PayPal to acquire shopping and rewards platform Honey for $4B

PayPal announced today it has agreed to acquire Honey Science Corporation, the makers of a deal-finding browser add-on and mobile application, for $4 billion, mostly cash. The acquisition, which is PayPal’s largest to date, will give the payments giant a foothold earlier in the customer’s shopping journey. Instead of only competing on the checkout page against credit cards or Apple Pay, for example, PayPal will leap ahead to become a part of the deal discovery process, as well.

Currently, Honey’s 17 million monthly active users take advantage of its suite of money-saving tools to track prices, get alerts, make lists, browse offers and participate in an Ebates-like rewards program called Honey Gold. Its users tend to be younger, millennial shoppers, both male and female.

PayPal aims to add Honey’s technology to its own product line, expanding its reach to PayPal’s 300 million users.

“What’s exciting is that we can take the functionality Honey now offers — which is product discovery, price tracking, offers and loyalty — and build that into the PayPal and Venmo experiences,” explains PayPal SVP of Global Consumer Products and Technology, and former Xoom CEO, John Kunze. “When Honey says they’re putting money in the pockets of their customers — that’s perfectly in line with what we want to do. We want to make digital commerce and financial services more affordable, easier to use, more fun and more accessible to people around the world,” he says.

In addition, PayPal’s network of 24 million merchant partners will gain the ability to offer targeted and more personalized promotions to consumers as a means of acquiring new business and driving increased sales. PayPal Credit may also be integrated into Honey to help finance larger purchases.

Honey has flown under the radar to some extent since its founding in 2012.

Originally only a web browser extension, Honey tracks sales and retailers’ promo codes, as a rival to RetailMeNot and others. What makes the extension so useful is that it automatically tries all the eligible promo codes for you during checkout then selects the one that provided the most savings and applies it on your behalf. This helps shoppers feel more comfortable with their purchases and reduces shopping cart abandonment.

The company also rolled out features to inform shoppers of an item’s price history, including the historical pricing of any product on Amazon’s marketplace. In 2017, Honey launched DropList, which would track and alert users to lower prices, as well as tools for finding travel deals.

As more consumers shifted their shopping to e-commerce merchants, Honey’s user base also rapidly grew.

Its browser extension now works across approximately 30,000 merchant websites, including fashion, technology, travel and even pizza delivery. Last year, Honey publicly shared that its 10 million members had saved over $800 million using its tools. As of today, Honey’s 17 million members have saved more than $2 billion to date.

 

“Honey is amongst the most transformative acquisitions in PayPal’s history. It provides a broad portfolio of services to simplify the consumer shopping experience, while at the same time making it more affordable and rewarding,” said Dan Schulman, president and CEO of PayPal, in a statement.

“The combination of Honey’s complementary consumer products with our platform will significantly enhance our ability to drive engagement and play a more meaningful role in the daily lives of our consumers. As a partner of choice for our merchants, this is another way that we can help them build and strengthen their customer relationships, provide personalized offers, and drive incremental sales. The combination of Honey and PayPal adds another significant and meaningful dimension to our two-sided platform,” Schulman added.

The acquisition also gives PayPal a way to fight back against the increased competition from Apple, Google, Facebook and other tech companies that have entered the payments market in recent years. On Apple’s Q4 2019 earnings call, for example, CEO Tim Cook noted that Apple Pay has now exceeded PayPal transaction volume with 3 billion transactions in the quarter. Meanwhile, analysts are predicting Facebook Pay has the potential to unseat both Apple Pay and PayPal alike.

Then there are PayPal’s original rivals — the world’s biggest card networks like Visa, Mastercard, American Express and Discover. These companies are also fighting to remain relevant online, with a new PayPal competitor of their own to simplify online checkout.

With Honey, PayPal immediately shifts the battle away from the checkout page itself to instead compete against all the places people go to discover, browse, get inspired and deal-hunt — whether that’s directly on retailers’ sites or through newer platforms, like Pinterest or Instagram Shopping.

As a result of the acquisition, Honey co-founders George Ruan and Ryan Hudson will join PayPal where they’ll work on product integrations and scaling the technology to a much larger user base. Also joining is Honey’s predominantly L.A.-based team of 350 employees.

The Honey team and headquarters will remain in L.A., where they’ve just signed a lease on a new office space with expansion goals in mind.

“Combining PayPal’s assets and reach with our technology, we can build powerful new online shopping experiences for consumers and merchants,” said Hudson. “We’ll have the ability to help millions of retailers efficiently reach consumers with offers that deliver more and more value to Honey members.”

To date, Honey had raised $49 million from investors, including Ludlow Ventures, Zuma Partners, Mucker Capital, SXE Ventures, BAM Ventures, Plug and Play, Wonder Ventures, Cendana Capital, Anthos Capital and others, according to Crunchbase.

