Pyramid or Multi-Level Marketing?

Pyramid Schemes are business opportunities (term used loosely) that

• Require an input of money ("capital", "deposit", "set up fee")
• Require recruitment of new members
• Usually require a minimum number of referrals

In essence, the only way to get paid with a Pyramid Scheme is to recruit some other poor soul and take his money.

Multi-level Marketing Schemes (MLM) are business opportunities that

• Require the recruitment of new members/customers
• May require the input of money

The diagram above could be used for either an MLM or a Pyramid Scheme. In both instances, you will see the simply refer three people, who refer three people each, etc. So, how do you tell the difference?

In a Pyramid Scheme, you are only paid when someone joins under your (this is often called "sponsoring") and pays their dues.These dues do not go towards tangible items or services; rather, they are often broken down by who gets what. In the diagram above, imagine that Spot 1 is the founder. Spot 1 charges Spots 2-4 $100 a piece to join; they, in turn, charge spots 5-14 $100, but they only keep 50%. The other 50% is sent up to Spot 1 as his bonus for being their "sponsor". Now Spot 1 has made another $450, while Spots 2-4 have only earned $150 a piece for their own work.

In MLMs, a member is not necessarily required to input money, but must refer new members/customers. Sometimes, a legitimate MLM will require capital, investments, or other up front costs. In legitimate MLMs, these cover expenses such as equipment, materials, promotional goods or other understood goods and services. How much you input does not affect your standing in the organization. Likewise, when someone is referred to become a member or customer by you, you receive a commission amount based upon their purchase (not upon their dues).

uVme.biz was heavily promoted last fall, and touted as the new way to an internet fortune. Before you sign up, they are quite short on details - you aren't exactly sure what the business is, what you'll be selling, or how you'll be paid. But their video is quite convincing, and it's free to create an account.

Once you've signed up, you're given some more sketchy details. We learn that this business is online skills gaming (think of WorldWinner) and you'll earn money for referring active, paying players. At this point, you may be thinkng this is a standard MLM, like an affiliate marketing network.

However, if we continue on to the "Opportunity" section in our member's area, we're overloaded with details. This is common tactic of Pyramid Schemes. They get users so hooked on the money making idea, that once the real details are presented, (or at least the hope is that), users will assume legal speak and continue on.

Let's take a look at the payment structure and input requirements of uVme.

• Associate - Your Cames Platform - $199.97 (one time)

• Associate - Your "Copy" of the uVme.biz site - $65.00 (monthly)
• Game Promoted - Membership Fee - $199.97 (one time)
• All Accounts - $39.97 Adminstration Fee (yearly, after the first year)

Then the pay structure collapses into some incomprehensible jargon. Let's try to get through it.

• If your "Personally Sponsored Players" spend up to $100 on games, you will earn 25% of their play fee. The other 75% goes to your "Sponsoring Associate" and on up 7 "generations".

• A 100% "matching generation bonus" on your "Personally Sponsored Associates".

• A $100 "fast start" bonus when you refer a new associate who becomes "active" (2 or more "Personally Sponsored Players" who spend $10 or more each) within the first 4 weeks.

A complicated payment structure is a mark of a Pyramid Scheme. The structure is so difficult and convoluted that users pay little attention (hopefully) and concentrate on bringing in new "customers (read : suckers) who with also pay the $250 up front to do the same.

The upfront fee is what makes uVme a Pyramid and not an MLM. While I mentioned that some MLMs require the input of money to begin, these are usually in the form of tangible goods or services (like promotional products or advertising your new business). MLMs do not require "membership fees".

Yuwie has been circulated around social networking and get paid circles since last July. And, while it's nearly impossible to make money without thousands of users in your network, Yuwie should be considered an online MLM.

Sigining up with Yuwie is simple and straight forward. You create an account for free, then use the social networking features. Even if you never refer another person, you still have the opportunity to get paid. However, because the earnings from Yuwie lie in referrals, it's best to consider it a MLM.

