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--:-- Host (Jessica Mendoza): Welcome to The Journal, our show about money, business and power. I'm Jessica Mendoza. It's Thursday, February 20th.
--:-- Host (Jessica Mendoza): I'm not someone who spends a lot of time on YouTube, but recently a spicy controversy that has to do with how influencers make money had me on a call with a YouTuber. I'm a YouTube creator. I go by the name Yub. I'm based in Texas. Hello, y'all. And I make gaming videos, very immature style, like the kind your kids probably watch on the iPad.
--:-- Yub: That's so annoying. That's me. That's what I do. And you probably get asked this a ton. Why Yub? It was just the shortest URL I could find that was short, but you could still say it as a word out loud. And it's not your real name, obviously. No, no. My real name is Dylan. That would be crazy if my mom named me Yub. Dylan Russell, a.k.a. Yub, has about 1.6 million subscribers on his channel. and he's been making a living entirely off YouTube for years.
--:-- Yub: Most of my income comes from ad breaks in my videos. That's where I make probably 95% of my income. My eggs are definitely all in that basket. And then I have a small portion that comes from merch sales. I have like little silly Yub t-shirts and stuff and hats.
--:-- Yub: Another common way that Yub and other YouTube creators get paid is through sponsorships. Basically promoting products in their videos. One company that sponsored Yub was a service called Honey. In fact, Honey paid a lot of YouTubers to promote it.
--:-- Host (Jessica Mendoza): Do you have Honey installed? What's Honey?
--:-- Yub: Oh, no, no, no. Honey is the free-to-use browser extension that helps you find the best promo codes at over 3,000 sites. And automatically test them while checking out during your online shopping. It is literally free money. You don't do anything extra. It's free, it's completely free, and it takes just two clicks to install.
--:-- Host (Jessica Mendoza): Honey is owned by PayPal, the online payments company. And Honey's main thing is discount codes and coupons.
--:-- Yub: You download the browser extension, and while you're shopping, you click on Honey's pop-up. And it looks for coupons for you from across the internet.
--:-- Host (Jessica Mendoza): For years, Honey was a darling among YouTubers. When they reached out to me, I was like, oh, cool. Because this is a legit brand, a big brand, too. And since I was a small creator, it was almost like a little starstruck. I was like, oh, Honey wants to get a deal with me. amazing.
--:-- Yub: But late last year, a YouTuber posted a video with some big accusations against Honey. He said the browser extension was misleading its customers and stealing from the very same creators it had sponsored.
--:-- Host (Jessica Mendoza): In an email, PayPal disagreed with the allegations. And some in the e-commerce business say that Honey is just playing by the industry's rules and that it's long been a standard that the last link clicked, gets the credit, and the cash.
--:-- Yub: But the video ended up getting millions of views in just a few days, and outraged YouTube creators started sharing their reactions. We've got to talk about this Honey situation. You need to talk about the Honey Influencer scam. Turned out to be a big scam, allegedly.
--:-- Host (Jessica Mendoza): I'm Leanne, and I was diagnosed with brittle bone disease. Now, I'm running the Bank of America Chicago Marathon for Lurie Children's. So every kid can just be a kid. Join Bank of America in supporting Leanne's cause. Give if you can at bfa.com slash support Leanne.
--:-- Host (Jessica Mendoza): What would you like the power to do? Bank of America. References to charitable organizations is not an endorsement by Bank of America Corporation.
--:-- Host (Jessica Mendoza): Why shop at Burlington? Maybe it's the deals that are new each time you drop by. Maybe it's the brand names you'll be shocked Burlington has in store. Or maybe it's the quality of the items, the amazing selection, and the newest trends.
--:-- Host (Jessica Mendoza): If you like to save but also like to stay in style, Burlington is your answer. And the question you'll be asking yourself is, why go anywhere else? Burlington. Deals. Brands. Wow.
