015. So, let's launch the product 2012 2015.

Um, we pieced together kind of a rolling seed round of anybody that would take a flyer on this company with a couple hundred thousand users and maybe interesting but haven't really figured it out. And we used that to hire somebody with a background in affiliate marketing.

And we had we being George and I co-founders of the company had thought that this might make sense because after all retail me not you just mentioned and other companies that's how they monetize is when you click on that retail me not link it's actually affiliate tagging you at that moment in time and so you go to do that coupon search and whether the coupon works or not it's uh they're getting an affiliate commission on that and that's why there's the they hide the code and open multiple tabs and do all that stuff.

So that was how it was and we're like, "Hey, we could probably monetize that way. " Uh, we George and I reached out to the affiliate world and they they basically were like, "You guys are a toolbar. You probably are up to no good. Go away. " And so we did.

um we didn't realize that there had been some bad actor toolbarss in the space u immediately prior to that which was uh like surprised to learn but we went back to just building a cool product for consumers and then um when we hired somebody with the background in that space what we came to realize is that the relationship side of affiliate marketing is how you get to the table in the first place uh to get that trust especially as a a new product and a toolbar or browser extension affiliated people call it toolbars.

Um, before we go too much further, what what was the LA tech ecosystem or or was there really an ecosystem in that 2015 era? Because I remember I graduated college in 2018. And everybody was like, oh, LA Tech is real. It's a thing. And they were like, Snapchat and Honey. Yeah. But like there wasn't a lot of debt.

There wasn't a big bench there. It was like, name the third company. What's the third company? I'd say very few people were even mentioning Honey in that conversation either. We were pretty under the radar. Um, we didn't do a ton of press and talk about what we're doing.

We we'd found a cool business and decided not to tell everybody that might might want to pivot to copy what we do about it.

Um, so but back to the affiliate piece of it and um, so we hired from within the industry and were able to have conversations and one of the things we realized pretty quickly is another way to save our users money was to offer them cash back.

And so we added a cashback loyalty program that we called Honey Gold um, in 2015. And when we did that, we started to look a lot more like Ebates, which became Rockuten and the cashback model that was very familiar and comfortable to affiliate marketing um combined with the coupons.

And we still had a lot of education to do around what the incremental lift is of keeping somebody in the shopping cart like you talked about this journey that you had prior to Honey is you get to this box while you're checking out that's empty, says coupon codes.

It's effectively challenging your intelligence as a consumer on are you just going to check out or are you going to go find a coupon and uh it's inherently adding friction to the checkout process by doing that because either you're a little bit hesitant or uncertain or you're going off on this wild goose chase.

And we found that by keeping the consumer in the shopping cart, we actually drove incremental lift for the retail partners. And over time, a bunch of them were able to use their own data to demonstrate that to themsel. And u that's the core of what became Honey's business model.

So the first penny that we made and the last penny as far as I know is effectively affiliate marketing with a cashback program that we worked with that we rebaited that commission to the consumer. Yeah. Talk to me about kind of the the steelman argument.

I've been on the other side of this because I've run e-commerce sites and I've seen Honey Codes come in and as an e-commerce owner, you're kind of like h like I understand paying the affiliate for, you know, the Andrew Huberman who like endorsed it and educated the consumer about it, but it's like if I already did all this work to get the customer into my cart, why am I paying Honey at all?

Like I know that the customer was going to go find a code, but you know, why why am I paying you guys?

uh talk to me about that conversion lift and like how you actually test that and justify that because I could imagine that there's probably some pent up like frustration amongst e-commerce sellers just saying like ah I was always like paying a big pony bill and it it never really made sense to me and honestly I think a lot of e-commerce customers feel the same way about Google ads to be tr to be clear because they're like I was going to rank number one and I had to pay the Google tax.

Uh how do you how did you how do you think about like the honey tax or any of those uh any of those claims? Honestly, I don't I don't think it got to that point while we were running the business. Maybe over time, we started to have more of that sensation. Um, it wasn't the feedback that we were getting.

We worked with thousands of retailers that made the decision that it was uh effective for their marketing programs. Obviously, there's people that chose not to work with Honey, too. Sure.

