7 ms·

So, I know a little about this, unfortunately. My "shameful past job" at one point in the 90s was working for a company that basically made small-business CRM+a

So, I know a little about this, unfortunately. My "shameful past job" at one point in the 90s was working for a company that basically made small-business CRM+accounting software you could customize to drive any MLM scheme you could think up. Amway's not the best example, since they actually sell real goods and because Amway's sellers' best customers have almost always been the sellers themselves. In other words, many sellers used it as a way to buy goods at "wholesale" and never really had any intention of reselling them. At one point, I think that was even part of the Amway pitch, particularly at the time they were inexplicably popular for their (expensive and therefore in theory a better deal discounted) water treatment products. I don't think there's a price advantage there compared to Costco or online, though--much of what made Amway fade into the background starting in the mid 90s. So too Stella Dot, Mary Kay, Cutco/Vector, probably Herbalife and even Transamerica, etc. They sell real stuff, whether or not the pricing makes sense, and you can technically turn a profit on it, whether or not the market is really there, so they're not technically considered a pyramid scheme in the scam/illegal sense. Now, I'm not saying they're good ideas--at all--and they absolutely operate on hype and pipe dream every bit as much as those awful timeshare presentations. They have the same exponential market saturation issue as any pyramid scheme and the same diminishing returns--but they are generally not considered fraudulent, just obnoxious. The really awful pyramid schemes mostly just sell "new seller kits" to prospective targets that teach them how to sell "new seller kits" to their targets, have no real product or way to make a profit, and the entire rollup is those kits and other overhead fees. They're the financial equivalent of a chain letter. I'm pretty sure those do get action taken against them if they're identified. The biggest problem there is most are pretty small, take a bunch of people's money, then burn out once it's all rolled to the top ranks who founded the scheme and new marks aren't easy to find.

girvo 4y ago
While I understand your point, I think society should treat all of this as a distinction without a difference. Herbalife et al. should not be allowed to prey on the vulnerable, regardless of if they happen to sell a “real” product or not. It’s not a real business selling a real product. Other countries rightfully have seen it this way for some for the companies under discussion.
- geoelectric 4y ago
  I'd be fine with a new definition that made them illegal, or at least put such heavy truth-in-advertising laws on them that nobody in their right mind would bite given the real numbers you can expect. They're absolutely exploitative. I probably made the mistake of speaking a little too specifically for the US situation, though. Here, the criteria are (modulo nuance) roughly what I said for the FTC to care.
  - bombcar 4y ago
    I thought some government office made them disclose how many people made how much, but it doesn’t really do much to shut down the scams. At some point you have to give up.
- tomcam 4y ago
  My heart agrees with you. My brain demands a way to define vulnerable in a legally and Constitutionally acceptable way.
  - bryanrasmussen 4y ago
    I guess a starting step would be people with psychiatric ailments or learning disabilities. I knew a couple that had both between them and spent all their time trying desperately to survive while falling for every scheme out there. This was America in the early 90s and they were in their late 40s so surely dead by now, because nobody survives to an old age in the U.S with that kind of weakness.
    - sokoloff 4y ago
      At what point should the government step in and take away the right of a citizen to enter into contracts? I had an aunt for whom this would have been (and was) the case, but she was 1 in 50K level of mentally incapable.
      - nerdponx 4y ago
themagician 4y ago
It's a great example. Sued many times in many regions. Unable to operate in some countries where they aren't able to pay off politicians and government bodies. Founders have faced criminal charges in several countries and had assets seized. Fraud, price-fixing, false claims, tax evasion, racketeering, and the list goes on. It's a great example because there is just so much about it. It's not some obscure company that has never been sued or never been found guilty. It's a company run by people who commit fraud and get away with it because they are just so wealthy. It is a criminal organization. They have even pled guilty to criminal charges in the past. But somehow they just get to pay a fine and keep on going. The whole point of my comment wasn't to focus on Amway but just to point out how ineffective the FTC is. Even when the activity is criminal and/or flagrant they are powerless to actually do anything to stop it. At best you get some modified legal jargon.
- geoelectric 4y ago
  Idealistically, I don't disagree. I just meant they're not a great example of something I'd expect the FTC to knock down with a new stance here. They don't break (current) US laws in terms of being a pyramid--not going to get into their history of fraud, racketeering, etc, which isn't an FTC concern. Anyway, I know you're basically making a "this cause is more important than that cause " argument, but of course a stricter stance specifically re: being anti-competitive wouldn't touch them at all. They don't lead a market in anything anymore. What I realistically would expect this to bring down, if anything, is the walled gardens, where they exist on devices that have become so central to our lives that this amounts to broadly restricting what goods or services you're able to consume. The wording of what they released seems very specifically crafted to highlight walled gardens and similar concepts, at least where there's arbitrary action in the name of rent taking happening as well. I suspect this--along with the anti-competitive payment system decision from the Epic case--is the shot across the bow for Apple and Google to either loosen up on iOS and Android (and very specifically, App Store and Play Store) or be targeted. That'd be good enough for me, for now. I don't like MLMs either, and this may be a first world problem, but it's a daily one I face.
  - themagician 4y ago
viraptor 4y ago
> I don't think there's a price advantage there compared to Costco or online Yeah, my parents bought some amway stuff regularly, because in the 90s outside of the US it was actually a good deal on cleaning products. The closest wholesale mall equivalent for us was ~3h drive away.
basch 4y ago
>They sell real stuff Whether or not they sell real stuff is a distraction from the real question. To figure out if it is a scam, you need to look at 1) where profits come from (is it from "selling" the product, or is it from recruiting sellers and "selling startup kits".) If most of their money is from people buying "be your own boss and own a business kits" then that is the product. 2) The next question is if that product they are selling (the kit) is a scam or misrepresented pipe dream. Even if they sell a product, you need to ask if the product is the product. If all the money is from a pyramid of recruiting people to recruit people to buy startup kits, there should be some kind of action taken against them. The distinction becomes more obvious when you look at something like Cutco/Vector, where there is a product company and a marketing kit company. In essence you can have two identical companies with two identical business models, and one can be a scam and one can not be a scam based on execution. If the business derives profit primary from sales to end customers, then everything is above water. If millions of "own your own businesses" end up with garages full of unsellable product, its a scam. I recognize this interpretation takes away the agency and culpability from the person who joins a scheme, buys a bunch of stuff in hopefulness, and fails to execute as a salesperson. I also recognize that markets can dry up, and what was once above water can start to look like a scam. But these companies prey on those types of people. And if preying on vulnerable people is your business, its a scam.