Honey was already profitable on a net income basis in 2018, PayPal notes. The acquisition is expected to close in the first quarter of 2020, subject to regulatory approval. It’s expected to be accretive to PayPal’s non-GAAP earnings per share in 2021.

PayPal will hold a conference call at 2 PM PST today to discuss the transaction further.

Elavon to acquire Sage Pay, a gateway that competes with Stripe, PayPal and Adyen, for $300M

E-commerce continues to gain momentum — a trend we’ll see played out in the next two months of holiday shopping — and with that comes more consolidation. Today, Elavon, the payments company that is a subsidiary of US Bancorp, announced that it will acquire Sage Pay, one of the bigger payment processors in the UK and Ireland serving small and medium businesses.

Sage Pay’s owner Sage Group said the deal is being done for £232 million in cash (or $300 million at today’s currency rates).

Elavon is active in 10 countries and says it’s the fourth-largest merchant acquirer in Europe, competing against the likes of  Global Payments, Vantiv, FIS, Ingenico, Verifone, Stripe, Chase, MasterCard and Visa. The deal is still subject to regulatory approval (both by the Federal Reserve in the US and the Central Bank of Ireland), and if all proceeds, the deal is expected to close in Q2 of 2020.

The acquisition points to a bigger trend underway in e-commerce. The market is very fragmented, not just in terms of the companies who sell goods online but also (and perhaps especially) in terms of the companies that manage the complexities at the back end.

In keeping with that, Sage Pay has a lot of competitors in its specific area of taking and managing the payments process for online retailers and others taking transactions online or via mobile apps. They include some of the same competitors as Elavon’s: newer entrants like Stripe, Adyen, and PayPal (all of which have extensive businesses covering many countries and are each larger than Sage, valued in the billions rather than hundreds of millions of dollars), but also smaller operations like GoCardless as well as more established companies like WorldPay.

This deal is a mark of the consolidation that’s been taking place to gain better economies of scale in a market where individual transactions generally generate incremental revenues.

Sage Pay, in that context, was a relatively small player. It 2018 revenues were £41 million, but it is profitable, with an operating profit of £15 million, and Sage said it expects “to report a statutory profit on disposal of approximately £180 million on completion.”

The deal comes on the heels of Sage Group — which is publicly traded — confirming reports in September that it was looking for strategic alternatives for the payments business. Sage Group for the last couple of years has been divesting payments and banking assets to focus more on accounting, people and payroll software, which it sells through an SaaS model.

“Our vision of becoming a great SaaS company for customers and colleagues alike means we will continue to focus on serving small and medium sized customers with subscription software solutions for Accounting & Financials and People & Payroll,” said Steve Hare, Sage’s CEO, in a statement. “Payments and banking services remain an integral part of Sage’s value proposition and we will deliver them through our growing network of partnerships, including Elavon.”

Elavon, as the consolidator here, was itself acquired by US Bancorp way back in 2001 for $2.1 billion. Currently it is active in 10 countries, but in that same vein of consolidation to improve economies of scale on the technical side, and to aggregate more incremental transactions on the financial side, Elavon’s main objective is to increase its overall share of the e-commerce market in Europe. specifically by expanding with Sage Pay further into the UK and Ireland.

“We are a customer-focused company that is helping businesses succeed in a global marketplace that is changing rapidly,” said Hannah Fitzsimons, president and general manager of Elavon Merchant Services, Europe. “This acquisition brings tremendous talent and leading technology to Elavon, which can be leveraged across the European market.”

Google to offer checking accounts in partnership with banks starting next year

Google is the latest big tech company to make a move into banking and personal financial services: The company is gearing up to offer checking accounts to consumers, as first reported by the Wall Street Journal, starting as early as next year. Google is calling the projected “Cache,” and it’ll partner with banks and credit unions to offer the checking accounts, with the banks handling all financial and compliance activities related to the accounts.

Google’s Caesar Sengupta spoke to the WSJ about the new initiative, and Sengupta made clear that Google will be seeking to put its financial institution partners much more front-and-center for its customers than other tech companies have perhaps done with their financial products. Apple works with Goldman Sachs on its Apple Card credit product, for instance, but the credit card is definitely pretend primarily as an Apple product.

So why even bother getting into this game if it’s leaving a lot of the actual banking to traditional financial institutions? Well, Google obviously stands to gain a lot of valuable information and insight on customer behavior with access to their checking account, which for many is a good picture of overall day-to-day financial life. Google says it’s also intending to offer product advantages for both consumers and banks, including things like loyalty programs, on top of the basic financial services. It’s also still considering whether or not it’ll charge service fees, per Segupta – not doing so would definitely be and advantage over most existing checking accounts available.

Google already offers Google Pay, and its Google Wallet product has hosted some features beyond simple payments tracking, including the ability to send money between individuals. Meanwhile, rivals including Apple have also introducing payment products, and Apple of course recently expanded into the credit market with Apple Card. Facebook also introduced its own digital payment product earlier this week, and earlier this year announced its intent to build its own digital currency called ‘Libra’ along with partners.