Um, in fact, one of the first VCs that I met uh when we were trying to raise a seed round, he having been an e-commerce founder himself. He said, "I hate what you're doing. " This is before before we had like any users or anything, I hate what you're doing.

If I were still running my company, I would write code to break it and open source it so everybody could have it. Wow. And I'm like, "Okay, I guess you're not going to invest in this. " That's a that's a pretty hard pass email. Most people say, "Not a fit at this time. " Correct.

This is like I would open source what you're doing because I'm so frustrated. So, he never did that and nobody ever did that. And we got we got better at uh demonstrating the value. And it does make sense that that if you're at the last second you're like ah you know I'm deep in the checkout.

They just hit me with taxes and shipping but then Honey came in and gave me a little bit you know five 10% off. I maybe I'm more likely to click and and you could imagine that math working out in certain scenarios and maybe in aggregate. Yeah.

And it's in aggregate people have found that it works for them for any particular consumer journey. I'm sure you can say, "Oh, I was going to buy it this one anyway. " But there's other times when you might have gotten the hesitation of, "Hey, maybe I should wait for a sale.

" And totally by by getting the confidence that you have a deal and you can check out now. Um, it in aggregate it makes enough sense that like the commission rates that are paid for this are not high.

So it's not like the marketing spend on Google where you're spending well into double digits percentage of revenue on acquisition or what you're spending on Facebook. We're talking like really small numbers and part of that the reason the rates are low is actually because um because of the place in that journey.

So it's it's an incremental lift for a few percent. It's not incre we never tried to sell it as hey you should give us 25% like you're paying Google and get like get 4x return on ad spend is like 25% commission rate. Yeah.

And you're bringing a little bit of like this dopamine hit to the checkout process that's normally like I got to like type in all this junk. I got to do all this and then Honey shows up and you're like I feel like I just won the lottery. Like maybe I will check out. So I could I could totally understand the story.

be before we were doing this. I mean, keep in mind the customer journey is like open the Google tab and go search for a coupon somewhere else and you're going to find one from a competitor. You're going to find a bunch that don't work. You're going to get distracted because your kid wants a sandwich.

Like, there's a whole bunch of reasons that you end up abandoning that cart that you appeared to have high intent to check out on. And shopping cart abandonment, especially when we started, was like the number one pain point for retailers.

like how why are 70 80% of my people leaving um and what can I do to help close that and so I think Honey and Tools like it we were not the only ones that did this uh a bunch of other companies replicated the model and have had good success with that and uh for yeah can you talk about that I I remember at postexit there was just this rush of companies that were like okay you can uh Chrome plugins are now venture scale businesses and like I just remember it was like literally constant.

There were so many companies, but who knew? I mean, it really just exposes like technology, but also a potentially a great business, which is fascinating. But, but here's the issue. Yeah. Outside of cryptocurrency wallets, we haven't seen big outcomes in the sort of like Chrome plug-in space.

And you could argue those are, you know, mobile products. Yeah. I I I have a my my own explanation or thinking on it. Um, cool. So, what George and I saw early was that while everybody else is offer building mobile apps and every investor was asking, hey, what's your mobile strategy?

Uh, Chrome extensions or browser extensions generally have an insane retention characteristic that they completely solve for all of the problems that people are having on mobile of how do you not just get somebody to download your app, but to remember to use it in the context that you're providing value.

And for mobile apps like there's only a certain set of contexts where you have that natural habit loop trigger and people wrote books about this of how do you get a consumer to like build that habit? You have to like effectively teach them that this is a new behavior.

And on mobile the apps that were able to do that are effectively messaging apps that give you like an a real trigger to come back into the app. You're engaging with somebody else. And so outside of that, you never had like mass market consumer like product for shopping even. It's like it's a pretty big pain point.

But like the amount of um successful mobile apps going after even some of the biggest categories is challenging on the browser extension. We got to get all of that engagement and retention and habit out of the box. Like you install us one time completely out of context. You are not shopping now.

you might not shop for weeks or months and the exact moment that we can deliver value, we could detect that context and present the option to do that. And one of the reasons Honey in the early days grew um at a steady but slow rate is the the cycle time on that growth loop was measured literally in months.