--:-- Host (Jessica Mendoza): Honey was launched in 2012 in Los Angeles. And basically, it automates the process of searching for coupons online. Users who download Honey get a pop-up, either offering them a bunch of coupon codes or telling them that Honey didn't find any better deals.
--:-- Host (Jessica Mendoza): And Honey offers that service for free. The platform makes money through commissions from some online purchases. There's a bunch of other companies that do this, too. Capital One, for example, has something called Capital One Shopping.
--:-- Host (Jessica Mendoza): You may have also heard of Karma or Microsoft Shopping or Rakuten Rewards. For a while, though, it seemed like everyone was talking about Honey.
--:-- Yub: Yub the gaming YouTuber says he first heard of Honey in 2016 or so when he started seeing other creators get sponsored Even his mom started using it My mom pestering me about it I installed it and I remember what I ordered because it was at Papa John Pizza And I mean, who doesn't love that? And it was like $5 and somewhat off.
--:-- Yub: I was like, this is great. Wait, mom, you're right. I just saved $5 on my pizza. I love this. The rest of the internet seemed to love Honey too. By 2019, it had 17 million monthly active users.
--:-- Host (Jessica Mendoza): And later that year, PayPal acquired Honey for about $4 billion. By then, Honey was working regularly with influencers, including some of the biggest names on YouTube, like MrBeast and PewDiePie.
--:-- Yub: Yub says Honey paid him $800 to promote the brand in 2019. He made a second deal with them in 2021.
--:-- Host (Jessica Mendoza): Picture like there's a 15-minute long gaming video, and then five minutes in, I'm going to be like, so sorry, got to talk about the sponsor real quick. I promise I'll make it fast. And then I talked about Honey for a minute and then it goes back to the video. So it's just like a commercial embedded in the video that they paid for.
--:-- Yub: Then fast forward a few years. This past December, just before Christmas. Yeah, I hate to break it to you, but your favorite influencers sold you a lie. Honey is a scam. A YouTuber named Megalag dropped a video full of bombshell allegations against Honey.
--:-- Host (Jessica Mendoza): I'm confident this might just be the biggest influencer scam of all time. Megalag accused Honey of taking money that should have gone to his fellow YouTubers.
--:-- Yub: He alleged that Honey takes advantage of something called affiliate links. Affiliate links are a common way of making money on the internet. Think about the links you see on a YouTube channel or a review site.
--:-- Yub: If that link leads you to a product, that's probably an affiliate link. And if you buy that product, the influencer or website gets a cut for helping to make the sale.
--:-- Host (Jessica Mendoza): The affiliate marketing industry is growing quickly. It's expected to hit $12 billion in the U.S. this year and generate more than a billion dollars in revenue for social media creators.
--:-- Yub: On YouTube, these links are especially popular among creators who review products. Let's say I was making a video about cameras. You can, if you have an agreement with the company, you get your little affiliate link, you copy-paste it into the description of your video.
--:-- Yub: And then if you're talking about the camera and people are like, you know what? I like that camera, I want to buy it. They scroll down and they click your link, and if they buy it, you get a kickback.
--:-- Host (Jessica Mendoza): In his video, Megalag showed Honey overriding the influencer's referral and replacing it with its own, in effect, taking credit for the sale.
--:-- Host (Jessica Mendoza): He alleged that this happens even when Honey doesn't offer the customer any discounts.
--:-- Host (Jessica Mendoza): PayPal said it does offer value to its customers because it gives them a sense of confidence that they're already paying the best price.
--:-- Host (Jessica Mendoza): We tried to replicate what Megalag did. Our producer Alan Rodriguez Espinosa and I downloaded Honey and then clicked on an affiliate link on a YouTuber's channel.
--:-- Host (Jessica Mendoza): So I'm going to hit that product link. I'm going to hit that affiliate link. And it goes to a VPN website. Right. He's sponsored by a VPN company and he's promoting the company.
--:-- Host (Jessica Mendoza): And if you click on their affiliate link, you can sign up for the VPN and you get a discount on it. You get a promotion on it.