The initial financial partners that Google is working with include Citigroup and Stanford Federal Credit Union, and their motivation per the WSJ piece appears to be seeking out and attracting younger and more digital-savvy customers who are increasingly looking to handle more of their lives through online tools. Per Sengupta’s comments, they’ll also benefit from Google’s ability to work with large sets of data and turn those into value-add products, but the Google exec also said the tech company doesn’t sue Google Pay data for advertising, nor does it share that data with advertisers. Still, convincing people to give Google access to this potentially sensitive area of their lives might be an uphill battle, especially given the current political and social climate around big tech.

PayPal reports solid third-quarter results, with total payment volume growing 25%

PayPal reported third-quarter results today that were slightly ahead of analysts’ expectations, driven by an increase in total payment volume.

The company’s quarterly revenue grew 19% year-over-year to $4.38 billion. Its GAAP net income was 39 cents per share, or $462 million, a 7% year-over-year increase. On a non-GAAP basis, net income was 61 cents a share, a 5% increase.

These figures included a negative impact from strategic investments in MercadoLibre and Uber; without that, GAAP net income would have increased 48% to 54 cents per share, and non-GAAP net income would have rose 31% to 76 cents per share.

During the third quarter, PayPal added 9.8 million active accounts, increasing the total number by 16% to 295 million. Total payment volume (TPV) increased 25% to $179 billion. Venmo processed more than $27 billion in TPV during the quarter, an increase of 64%.

For its full-year results, PayPal said it expects earnings per share ranging from $3.06 to $3.08 per share, on revenue of $17.7 billion to $17.76 billion.

In September, PayPal announced it will acquire a 70% equity interest in GoPay (Guofubao). The deal is expected to close during the fourth quarter and will make PayPal the first foreign payments company licensed to provide online payment services in China, an important potential driver of future growth.

Why each Libra member’s mutiny hurts Facebook

There’s a strategic cost to the defection of Visa, Stripe, eBay, and more from the Facebook -led cryptocurrency Libra Association . They’re not just names dropping off a list. Each potentially made Libra more useful, ubiquitous, or reputable. Now they could become obstacles to the token’s launch or growth.

Fearing regulators’ inquiries not just into their Libra involvement but the rest of their businesses, these companies are pulling out at least for now. None had made precise commitments to integrating Libra into their products, and they’ve said they could still get involved later. But their exit clouds the project’s future and leaves Facebook to absorb more of the blowback.

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Here’s what each of the departing Libra Association members brought to the table and how they could spawn new challenges for the cryptocurrency:

Visa

With one of most widely-accepted payment methods, Visa could have helped make Libra universally spendable. It’s also one of the most prestigious names in finance, lending deep credibility to the project. Visa’s departure leaves Libra looking more like tech companies barging into payments, conjuring fears of their move fast, break things approach that could cause financial ruin if Libra runs into problems. It also could leave Libra with a much weaker presence in brick-and-mortar shops. No one will want to own a cryptocurrency that doesn’t appreciate in value and can’t be easily spent.

MasterCard

The involvement of MasterCard alongside Visa made Libra look like the incumbents adapting to modern technologies. This made it less threatening, and gave cryptocurrency an air of inevitability. MasterCard would have also brought an even wider network of locations where Libra could one day be used for payment. Now MasterCard and Visa might actively work against Libra to prevent their payment methods being made obsolete by Libra and its elimination of transaction fees through the blockchain. Two of Libras biggest allies could become its biggest foes.

PayPal

Facebook has repeatedly told regulators that its Calibra app plus integrations into Messenger and WhatsApp would not be the only Libra wallets, pointing to PayPal . Facebook’s head of Libra David Marcus told Congress when asked about the social network’s outsized power to exploit Libra through its own Calibra wallet that “you have companies like PayPal and others that will, of course, collaborate, but [also] compete with us”. Now Facebook won’t have a scaled payment method it doesn’t own to point to as a likely alternative for people who don’t want to trust Facebook’s Calibra, Messenger, or WhatsApp to be their Libra wallet. The Libra Association also loses PayPal’s enormous network of online merchants that accept it, plus the inroad to integration into its peer-to-peer payback app Venmo. PayPal convinced the mainstream public to trust online payments — the exact kind of trust Facebook desperately needs. The fact that Marcus was also the former president of PayPal but couldn’t keep it in the association raises concerns about the group’s coalition-building prowess.

Stripe

Stripe’s enormous popularity with ecommerce vendors made it a valuable Libra Association member. Together with PayPal, Stripe facilitates a huge portion of online transactions outside of China. Its ease of integration made it a top pick for developers Facebook surely hoped would build atop Libra. Stripe’s exit destroys a critical bridge to the fintech startup ecosystem that could have helped institutionalize Libra. Now the association will have to work on engineering payment widgets from scratch without Stripe’s assistance, which could slow adoption if it ever launches.