So the time from somebody installs Honey to they get a coupon that works which is like the aha this thing actually works moment was literally uh weeks to months like in because of that the feed that's the moment when people would share and tell people about it we know this works.

Um so with the extension world you have that so how come other people haven't been able to do this?

There is actually a challenging policy in the extension uh framework that rem remains to this day and it's a singlepurpose arbitrary policy that Google has uh for the Chrome store that extensions are only allowed to do one thing and so extensions have effectively been pushed to only do a feature and it becomes increasingly challenging to attach a business model to that feature And so to me, that's the disconnect that they've strategically divided um the utility from the monetization side of it.

And there's historically good reasons why you might want to do that in some cases and people are abusing it. And like there's there was abusive behavior when people before this policy came in, but I think it really slammed the door on a lot of other interesting models that people would have for a browser extension.

And basically to this day you have honey honey and shopping tools um because we were able to attach the monetization that worked to do um largecale consumer growth acquisition. You have Grammarly who has a business model that works for it and you have free ad blockers is basically the entire world.

Can you talk now about uh some of the allegations that were made in that video, what you found so frustrating about it and kind of the process that you went through to debunk some of those claims? And also, I'd love to know uh I mean, you've moved on.

It's not really your baby anymore, but clearly it got under your skin and you were like, I got to set the record straight. So, just walk me through the process of uh the claims in the video and then what you think they got wrong. Yeah.

I mean, so obviously the video is like complete shock because like I it's the last thing I ever expected to hear. Um and yeah, you're like we've saved people so much money and then it's like everything about it. I mean from we saved tens of millions of users, uh billions of dollars.

We uh helped fund a lot of content creation and the partnerships that we did with great influencers. Um, and to to twist that was to start with unexpected. Um, and my initial reaction was walking through the stages on it. It's like it it's once your baby, it's always your baby.

Um, so it's not like uh we as I say we felt that. I felt that personally talking to the hundreds of great people that built Honey. Um, it was devastating to have your you're the thing that you put all this energy into dragged in a public forum in a way that you know isn't accurate.

Um and so that's like the initial reaction is like a little bit of grief. Um and not feeling like you could do anything about it because um almost everybody I'm talking about like moved on from the PayPal organization doing other things. And so um didn't really feel it was my place to step in and say anything. Yeah.

Um that's like it's I sold the company to PayPal. They own it. Um they should be able to make the decisions that they want for this business that I shouldn't be meddling in their in in their business decisions. And um and so it's like accepting the reality of this is not mine anymore.

And so then I saw like just keep in mind the timing on this. This drops like a Friday before like Christmas holiday week.

Um, a big company like PayPal is unlikely to have all of their resources aligned to respond to that at the same speed of a YouTube viral video going going viral through a holiday season where the initial video got 17 million plus views. Wow. The other videos about the same issue got even more than that in aggregate.

And so it went wildfire. Um, it led to rapidly several class action lawsuits being filed against PayPal and against other companies in the use that do the same model. Um, and because of that, the potential response from PayPal like rationally became it's run by illegal. Yeah. Oh, I'm I'm assuming here.

Just to be clear, I have had no conversations with PayPal about anything, including whether or not I was going to say anything um recently. And I You love a founder going direct. I suspect that any uh comms or legal person would have heavily advised against doing what I did.

Um, but so like going through these phases, expect it to kind of maybe it'll just blow over like it'll be a big storm and then like everybody can move on. But it's kind of continued to linger and articles about it and then Google updated their Chrome store policy sparked a wave of articles at the beginning of March.

Um and people again from my point of view like I have a lot of knowledge about this particular industry and extensions like the changes that they made to the policy will have no effect on anybody because they're already in compliance with what Google required.

And despite that nobody talking about it in the press like knew that.

And so you have this consumer narrative that's going going like crazy on Reddit and other places about um what about the specific claim of uh like rewriting cookies and and affiliate codes where you know it's very clear that someone found out about a product from a specific influencer that they the customer wants to use that code and then Honey somehow gets in between that transaction.

I that felt like the the claim that really took hold and I think you addressed that in your thread. Yeah.