You earn your commissions based on your profile views, and the profile views of all those in your network. Each month, the admin decides the RSR (basically, the payment per 1000 views). Your commissions are RSR x Thousand Level Views x Level Percentage. The Level Percentages are

• 10% of your views, and Levels 1, 2, 8, 9
• 4% of Levels 3 - 7
• 30% of Level 10

This all adds up to 100%. If the RSR is .20, and you receive 1000 profile views, you'd calculate your personal earnings by - .20 (RSR) x 1 (thousand views) x .10 (level percentage) = $.02.

You may be thinking back to the uVme example, and considering how complicated this payment structure is. However, with Yuwie the confusion lies in what level earns what percentage, not for which actions you'll be paid. It's very simple for users to understand the basic idea of who they will be paid.

Since Yuwie doesn't require the input of funds in order to gain membership, or to refer new users who input funds to gain membership, Yuwie is solidly in the MLM category and shoud not be considered a Pyramid Scheme.

Costal Vacations is touted as a 13 year old, reliable home based business. However, upon closer inspection, it's really just a Pyramid Scheme in disguise.

Signing up for Coastal Vacations is a long and difficult process. First, you complete a "More Information" form on a user branded website. Then, after several phone calls and interviews, you are finally prompted for actions - will you buy in, or won't you?

Getting the exact price out of your sales person can be difficult. They hide the cost of the package deep in their recruitment pages, but eventually you find out that you must pay an upfront fee of at least $2,000 (up to $11,000).

This is where they attempt to hide the fact that they are a Pyramid Scheme. They tell you that even if you never generate a single sale, you will still receive thousands of dollars in travel vouchers. A quick rip-off search will yield information on those vouchers (they're crap).

You earn at least $1,000 per sale after your first two sales. You first two sales are gifted to your recruiter. Likewise, the first two sales of your recruits go to you. The higher the package you sell, the greater your commission (up to $6,500).

Like all Pyramid Schemes, someone is left "holding the bag". Eventually, the guy at the very bottom will be unable to recruit new members due to market saturation. Because of the structure, the guys at the top will always be earning until the guys at the botom can't anymore - but those at the tip of the Pyramid have already recouped their "investment". While this is true of all business opportunities (sometimes, the customers just aren't there), Pyramids are unique in the fact that your membership fees are used to pay the people on previous levels.

Don't get this type of Pyramid confused with a Ponzi scheme, though. In a Ponzi, users buy in and are paid back based on the schemes income. So, John will sell Bob a spot for $5, and promise him a $10 return. The $5 from Sue and Jane are used to pay back Bob. In a Pyramid, you are buying into a "business" which promises returns based on your "work"; in a Ponzi, you are buying into a created money market. The similarity is that in both schemes, the guys are the bottom always lose out.

Most online sites that have referring built in can be considered a form of Mutli-Level Marketing. A site relatively new to the paid-to-search world, LuckySearch, can be considered a MLM because of the prize requirements.

Their current promotion is to earn an iPod Shuffle. To do so, you must refer 10 people who a) complete 1 search and b) refer 10 people (each) who complete one search.

Because of the recruitment requirement, this promotion is considered a MLM. However, because you do not need to input any kind of monetary investment in order to receive your reward, it is not considered a Pyramid Scheme.

Another MLM aspect of LuckySearch is their referral program's core. To earn prizes from their catalog, you must either be searching there, every day, 25 times per day and hoping you earn points, or refer new members. You earn points when a user in your downline does, and what you earn depends on their level.

• 1st Level - Same as them
• 2nd Level - 50 points
• 3rd Level - 10 points
• 4th Level - 5 points
• 5th Level - 1 point

Since no one is left "holding the bag" - that is, everyone always has a chance to win by searching, no one has lost any money, and the earnings from lower levels are used to pay higher level - LuckySearch is to be considered an MLM and not a Pyramid Scheme.