There’s a clear reason all these payment processors bailed. Senators Brian Schatz (D-HI) and Sherrod Brown (D-OH) wrote a letter to Visa, MasterCard, and Stripe’s CEOs this week explaining that “If you take this on, you can expect a high level of scrutiny from regulators not only on Libra-related activities, but on all payment activities.”

eBay

As one of the longest standing ecommerce companies, eBay bolstered beliefs that Libra could be used to power transactions between untrusted strangers without a costly middleman. It might have also put Libra into practice on one of the top western online marketplaces outside of Amazon. Without destinations like eBay onboard, average netizens will have fewer opportunities to be exposed to Libra’s potential to eliminate transaction fees.

Mercado Pago

One of the lesser-known Libra Association members, Mercado Pago helps merchants receive payments via email or in installments. The idea of connecting financially underserved populations has been core to Facebook’s pitch for why Libra should exist. The Libra Association has been light on the details of how exactly it serves this demographic, relying on the inclusion of partners like Mercado Pago to help it figure this out later. Mercado Pago’s departure leaves Libra looking more like a financial power grab rather than a tool to assist the disadvantaged.

Who’s Left?

On Monday, the remaining Libra Association members will meet to finalize the initial member list, elect a board, and create a charter to govern the project. This forced the hands of the companies above, who had their last chance to depart this week before being pulled deeper into Libra.

Facebook Currency Hearing

UNITED STATES – JULY 16: David Marcus, head of Facebook’s Calibra digital wallet service, prepares to testify during the Senate Banking, Housing and Urban Affairs Committee hearing on “Examining Facebook’s Proposed Digital Currency and Data Privacy Considerations” on Tuesday, July 16, 2019. (Photo By Bill Clark/CQ Roll Call)

Who’s left includes venture capital firms, ride sharing companies, non-profits, and cryptocurrency companies. They are less tied up with the status quo of payment processing, and therefore had less to lose. The blockchain-specific companies were likely hoping to piggyback on financial giants like Visa to get Libra approved and create more legitimacy for their industry as a whole.

These partners could help fund an ecosystem of Libra developers, create daily use cases, spread the system in the developing world, and push for alliances between Libra and cryptocurrency players. Facebook will need to fight to keep them aboard if it wants to avoid Libra looking like a unilateral disruption of the economy.

For Libra to actually launch, Facebook needs to make serious concessions and divert from its initial vision. Otherwise if it continues to butt heads with regulators, more members could flee. One option floated by Libra Association member Andreessen Horowitz’s a16z Crypto partner Chris Dixon was for Libra to be denominated in US dollars instead of a basket of international currencies. That might lessen fears that Libra intends to compete directly with the dollar.

It’s become apparent that Facebook will not get its ideal cryptocurrency out the door. This is the brand tax of 100 scandals coming back to bite it. Now the best it can hope for is to get even a watered-down version launched, prove it can actually help the underbanked, and then hope to convince regulators it’s well-intentioned.

PayPal is the first company to drop out of the Facebook-led Libra Association

PayPal has become the first company to walk away officially from Facebook’s Libra, a cryptocurrency and related association that it announced earlier this year with a chain of nearly 30 big names behind the effort to help build and operate services around it.

PayPal has made the decision to forgo further participation in the Libra Association at this time and to continue to focus on advancing our existing mission and business priorities as we strive to democratize access to financial services for underserved populations,” PayPal said in an emailed statement to TechCrunch. “We remain supportive of Libra’s aspirations and look forward to continued dialogue on ways to work together in the future. Facebook has been a longstanding and valued strategic partner to PayPal, and we will continue to partner with and support Facebook in various capacities.”

A high-profile, would-be partner like PayPal backing out from the effort before it’s even gotten off the ground is a big blow to Facebook and the Libra Association, which has been struggling under the weight of speculation that some of the big organizations, initially interested in collaborating on Libra, are now on the fence about the project, put off by wave of negative reaction from regulators and others that might lead to problems launching and ultimately growing the service.

In response, the Libra Association has come out with an understated but scathing statement of its own in response to PayPal’s announcement. (Facebook had referred our questions to the group and did not comment directly.)

“It requires a certain boldness and fortitude to take on an endeavor as ambitious as Libra – a generational opportunity to get things right and improve financial inclusion,” said a spokesperson. “The journey will be long and challenging. The type of change that will reconfigure the financial system to be tilted towards people, not the institutions serving them, will be hard. Commitment to that mission is more important to us than anything else. We’re better off knowing about this lack of commitment now, rather than later.”

PayPal is the first firm to walk away from the Libra Association, but it comes at a difficult time for the project, even before it has launched.