So like the the never mentioned by anybody in any of the followup on it, not a single journalist or other YouTuber um knew knew about and partly it's because it's industry nuance that there is standown policies at all of the at almost all of the networks where downloadable software tools, toolbarss, uh browser extensions are required by the affiliate network um who's mediating all these like multi-party exchanges.

is are required to stand down to traffic like that. So, um a a website like the coupon code websites doesn't have the ability to tell if you've already uh clicked on somebody else's some influencer creator link. Um they they will in the industry it's tagging is the terminology for assigning the cookies.

It's basically you're following a link and then the network's tools sets all the cookies. And so for somebody like retail me not you mentioned before if you go to the site you click on the link the link updates all the cookies. Yeah in the case of browser software do the same thing.

It's just following the link in an un unintrusive way for the user. So it's not like you're not going in there and modifying the cookie value as the browser extension. You are clicking a link in the affiliate network which is how they handle attribution.

And so the overwriting case that was described and purported to be extremely widespread I think is actually very very narrow uh and only happens in I guess two cases. One uh the honey standown detection um potentially isn't working in some cases.

This is not always alleged, but like as a person who knows his business, like it's possible there are cases where it struggles to detect uh that a link was clicked.

And the particular example that he used on Newegg, I pretty sure this is what happened because Newegg is using a multi-touch attribution system anick system from company Howell and it is effectively like it's Newegg uses it so that it can pay both the creator upstream and Honey. Interesting.

But I suspect that Honey wasn't standing down because it it didn't recognize this howl link, which is different than the the normal Rockuten affiliate network link. Got it. Again, this is me speculating. I have no information on this, but it felt to me like a carefully selected example.

Um, and then a few weeks ago, I started I took another look at the video and I wanted to understand like is what how did this happen?

Like u what he's saying and I started pausing the video on the various pieces that he was showing on screen is hey honey's doing all this devious behavior and almost every version of that was essentially falsified.

like he'd say one thing and then the screen would show something completely different and non-inccriminating. It's like honey's there's a secret 20% off coupon code somewhere else that they're colluding with the retailer to not give you is what he says that they're only going to give you the 5%.

And then you watch the video rapidly going on screen. It's Honey going and Honey gave you a 10% coupon and 5% cash back. It's like, well, you can't just like make [ __ ] up or or I guess I I guess fact check false. You can make stuff up. This is the internet. Welcome to the web. Yeah.

So, I got a little uh frustrated when I And I had seen that he covered up the coupon. I was trying to figure out what happened. It's like he he blocked out the coupon code box that he was using to demonstrate that Honey was hiding coupons.

I'm like, why are you hiding the coupon that you're using when you're showing like when that's the claim? And right there on the screen there's like from that same retailer, if you sign up for my email list, you get a 30% coupon. And then the next screen he's like, here's a 30% coupon they didn't tell you about.

I'm like, well, they didn't tell you about it because it's a one-time use code that's just for you that you just sign up for that email right there. Like Honey is not saying that they're getting you that coupon. Okay. And so it's like a lot of misrepresentation, but then the data is just not there to support the claims.

And I first decided to let the people at Reddit know and do an AMA there. Um, very very lengthy post and I'm glad it's way too long. um some good questions there, but nobody's going to read this.

And decided I would at least give some of the visual evidence in a Twitter thread and um it it makes it a little bit more clear when you see it like the the screenshots and like it's it's not me the some of the stuff I said before about standown and like that that's industry specific knowledge and this is what I thought I would have to talk about to defend honey originally.

But the the stuff I talk about in the Twitter thread and on Reddit, it's like you can see it for yourself. You don't have to know anything about this business. Just go hit pause and look at the screen and see if the evidence is being manipulated to to create a narrative. Um, and I think that it was.

And I don't know if my version will get anywhere near 17 million views or like um I don't have that kind of platform. I've never really been a content creator or trying to get anything out there. We just kind of stayed under the radar and built a cool company with some great people.

Um, but yeah, so it it's no problem, but we're going to we're going to try to get this to 17 million. Uh, we'll hand out pieces of paper in the street if we have to. Uh, I do have a question for you. I'm sure you're going to have a kind of interesting nuanced point of view on this. Um, what's up with the VPN market?

