Writen by Barry Devlin
Here is part of an email I received recently:
Follow the directions below and in two weeks you`ll have at least 2,000 dollarsbecause most people respond due to low investment and high profit potential. Webelieve the return rate is currently as good as 80%! Just donate five dollars ($5.00) to one 1 person! After the first time, you`ll see how EASY it is and it DOES work! Now let me tell you the simple details! *Log into your PayPal account, and send $5.00 to the name in the NEXT DUE slot. *Next, move the PENDING address up into the "NEXT DUE" slot and put your own e-mail address into the"PENDING" slot. After you have retyped the names in the new order, send this e-mail to as many people as possible IMMEDIATELY! (Using a Bulk Email Service will really boost your donations), use blasters, safelists, whatever you have. DO NOT SPAM - it`s against the LAW.
This is a very basic pyramid scheme. Now, does the person who sent me the email know that this scheme is illegal? I don't think so, because he provides his real name and email ID.
What's ironic is that he warns us not to spam, because spamming would be illegal!
He does offer an interesting rationale for joining the scheme:
"Think of it like a lottery ticket. You put in your $5, and you may or may not win."
The lottery-ticket analogy is appealing, but not correct. In a lottery, every ticket holder has an equal chance of winning. In a pyramid scheme, only the early participants are likely to win. That's why such schemes are illegal!
Scammers have also discovered ways to operate what I call "disguised pyramids". These schemes are legal (or quasi-legal), and are much harder to recognize as scams.
Disguised pyramids
There are a number of different ways to disguise a pyramid scheme. On the internet, the most common method is to have a multi-level affiliate program.
In a single-level affiliate program, you receive a commission if a visitor to your site purchases a product that you are promoting. There is no additional incentive for you to sign up other affiliates.
In a two-level affiliate program, you receive commission for signing up other affiliates. There may be an up front reward (when the affiliate signs up), and there may be ongoing incentives. For example, you may receive a small commission of every sale that your downline affiliate makes.
A two-level affiliate program makes sense, because it encourages you to sign up other affiliates. However, you do need to make sure that your market size is large enough to support a large number of affiliates. Otherwise, you end up with too many marketers chasing after too few customers.
A multi-level affiliate scheme with 3 or more levels is really just a pyramid in disguise.
What's wrong with a pyramid in disguise?
My favorite example of this is Global Domains International (GDI). GDI sells you a domain name plus a small web site for $10 a month. This purchase entitles you to build a downline of affiliates, up to 5 levels deep. You receive $1 for every sale by any of your downline affiliates.
Therefore, if you have 5 affiliates, and they each have 5 affiliates (and so on), you have a pyramid 5 levels deep with a total of 3905 affiliates. Every month, you receive a check for $3905.
Wow! This sounds great! What could possibly be wrong with this?
The problem is the shape of the pyramid. It is very narrow at the top, and very wide at the base. In the example above, there are 5 people at level one, and 3125 people at level five!
Now, GDI claims that there will be 500 Million domains active in the next 10 years. Let's accept that at face value, and assume that GDI gets 20% of this market that would be 100 million domains. Even this huge number only supports 30,000 people with five-level pyramids! Meanwhile, at the base of these pyramids, 80 million affiliates will be scrambling around, finding it difficult to sign up even one new affiliate!
Even if these numbers are confusing to you, just remember this: only 1 out of every 5 affiliates are making any money. Only 1 out of every 1000 will make serious money.
So what?
Now at least you know the odds of success. You may still decide to join such a scheme. If you work hard, and work smart, you may rise to the top.
Checklist: How to recognize pyramids in disguise
- There are more than 2 levels of commission
- Much more focus on recruiting members (or affiliates) rather than selling product
- The price of the product is way above typical market price.
You can find out more about the book at the IBiz Zone. You can also order it here.
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