Both regulators and other government bodies on both sides of the Atlantic — already scrutinizing Facebook and cryptocurrency as separate issues — have honed in on the project with concerns of how a Facebook-backed and promoted currency could lead to anti-competitive behavior.

Facebook and other members of the Libra Association are due to meet this month in Geneva to appoint its first board of directors, but ahead of that it’s been reported that the government scrutiny has started to spook some who have only nominally backed the project at this point.

The WSJ reported earlier this week that Mastercard, Visa and other companies may join PayPal in backing away from the Libra project. Mastercard has not responded to a request for comment, but Visa’s CEO Al Kelly has made public statements that underscore Visa’s provisional support for Libra — a position we understand remains unchanged as of today, provided regulatory and other issues do not get in the way.

“It’s important to understand the facts here and not any of us get out ahead of ourselves,” Kelly said in the company’s most recent earnings call. “So we have signed a nonbinding letter of intent to join Libra. We’re one of – I think it’s 27 companies that have expressed that interest. So no one has yet officially joined. We’re in discussions and our ultimate decision to join will be determined by a number of factors, including obviously the ability of the association to satisfy all the requisite regulatory requirements… It’s really, really early days and there’s just a tremendous amount to be finalized. But obviously, given that we’ve expressed interest, we actually believe we could be additive and helpful in the association.”

As we reported when Libra first launched, Facebook doesn’t control the Libra organization or currency, but gets a single vote alongside the remaining partners. Those that have endorsed the association currently include, alongside Mastercard and Visa, Stripe, Uber and the VC firm Andreessen Horowitz. Each Libra Association partner invests at least $10 million in the project and the association will promote the open-sourced Libra Blockchain.

The partners would not only pitch the Libra Blockchain and developer platform with its own Move programming language, but sign up businesses to accept Libra for payment and even give customers discounts or rewards.

Facebook has a lot riding on the success of the Association beyond just its Libra stake. The company has also launched a subsidiary company called Calibra that handles crypto transactions on its platform that would use the Libra blockchain. (It’s been quietly developing this alongside the Libra effort, including making acquisitions to expand the functionality around how it will work.)

Governments around the world have been up in arms because they are concerned that, with Libra, Facebook and its partners will try to make an end run around existing financial services and their corresponding regulations.

Perhaps in response to these pressures and how they might play out, earlier this month, Facebook chief executive Mark Zuckerberg indicated that the company would be willing to delay the launch of the cryptocurrency — it is currently planned for 2020 — in an interview with the Japanese Nikkei news service. “Move fast and break things” won’t be getting applied here.

PayPal to enter China through GoPay acquisition

The People’s Bank of China has approved PayPal’s acquisition of a 70% equity state in GoPay (Guofubao Information Technology Co. [GoPay], Ltd.), which will make PayPal the first foreign payment platform to provide online payment services in China. GoPay has licenses for online and mobile transactions, and mainly provides payment products for industries including e-commerce, cross-border commerce, aviation tourism and others.

According to a statement from Guofubao, PayPal acquired the controlling stake through the Shanghai-based subsidiary Yinbaobao Information Technology (Shanghai) Co., Ltd.

The companies did not disclose deal terms.

The news of PayPal’s entry into China comes at a time when there’s increased tension between the U.S. and China, with The White House reportedly now considering curbing some U.S. investments in China amid the trade dispute between the countries.

Though China’s payments market today is led by local players, including eWallet providers like AliPay and WeChat Pay on the mobile side, there’s still plenty of room for it to grow — which would benefit PayPal.

On the mobile payments side alone, the market is expected to grow 21.8%, from 2017 to $96.73 trillion in 2023, driven partly by increasing demand for e-commerce, a report from Frost & Sullivan found. The market has also seen an increase in cross-border transactions, particularly in sectors like e-commerce, travel and overseas education. These reached $6.66 trillion in 2016.

The report additionally said the total number of active mobile payment customers is expected to reach 956 million by 2023, up from 562 million in 2017.

Last year, China’s central bank said it would open up further to foreign payment companies.

U.S. firms in the financial services market have for a long time struggled to enter China. Notably, American Express became the first U.S. card network to gain permission to set up card-clearing services in China last November, and Mastercard this year said it would try to set up a joint venture with another local player to gain entry.

PayPal said the transaction is expected to close in Q4 2019 and is subject to customary closing conditions.

The company’s full statement on the acquisition is below:

The People’s Bank of China has approved PayPal Information Technologies Co., Ltd.’s acquisition of a 70% equity interest in Guofubao Information Technology Co. (GoPay), Ltd., a holder of a payment business license in China. We are honored to become the first foreign payment platform to be licensed to provide online payment services in China. We look forward to partnering with China’s financial institutions and technology platforms, providing a more comprehensive set of payment solutions to businesses and consumers, both in China and globally. The transaction is expected to close in the fourth quarter of 2019 and is subject to customary closing conditions.