--:-- Host (Jessica Mendoza): After the YouTuber's link took us to a new website, we pulled up the HTML code for that page and looked up the YouTuber's affiliate cookie. That's a piece of code that identifies the YouTuber as the person who sent us to that product page.
--:-- Host (Jessica Mendoza): I'm in. I'm in the system. We're in the system. And just like in Megalag's video, when we got to checkout and we clicked on the honey extension... Oh! Where'd he go? The cookie associated with the YouTuber disappeared and was replaced with a cookie associated with Honey.
--:-- Host (Jessica Mendoza): We tried this a few times, and it happened even when there wasn't cash back or a better coupon available. That's the part that got YouTubers heated.
--:-- Yub: If you click anything on that little window other than the X to close it, Honey gets the credit for that sale. If it pops up and it's like, just so you know, there's no coupon codes on this site and you click, okay, got it. They still take the affiliate link for that sale.
--:-- Yub: So that's where it starts to feel real slimy real quick to me. Very misleading. They're just straight up tricking people into not supporting the creator that they intended to support.
--:-- Host (Jessica Mendoza): That sucks, especially since a lot of the people who are going to be hit the hardest by the affiliate link thing are going to be small creators who need that kickback on that sale more than I would.
--:-- Host (Jessica Mendoza): So that really sucks for them. PayPal said that Honey returns to shoppers a large chunk of the commissions it makes as cashback rewards.
--:-- Host (Jessica Mendoza): The company also said Honey cuts back on cart abandonment, which is when a shopper fills up their cart but never actually completes the sale.
--:-- Host (Jessica Mendoza): As Megalag's video made the rounds, it came across the screen of another YouTube creator. And he decided that he wouldn't just make a video reacting to the accusations like so many other YouTubers did.
--:-- Host (Jessica Mendoza): He was going to go a step further. So on behalf of creators everywhere, I have filed a class action lawsuit to stop it.
--:-- Host (Jessica Mendoza): After the break, Honey gets taken to court.
--:-- Host (Jessica Mendoza): Tuesday on NBC Jimmy Fallon and Bozema St John host the highly anticipated new competition show We be right back Series premiere Tuesday on NBC.
--:-- Host (Jessica Mendoza): This episode is brought to you by State Farm. Checking off the boxes on your to-do list is a great feeling. And when it comes to checking off coverage, a State Farm agent can help you choose an option that's right for you.
--:-- Host (Jessica Mendoza): Whether you prefer talking in person, on the phone, or using the award-winning app, it's nice knowing you have help finding coverage that best fits your needs.
--:-- Host (Jessica Mendoza): Like a good neighbor, State Farm is there.
--:-- Host (Jessica Mendoza): So you are a real lawyer. You're not just one who plays a lawyer on YouTube.
--:-- Devin Stone: I am a real lawyer. I don't just play one on TV. I'm actually barred in California, New York, Washington, D.C., Virginia, and Maryland.
--:-- Devin Stone: So my bar dues are quite heavy every year. That's Devin Stone, known on YouTube as Legal Eagle.
--:-- Devin Stone: Devin has more than 3.5 million subscribers to his channel. His whole thing is breaking down law in news, in current events, and in pop culture.
--:-- Devin Stone: Do you have a favorite video you've ever made? Probably my favorite video that I've ever done was explaining how accurate the movie My Cousin Vinny is.
--:-- Devin Stone: Did you say utes? Yeah, two utes. What is a ute? Oh, excuse me, Your Honor. Two youths.
--:-- Devin Stone: The movie My Cousin Vinny is actually a darling among lawyers because it is so accurate. Yeah, yeah, I've heard that. It's not only accurate, but it also shows a lot of the best practices that trial lawyers, you know, spend their whole careers trying to learn.
--:-- Devin Stone: As a lawyer and a creator, Devin was very interested in the honey accusations. even though he says he'd never worked with Honey himself.
