TikTok December 28, 2020

TikTok just became the first major platform to ban multilevel-marketing

Rosie Sherry @rosiesherry
  1. 12

    The business nerd in me finds this stuff pretty interesting. Pyramid schemes are almost universally illegal, but multi-level marketing businesses typically aren't. What's the difference? And what makes them so sinister?

    In a pyramid scheme, people pay a fee to join the organization. Once you're in, your goal is to recruit more people under you. If you do, you get a % of the fee they pay, as well as a % of the fee from everyone they recruit.

    Obviously this can be very lucrative if you get in early enough and build a huge pyramid of people below you. And it's lucrative for the organization itself to have tons of people recruiting others to join and pay fees.

    The problem is that exponential growth can only last so long. Let's say everyone recruits 6 people. At the top level you have 1 person, then 6, then 36, etc. That seems reasonable, but it's exponential, so it ramps up surprisingly quickly. By the time you're 13 levels deep, there would be 13 billion people, more than the world's population.

    Therefore, it's obviously impossible for the vast, vast majority of people to succeed. It's a math trick where people think they can succeed because they don't realize they'll run out of people before they get very many levels down. Of course the creators of the scheme know this, but never reveal it. Which is what makes pyramid schemes a scam.

    A multi-level marketing strategy, on the other hand, is more than just recruiting. When you join, you buy products that you have to then sell to others. But here's where the pyramid structure comes into play: you can also recruit others beneath you, and make a cut of their sales as well.

    Multi-level marketing businesses are legal because it's quite possible to be a badass salesperson and make lots of money, even if you don't recruit anyone. But 99 times out of 100, the people who join are motivated entirely by the idea that they're going to make money from the people they recruit. Which doesn't work for the aforementioned reasons.

    So it's great to see TikTok (and hopefully others) ban the practice, because it's fairly viral and tends to spread easily on those networks.

    That said, there's a lot to be learned from the incentive structure. If you as a company can give your customers and employees the right incentives, they'll move mountains, up to and including inviting their friends and relatives to join a scam. 😬

    So don't start a scam. And don't trick people. But do think about win-win systems you can craft where others can help you by helping themselves. TikTok itself, for example, does a great job incentivizing millions of people to spend hours making really great videos, no pyramid structure required.

  2. 11

    I've seen too many people sucked into MLM, particularly mothers. The more platforms that restrict MLM, the better.

  3. 4

    If MLMs are of interest to anyone (from an academic / business nerd standpoint) I highly recommend the first season of The Dream, a podcast about MLMs and other "woo" sales. It was absolutely fascinating and I learned so much listening to it.

  4. 1

    Asking a stupid question here - but how would TikTok ever enforce this policy?

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      Not entirely sure, but if it's within their terms they can more easily remove it. Also, if it is communicated to the community well then I supposed people will report stuff.

  5. 1

    TikTok is a great platform. I do see a lot of multi level marketers and affiliate marketers but there are also TikTokers that openly can them out

  6. 1

    Avon, Herbalife etc...will not like it.

  7. 1

    ...and nothing of value was lost. I'm not a huge fan of TikTok, but MLM is garbage.

    1. 1

      What are your concerns against TikTok?

      1. 1

        Not in my wheelhouse. Thats all

  8. 1

    Also I wonder. Most of these MLM's cover up their pyramid schemes with a product. If the product is as good as you say it. why not take it to the pharmacies and then advertise

    1. 1

      Why take to pharmacies when you can go direct to consumer.

      Lower price for consumer or higher profits for the producer.

      It is an issue when the goal is to recruit more sellers rather than distributing more product but also there's a reason why people join. Some unmet need that MLM programs are satisfying.

      1. 1

        Yh true.
        Sellers on these platforms are pitched an easy way to make money.
        the sellers have outnumbered the consumers. So 70% of those in MLM's(according to those I know) end up using the products themselves with hopes their down-liners will earn them some money which is commission based. I think that's the only way they earn.

        Also others are pushed with fake success to trigger others to join. I'm in the university and a guy joining one of these things was bought a ford mustang by the company. This triggers so many people. Others are also bought houses.

        It's just disgusting.

        1. 1

          I was a little naive until I watched a video of what e-commerce entrepreneurs are doing to fake their store growth on TikTok

          Would be nice to be bought a mustang though

          That's why I like building in public. You see the real everyday work (which is mostly boring lol)

  9. 1

    good for humanity. people should better spend their hard work on indie hacking

    1. 2

      How would you introduce people to Indie Hacking that never heard of it?

  10. 1

    There's a documentary on Coffeezilla YouTube channel about MLM. MLM basically have such a strong lobby in the US that it became untouchable. I think american platforms such as Facebook and Instagram won't be able to ban it.

    1. 1

      Going all the way up to the cabinet- Secretary of Education Betsy DeVos

    2. 1

      What's the reason behind FB/etc not being able to ban MLM? I don't think they ever would ban it, but if they could, what would stop them from doing so?

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        Government agencies intervening in defence of MLM. MLM billionaires are major financers of politicians in both parties of US government.

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          A good reason not to start a US based business then!

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