Gatsby raises $15M Series A for its modern web development platform

Gatsby, a platform that uses modern web technologies like React and GraphQL to help developers build better sites faster, today announced that it has raised a $15 million Series A round led by CRV. Previous investors Trinity Ventures, Mango Capital, Fathom Capital and Dig Ventures also participated, as did Kong CEO Augusto Marietti and Adobe CPO Scott Belsky. The company previously raised a $3.8 million seed round.

While Gatsby may not be a household name yet, it has grown quickly since its launch in 2015. Its users today include the likes of IBM, PayPal, Braun, Airbnb and Impossible Burger. The company argues that about 1% of the top 10,000 websites have now been built on top of the platform, which promises that it allows these companies to do away with their old LAMP stack and move to a more modern stack, based on modern open-source tools and engineering practices. Gatsby also does away with a monolithic CMS system and instead brings together a variety of tools that still allow content creators to use platforms like WordPress or Drupal to create what’s essentially a headless CMS system. In that case, Gatsby simply becomes the presentation layer for the CMS.

gatsby team

“We’ve spent four years building Gatsby to be the most comprehensive platform for building a modern website,” writes Gatsby founder and CEO Kyle Matthews. “What would take companies months or even years to implement with a cutting edge web stack is trivial to start with, build with, and deploy on Gatsby.”

Gatsby itself is based on the GatsbyJS open-source project. The company says more than 2,500 people have contributed since that project started. Matthews says Gatsby (the company) is now contributing about $3 million per year to open-source projects that include the core Gatsby tools and the plugin ecosystem around it.

Like similar open-source projects, Gatsby monetizes its tools by offering a hosted service that helps teams of developers stand up a new site quickly, with prices starting at $50/month for one site.

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Brexit means clear your cookies for democracy

Brexit looks set to further sink the already battered reputation of tracking cookies after a Buzzfeed report yesterday revealed what appears to be a plan by the UK’s minority government to use official government websites to harvest personal data on UK citizens for targeting purposes.

According to leaked government documents obtained by the news site, the prime minister has instructed government departments to share website usage data that’s collected via gov.uk websites with ministers on a cabinet committee tasked with preparing for a ‘no deal’ Brexit.

It’s not clear how linking up citizens use of essential government portals could further ‘no deal’ prep.

Rather the suspicion is it’s a massive, consent-less voter data grab by party political forces preparing for an inevitable general election in which the current Tory PM plans to campaign on a pro-Brexit message.

The instruction to pool gov.uk usage data as a “top priority” is also being justified internally in instructions to civil servants as necessary to accelerate plans for a digital revolution in public services — an odd ASAP to be claiming at a time of national, Brexit-induced crisis when there are plenty more pressing priorities (given the October 31 EU exit date looming).

A government spokesperson nonetheless told Buzzfeed the data is being collected to improve service delivery. They also claimed it’s “anonymized” data.

“Individual government departments currently collect anonymised user data when people use gov.uk. The Government Digital Service is working on a project to bring this anonymous data together to make sure people can access all the services they need as easily as possible,” the spokesperson said, further claiming: “No personal data is collected at any point during the process, and all activity is fully compliant with our legal and ethical obligations.”

However privacy experts quickly pointed out the nonsense of trying to pretend that joined up user data given a shared identifier is in any way anonymous.

 

For those struggling to keep up with the blistering pace of UK political developments engendered by Brexit, this is a government led by a new (and unelected) prime minister, Boris ‘Brexit: Do or Die’ Johnson, and his special advisor, digital guru Dominic Cummings, of election law-breaking Vote Leave campaign fame.

Back in 2015 and 2016, Cummings, then the director of the official Vote Leave campaign, masterminded a plan to win the EU referendum by using social media data to profile voters — blitzing them with millions of targeted ads in final days of the Brexit campaign.

Vote Leave was later found to have channelled money to Cambridge Analytica-linked Canadian data firm Aggregate IQ to target pro-Brexit ads via Facebook’s platform. Many of which were subsequently revealed to have used blatantly xenophobic messaging to push racist anti-EU messaging when Facebook finally handed over the ad data.

Setting aside the use of xenophobic dark ads to whip up racist sentiment to sell Brexit to voters, and ongoing questions about exactly how Vote Leave acquired data on UK voters for targeting them with political ads (including ethical questions about the use of a football quiz touting a £50M prize run on social media as a mass voter data-harvesting exercise), last year the UK’s Electoral Commission found Vote Leave had breached campaign spending limits through undeclared joint working with another pro-Brexit campaign — via which almost half a million pounds was illegally channeled into Facebook ads.

The Vote Leave campaign was fined £61k by the Electoral Commission, and referred to the police. (An investigation is possibly ongoing.)