girvo 4y ago

While I understand your point, I think society should treat all of this as a distinction without a difference. Herbalife et al. should not be allowed to prey on the vulnerable, regardless of if they happen to sell a “real” product or not. It’s not a real business selling a real product. Other countries rightfully have seen it this way for some for the companies under discussion.

geoelectric 4y ago
I'd be fine with a new definition that made them illegal, or at least put such heavy truth-in-advertising laws on them that nobody in their right mind would bite given the real numbers you can expect. They're absolutely exploitative. I probably made the mistake of speaking a little too specifically for the US situation, though. Here, the criteria are (modulo nuance) roughly what I said for the FTC to care.
- bombcar 4y ago
  I thought some government office made them disclose how many people made how much, but it doesn’t really do much to shut down the scams. At some point you have to give up.
tomcam 4y ago
My heart agrees with you. My brain demands a way to define vulnerable in a legally and Constitutionally acceptable way.
- bryanrasmussen 4y ago
  I guess a starting step would be people with psychiatric ailments or learning disabilities. I knew a couple that had both between them and spent all their time trying desperately to survive while falling for every scheme out there. This was America in the early 90s and they were in their late 40s so surely dead by now, because nobody survives to an old age in the U.S with that kind of weakness.
  - sokoloff 4y ago
    At what point should the government step in and take away the right of a citizen to enter into contracts? I had an aunt for whom this would have been (and was) the case, but she was 1 in 50K level of mentally incapable.
    - nerdponx 4y ago

themagician 4y ago

It's a great example. Sued many times in many regions. Unable to operate in some countries where they aren't able to pay off politicians and government bodies. Founders have faced criminal charges in several countries and had assets seized. Fraud, price-fixing, false claims, tax evasion, racketeering, and the list goes on. It's a great example because there is just so much about it. It's not some obscure company that has never been sued or never been found guilty. It's a company run by people who commit fraud and get away with it because they are just so wealthy. It is a criminal organization. They have even pled guilty to criminal charges in the past. But somehow they just get to pay a fine and keep on going. The whole point of my comment wasn't to focus on Amway but just to point out how ineffective the FTC is. Even when the activity is criminal and/or flagrant they are powerless to actually do anything to stop it. At best you get some modified legal jargon.

geoelectric 4y ago
Idealistically, I don't disagree. I just meant they're not a great example of something I'd expect the FTC to knock down with a new stance here. They don't break (current) US laws in terms of being a pyramid--not going to get into their history of fraud, racketeering, etc, which isn't an FTC concern. Anyway, I know you're basically making a "this cause is more important than that cause " argument, but of course a stricter stance specifically re: being anti-competitive wouldn't touch them at all. They don't lead a market in anything anymore. What I realistically would expect this to bring down, if anything, is the walled gardens, where they exist on devices that have become so central to our lives that this amounts to broadly restricting what goods or services you're able to consume. The wording of what they released seems very specifically crafted to highlight walled gardens and similar concepts, at least where there's arbitrary action in the name of rent taking happening as well. I suspect this--along with the anti-competitive payment system decision from the Epic case--is the shot across the bow for Apple and Google to either loosen up on iOS and Android (and very specifically, App Store and Play Store) or be targeted. That'd be good enough for me, for now. I don't like MLMs either, and this may be a first world problem, but it's a daily one I face.
- themagician 4y ago

viraptor 4y ago

> I don't think there's a price advantage there compared to Costco or online Yeah, my parents bought some amway stuff regularly, because in the 90s outside of the US it was actually a good deal on cleaning products. The closest wholesale mall equivalent for us was ~3h drive away.

basch 4y ago

>They sell real stuff Whether or not they sell real stuff is a distraction from the real question. To figure out if it is a scam, you need to look at 1) where profits come from (is it from "selling" the product, or is it from recruiting sellers and "selling startup kits".) If most of their money is from people buying "be your own boss and own a business kits" then that is the product. 2) The next question is if that product they are selling (the kit) is a scam or misrepresented pipe dream. Even if they sell a product, you need to ask if the product is the product. If all the money is from a pyramid of recruiting people to recruit people to buy startup kits, there should be some kind of action taken against them. The distinction becomes more obvious when you look at something like Cutco/Vector, where there is a product company and a marketing kit company. In essence you can have two identical companies with two identical business models, and one can be a scam and one can not be a scam based on execution. If the business derives profit primary from sales to end customers, then everything is above water. If millions of "own your own businesses" end up with garages full of unsellable product, its a scam. I recognize this interpretation takes away the agency and culpability from the person who joins a scheme, buys a bunch of stuff in hopefulness, and fails to execute as a salesperson. I also recognize that markets can dry up, and what was once above water can start to look like a scam. But these companies prey on those types of people. And if preying on vulnerable people is your business, its a scam.