--:-- Devin Stone: What was your first thought when you saw what Honey was being accused of doing? I basically jumped out of my seat that, in retrospect, what Megalag accused Honey of doing seems so simple but also so brazen that I was shocked that any company would actually engage in the kind of actions that they were accused of.
--:-- Devin Stone: Devin, along with a team of other lawyers, kicked off the new year by filing a class action suit in a district court in California, where PayPal is based.
--:-- Devin Stone: The lawsuit names five different YouTube creators, but Devin says he's had over a thousand other people reach out to join the class action.
--:-- Devin Stone: What's the legal basis for this case? What are you saying Honey should not be doing under the law?
--:-- Devin Stone: What we think Honey is doing is interjecting itself and replacing or stealing affiliate commissions from creators that sent traffic to an online store.
--:-- Devin Stone: So all of those benefits that would have gone to the original referral source, therefore go to Honey, Honey PayPal instead.
--:-- Devin Stone: We think it is violative of several different laws. One is a cause of action called intentional interference with contractual relations.
--:-- Devin Stone: So there's a contract between these brands and the creator or the influencer, and Honey is interfering with that contract.
--:-- Devin Stone: And we also think that it is violative of a lot of consumer and industry protection laws.
--:-- Devin Stone: And basically, we allege they're taking money that would have gone to the people who are actually responsible for sending traffic and sending customers and creating value.
--:-- Devin Stone: And instead they are taking advantage of that instead.
--:-- Host (Jessica Mendoza): PayPal said, quote, we disagree with the claims in these lawsuits and look forward to defending ourselves.
--:-- Host (Jessica Mendoza): After Devin filed his lawsuit against Honey, others quickly followed. A few of those cases, including Devin's, have since been consolidated into one big class action suit.
--:-- Host (Jessica Mendoza): And litigation has spread beyond Honey to other shopping extensions. Capital One Shopping and Microsoft Shopping have also been sued for similar allegations.
--:-- Host (Jessica Mendoza): Capital One said via email, quote, We disagree with the premise of the complaints and look forward to defending ourselves in court.
--:-- Host (Jessica Mendoza): Microsoft said that they're reviewing the complaint, but believe that the claims are without merit, and that their service provides shoppers with benefits and follows common industry standards.
--:-- Host (Jessica Mendoza): Those industry standards are at the root of the conflict here.
--:-- Host (Jessica Mendoza): I spoke to several industry insiders in the affiliate marketing world. And to varying degrees, they question the ethics of these browser extensions swapping out referrals.
--:-- Host (Jessica Mendoza): But is it unlawful or just not cool? Because in the affiliate marketing business, giving credit to the last referral that a user clicks is just common practice.
--:-- Host (Jessica Mendoza): Forever and ever it has been the standard in affiliate measurement for a great many years that credit is rewarded to the publisher who was the last click in that transaction
--:-- Host (Jessica Mendoza): That is called last click attribution. That Julie Van Ullen the chief revenue officer of Rakuten Rewards another shopping extension Last attribution is the gold standard for measurement and affiliate
--:-- Host (Jessica Mendoza): What that means is that the final click that that consumer makes, the final affiliate that is engaged with before that consumer makes their purchase, is the one who will get credited for that purchase.
--:-- Host (Jessica Mendoza): The industry considers last-click attribution as the most straightforward way to track who led a customer to a sale and pay them for it.
--:-- Host (Jessica Mendoza): But it's not a flawless system. Sometimes there are several different actors pushing customers toward a sale, and it can be unclear who really deserves the commission.
--:-- Host (Jessica Mendoza): And that's why Julie says the industry has another common practice to prevent people from taking advantage of last-click attribution.
--:-- Host (Jessica Mendoza): And this is what's known as standing down. That means that if you clicked your Rakuten Rewards cashback offer, that all other affiliates who might have a browser extension, let's say installed, have a technology to know that they will not pop up an offer for the remainder of that consumer's session.