Cummings, the ‘huge brain’ behind Vote Leave’s digital strategy, did not suffer a dent in his career as a consequence of all this — on the contrary, he was appointed by Johnson as senior advisor this summer, after Johnson won the Conservative leader contest and so became the third UK PM since the 2016 vote for Brexit.

With Cummings at his side, it’s been full steam ahead for Johnson on social media ads and data grabs, as we reported last month — paving the way for a hoped for general election campaign, fuelled by ‘no holds barred’ data science. Democratic ethics? Not in this digitally disruptive administration!

The Johnson-Cummings pact ignores entirely the loud misgivings sounded by the UK’s information commissioner — which a year ago warned that political microtargeting risks undermining trust in democracy. The ICO called then for an ethical pause. Instead Johnson stuck up a proverbial finger by installing Cummings in No.10.

The UK’s Digital, Culture, Media and Sport parliamentary committee, which tried and failed to get Cummings to testify before it last year as part of a wide-ranging enquiry into online disinformation (a snub for which Cummings was later found in contempt of parliament), also urged the government to update election law as a priority last summer — saying it was essential to act to defend democracy against data-fuelled misinformation and disinformation. A call that was met with cold water.

This means the same old laws that failed to prevent ethically dubious voter data-harvesting during the EU referendum campaign, and failed to prevent social media ad platforms and online payment platforms (hi, Paypal!) from being the conduit for illegal foreign donations into UK campaigns, are now apparently incapable of responding to another voter data heist trick, this time cooked up at the heart of government on the umbrella pretext of ‘preparing for Brexit’.

The repurposing of government departments under Johnson-Cummings for pro-Brexit propaganda messaging also looks decidedly whiffy…

Asked about the legality of the data pooling gov.uk plan as reported by Buzzfeed, an ICO spokesperson told us: “People should be able to make informed choices about the way their data is used. That’s why organisations have to ensure that they process personal information fairly, legally and transparently. When that doesn’t happen, the ICO can take action.”

Can — but hasn’t yet.

It’s also not clear what action the ICO could end up taking to purge UK voter data that’s already been (or is in the process of being) sucked out of the Internet to be repurposed for party political purposes — including, judging by the Vote Leave playbook, for microtargeted ads that promote a no holds barred ‘no deal’ Brexit agenda.

One thing is clear: Any action would need to be swiftly enacted and robustly enforced if it were to have a meaningful chance of defending democracy from ethics-free data-targeting.

Sadly, the ICO has yet to show an appetite for swift and robust action where political parties are concerned.

Likely because a report it put out last fall essentially called out all UK political parties for misusing people’s data. It followed up saying it would audit the political parties starting early this year — but has yet to publish its findings.

Concerned opposition MPs are left tweeting into the regulatory abyss — decrying the ‘coup’ and forlornly pressing for action… Though if the political boot were on the other foot it might well be a different story.

Among the cookies used on gov.uk sites are Google Analytics cookies which store information on how visitors got to the site; the pages visited and length of time spent on them; and items clicked on. Which could certainly enable rich profiles to be attached to single visitors IDs.

Visitors to gov.uk properties can switch off Google Analytics measurement cookies, as well as denying gov.uk communications and marketing cookies, and cookies that store preferences — with only “strictly necessary” cookies (which remember form progress and serve notifications) lacking a user toggle.

What should concerned UK citizens to do to defend democracy against the data science folks we’re told are being thrown at the Johnson-Cummings GSD data pooling project? Practice good privacy hygiene.

Clear your cookies. Indeed, switch off gov.uk cookies. Deny access wherever and whenever possible.

It’s probably also a good idea to use a fresh (incognito) browser session each time you need to visit a government website and close the session (with cookies set to clear) immediately you’re done. And use a good tracker blocker.

When the laws have so spectacularly failed to keep up with the data processors, limiting how your information is gathered online is the only way to be sure. Though as we’ve written before it’s not easy.

Privacy is personal and unfortunately, with the laws lagging, the personal is now trivially cheap and easy to weaponize for political dark arts that treat democracy as a game of PR, debasing the entire system in the process.

APIs are the next big SaaS wave

While the software revolution started out slowly, over the past few years it’s exploded and the fastest-growing segment to-date has been the shift towards software as a service or SaaS.

SaaS has dramatically lowered the intrinsic total cost of ownership for adopting software, solved scaling challenges and taken away the burden of issues with local hardware. In short, it has allowed a business to focus primarily on just that — its business — while simultaneously reducing the burden of IT operations.

Today, SaaS adoption is increasingly ubiquitous. According to IDG’s 2018 Cloud Computing Survey, 73% of organizations have at least one application or a portion of their computing infrastructure already in the cloud. While this software explosion has created a whole range of downstream impacts, it has also caused software developers to become more and more valuable.

The increasing value of developers has meant that, like traditional SaaS buyers before them, they also better intuit the value of their time and increasingly prefer businesses that can help alleviate the hassles of procurement, integration, management, and operations. Developer needs to address those hassles are specialized.