Because when I think of uh sort of like shady, you know, when I think of like shady companies that do heavy YouTube influencer marketing, I think of VPNs, right?

So it's like we probably should have a video with 17 million views of like, you know, these VPN companies that are run by, you know, sort of unknown, shadowy internet, you know, companies. Uh but but I'm curious if you have a uh any type of read on on that market. I actually don't know that market that well.

I do have a sense for why it's so prevalent on YouTube though. U the reason for it is one, it's pretty high recurring revenue, high LTV product. So like you can afford to do marketing spend for a product like that. The second piece is the YouTube audience is like twothird international.

And so it's an efficient way to reach a broad international audience who is in need of VPN to access content outside of their home country. And so I think that's why you see it on YouTube as a channel in particular. Um because the economics work is basically it.

And once somebody figured that out, then everybody else copies the marketing channels. So I've always said Mr. Beast should launch a VPN because he has a super super broad audience. It goes everywhere.

And if he was able to capture all of that, you know, gross margin, net margin for himself, he'd be printing money, but maybe misaligned with the brand. Who knows? Just a crazy idea I had. Yeah, it's it's a great idea. I mean, it would work from a business part of it would work.

Probably work better than Beastburger and some of the other stuff he's tried, but he definitely reached a scale where he can't do normal advertising. Yeah. Because if the product's not available globally, it's going to be it's just he's undermonetizing his content at that point.

Yeah, it's it's that and uh he's the scale of the ad buy now is like it's a Super Bowl every time he does anything. So there's like 10 companies that can even possibly afford to do that. And so he's been driven to create new brands and it's kind of fun to see what what he's been able to do without.

It's been super fun and it's been fun having you. Yeah. Before you go, could you give us, you know, give us a coupon code minute? No, no. I I at least a minute on your favorite coupon code. At least a minute on Pi. What you're working on now? Yeah. So Pi is a new company I'm working on.

Um, we have an ad blocker that is designed to give consumers control over their advertising experience.

Uh, we don't think the economics of the internet work if everybody has a an ad blocker that blocks everything all the time and we don't think it's reasonable that consumers should have to tolerate the ad load and the incentives are misaligned there.

So effectively um I is building a way for consumers to have granular control over what type of advertising they are comfortable with and we are building ways for them to participate economically in that value exchange. So that's very cool. Um they're like that's and you have two million users. We have two million users.

Uh we and no wait so let me guess. Nobody's heard of you because you haven't hired a PR firm. You haven't raised venture capital.

you don't have any VCs doing threads cuz cuz I'm I'm I'm you know it's it's we always find it funny when we find a you know a company with a massive user base that we haven't heard of and and you know we've heard of you and and Honey but I and candidly I hadn't heard of Pi until uh we were prepping for the show. Yep.

That's uh not surprising. U most of our acquisition has been through regular YouTube ads of all places. So, it's uh it's interesting to be an ad blocker that's doing advertising. Yeah.

Um we'll see how long we continue doing that, but um to get to to get to a reasonable scale where we have a large enough audience where people are interested in what we're doing um was important.

So, we've we've invested in that growth um personally invested in the company and uh we'll see we'll see if we can make it work, but uh if not, good luck. It's it's a lot of fun building with a lot of cool people again. That's amazing. Love it. Thanks so much for coming by. Always welcome on the show story. Yeah. Cool.

Thanks, guys. Yeah, we'd love to talk to you soon. All right. Bye. Cheers. Great. Uh yeah, what an interesting uh back with another Chrome extension. Just another two million users. Chill. Oh, yeah. By the way, we have two million users. Fantastic. Uh well, we're pivoting back to AI.

We have the host of the Laton space podcast. I first found uh this fellow because he put out a fantastic interview with George Hots, one of my favorite uh people in the world really. Uh and uh we're excited to talk to him. I want to get his take on AI 2027 and a whole lot more.

But also I think he has a little bit of contrarian take about um about whether or not you should traffic in these forms of oh AGI is two years out. So I want to hear from him. Welcome to the studio. How you doing? Morning. Hi. Doing great. Uh do do you want to give a brief introduction in your uh in