--:-- Host (Jessica Mendoza): It is an understanding and a nod to the fact that the consumer has made a choice and now we all need to accept that choice and let the consumer complete their transaction.
--:-- Host (Jessica Mendoza): In other words, Julie is saying that browser extensions and other affiliate marketers can identify when someone else should get credit for a potential sale.
--:-- Host (Jessica Mendoza): So if a customer clicks on one browser extension, the rest can opt to stand down.
--:-- Host (Jessica Mendoza): The same policy could apply when influencers or anyone else leads customers to a purchase.
--:-- Host (Jessica Mendoza): Creators who are utilizing affiliate models, meaning commission models, in order to drive their business are tracked through the same affiliate networks that a loyalty publisher would be tracked through.
--:-- Host (Jessica Mendoza): And those technologies are equally capable of standing down off of an influencer referral link as they are from another browser extension link.
--:-- Host (Jessica Mendoza): So one of the main allegations facing PayPal Honey is that by taking commissions when consumers click on their pop-ups. They're taking money that should have gone to creators. That is the allegation.
--:-- Host (Jessica Mendoza): What do you make of that? While I can't comment on specific business practices or alleged behavior, again, I will point to the criticality of ensuring stand-down practices.
--:-- Host (Jessica Mendoza): If every affiliate publisher continues to follow the gold standard of standing down and respecting the choice that the consumer has made, we will always ensure that the affiliate who deserves credit gets credit, and that the consumer experience is transparent and they know that the influencer that they love is getting paid for the transaction that they make after that recommendation.
--:-- Host (Jessica Mendoza): For stand-down policies to really be effective, the affiliate industry needs to play ball, from publishers to networks to advertisers.
--:-- Host (Jessica Mendoza): But standing down is not a law. And that's the challenge for creators who are suing Honey and these other shopping extensions.
--:-- Host (Jessica Mendoza): As one advertising lawyer told the Journal, those lawsuits have to prove that those platforms were actually doing something unlawful and that creators were entitled to that money.
--:-- Host (Jessica Mendoza): He says that could be a difficult premise to prove.
--:-- Devin Stone: Still, Devin, or Legal Eagle, says he's in it for the long haul.
--:-- Devin Stone: How long could all this take? It could take years. We expect that Honey PayPal will fight this with everything that they have.
--:-- Devin Stone: And class action in general can take many years to take it to verdict.
--:-- Devin Stone: And we expect that this is going to be a knockdown, dragout fight.
--:-- Devin Stone: Why do you think it's worth that effort? Yeah, well, for one thing, I think it's the right thing to do.
--:-- Devin Stone: But number two, as we've discussed, there is an enormous amount of money at issue here.
--:-- Devin Stone: And it's money that I think should go back to the creators. And these are often middle-class people who are providing value to their audiences effectively for free.
--:-- Devin Stone: You can watch YouTube or scroll through Instagram or TikTok, and you don't have to pay anything.
--:-- Devin Stone: And these creators rely on the income that they're generated.
--:-- Devin Stone: And what's really interesting is that affiliate links in particular tend to be used by a lot of the smaller creators who haven't yet been able to create a brand deal or a sponsorship.
--:-- Devin Stone: And as a result, the kind of revenue that is being, we think, siphoned away is exactly the kind of stuff that would help more creators do more art.
--:-- Devin Stone: And we're talking hundreds of thousands of creators who might have been affected here.
--:-- Host (Jessica Mendoza): So you've got your sleeves rolled up for this one. Got my sleeves rolled up. I've got my tie loosened. We're going at it.
--:-- Host (Jessica Mendoza): That's all for today, Thursday, February 20th. The Journal is a co-production of Spotify and The Wall Street Journal.
--:-- Host (Jessica Mendoza): This episode was reported by me and Alan Rodriguez Espinosa, with help from Angel Aoyoung, Megan Graham, and Peter Rudiger.
--:-- Host (Jessica Mendoza): Thanks for listening. See you tomorrow.