They are looking to deeply integrate products into their own applications and to do so, they need access to an Application Programming Interface, or API. Best practices for API onboarding include technical documentation, examples, and sandbox environments to test.

APIs tend to also offer metered billing upfront. For these and other reasons, APIs are a distinct subset of SaaS.

For fast-moving developers building on a global-scale, APIs are no longer a stop-gap to the future—they’re a critical part of their strategy. Why would you dedicate precious resources to recreating something in-house that’s done better elsewhere when you can instead focus your efforts on creating a differentiated product?

Thanks to this mindset shift, APIs are on track to create another SaaS-sized impact across all industries and at a much faster pace. By exposing often complex services as simplified code, API-first products are far more extensible, easier for customers to integrate into, and have the ability to foster a greater community around potential use cases.

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Graphics courtesy of Accel

Billion-dollar businesses building APIs

Whether you realize it or not, chances are that your favorite consumer and enterprise apps—Uber, Airbnb, PayPal, and countless more—have a number of third-party APIs and developer services running in the background. Just like most modern enterprises have invested in SaaS technologies for all the above reasons, many of today’s multi-billion dollar companies have built their businesses on the backs of these scalable developer services that let them abstract everything from SMS and email to payments, location-based data, search and more.

Simultaneously, the entrepreneurs behind these API-first companies like Twilio, Segment, Scale and many others are building sustainable, independent—and big—businesses.

Valued today at over $22 billion, Stripe is the biggest independent API-first company. Stripe took off because of its initial laser-focus on the developer experience setting up and taking payments. It was even initially known as /dev/payments!

Stripe spent extra time building the right, idiomatic SDKs for each language platform and beautiful documentation. But it wasn’t just those things, they rebuilt an entire business process around being API-first.

Companies using Stripe didn’t need to fill out a PDF and set up a separate merchant account before getting started. Once sign-up was complete, users could immediately test the API with a sandbox and integrate it directly into their application. Even pricing was different.

Stripe chose to simplify pricing dramatically by starting with a single, simple price for all cards and not breaking out cards by type even though the costs for AmEx cards versus Visa can differ. Stripe also did away with a monthly minimum fee that competitors had.

Many competitors used the monthly minimum to offset the high cost of support for new customers who weren’t necessarily processing payments yet. Stripe flipped that on its head. Developers integrate Stripe earlier than they integrated payments before, and while it costs Stripe a lot in setup and support costs, it pays off in brand and loyalty.

Checkr is another excellent example of an API-first company vastly simplifying a massive yet slow-moving industry. Very little had changed over the last few decades in how businesses ran background checks on their employees and contractors, involving manual paperwork and the help of 3rd party services that spent days verifying an individual.

Checkr’s API gives companies immediate access to a variety of disparate verification sources and allows these companies to plug Checkr into their existing on-boarding and HR workflows. It’s used today by more than 10,000 businesses including Uber, Instacart, Zenefits and more.

Like Checkr and Stripe, Plaid provides a similar value prop to applications in need of banking data and connections, abstracting away banking relationships and complexities brought upon by a lack of tech in a category dominated by hundred-year-old banks. Plaid has shown an incredible ramp these past three years, from closing a $12 million Series A in 2015 to reaching a valuation over $2.5 billion this year.

Today the company is fueling an entire generation of financial applications, all on the back of their well-built API.

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Graphics courtesy of Accel

Then and now

Accel’s first API investment was in Braintree, a mobile and web payment systems for e-commerce companies, in 2011. Braintree eventually sold to, and became an integral part of, PayPal as it spun out from eBay and grew to be worth more than $100 billion. Unsurprisingly, it was shortly thereafter that our team decided to it was time to go big on the category. By the end of 2014 we had led the Series As in Segment and Checkr and followed those investments with our first APX conference in 2015.

Plaid, Segment, Auth0, and Checkr had only raised Seed or Series A financings! And we are even more excited and bullish on the space. To convey just how much API-first businesses have grown in such a short period of time, we thought it would be useful perspective to share some metrics over the past five years, which we’ve broken out in the two visuals included above in this article.

While SaaS may have pioneered the idea that the best way to do business isn’t to actually build everything in-house, today we’re seeing APIs amplify this theme. At Accel, we firmly believe that APIs are the next big SaaS wave — having as much if not more impact as its predecessor thanks to developers at today’s fastest-growing startups and their preference for API-first products. We’ve actively continued to invest in the space (in companies like, Scale, mentioned above).

And much like how a robust ecosystem developed around SaaS, we believe that one will continue to develop around APIs. Given the amount of progress that has happened in just a few short years, Accel is hosting our second APX conference to once again bring together this remarkable community and continue to facilitate discussion and innovation.

Screen Shot 2019 09 06 at 10.41.10 AM

Graphics courtesy of Accel