Ponzi, Pyramids, MLM, Ads and WOM…

There’s been a lot of angry mail about my mention of mmmzr the other day. "It’s a ponzi scheme!" several people say.

Actually, no, it’s not. It’s a pyramid scheme. They’re different, and it’s part of a spectrum, one worth understanding.

A Ponzi scheme is a simple scam in which a bankrolled, charismatic individual persuades some people to invest money in a financial instrument. The investors do nothing but wait for a return. Soon, they get paid off! The buzz is incredible. New investors come in. The scammer now uses the new money to give more returns to the original money. This increasing return further increases buzz, which leads to ever more money coming in, which he uses to pay off newer investors, and so on, until finally there’s a lot of money coming in and the scammer leaves town.

Everyone hates a Ponzi scheme. The only people who fall for it are the ones who don’t know what’s actually happening.

A pyramid scheme is different. That’s a scheme where the investors actually have to do something. There was a classic pyramid scheme floating around twenty years ago. You started as a ‘passenger’ and invested $1,000. Your job was to find five new passengers, which made you a ‘flight attendant’ and then a ‘co pilot’ and finally a ‘pilot’. I forget the specifics, but I think pilots ended up with $100,000 or so. Obviously, this can’t last forever, but if you can recruit diligent passengers, you can make it work (for a while).

Most people shy away from pyramid schemes. They seem too calculated and unfair and risky.

The next kind of pyramid scheme is certain kinds of MLM (vitamins, often) and yes, mmmzr. In this case, in addition to having the attributes of a pyramid scheme (the investors have to work), there’s also an attractive side benefit. You get the energy bars or the web traffic or the perfume or the herbs. The product often hides the underlying structure of the business, but in particularly loud versions, it’s pretty clear it’s just a pyramid scheme.

Once again, most people don’t like this. You cringe when your sister-in-law brings it up. You hide in the conference room when your co-worker takes out his sample case. It feels wrong, and it largely is. It is because the motivation of the seller is primarily selfish.

Selfish because she’s trying to build her downline. Selfish because the entire focus of the enterprise is to make the enterprise bigger.

I contrast this to more subtle projects like Tupperware or Avon, or various religions or things like Digg (when it’s used right). In those cases, the ‘side benefits’ are actually the real benefits. The commissions are just a side light. The word of mouth feels a lot more real, because the person you’re working with is obviously impassioned for the right reason.

Great real estate brokers already have enough money to retire. They’re not selling you a house just to make a few percentage points. They’re doing it because it actually gives them joy to get you into a better house.

Human kindness has always been in short supply. For millenia, you needed to worry when someone offered to do something nice for you. You needed to wonder what the ulterior motive was, what’s in it for them. As a result, we’re innately suspicious whenever we get sold something.

I had an interesting dilemma before I posted on mmmzr. I had a hunch it would work, especially if I pointed to it on my blog. Should I buy a bunch of boxes for some charities I support? After all, it would generate traffic for the charity, and probably pay off with money I could turn around and donate. But if I did, if I did that, then my newer readers would say, "hey, I knew it! You pointed that out because there was something in it for you…" So I didn’t.

Word of Mouth is a really fragile entity. Someone asked me at a recent engagement what I thought about various agencies that are paying people to shill for their products. I said something like, "Well, for a long time the oldest profession has taken money for what other people do for free. How do you feel about the difference between the two transactions? Which kind of person did you marry?"

At some level, at a very major level in fact, the way we feel about a transaction is more important than the transaction itself. Some people like a sporting event more if they got the ticket from a scalper, other if they got the ticket for free from their boss. Some people need to feel like they’ve taken the system (whatever the system is) for everything it’s worth. Others need to pay retail (especially on a wedding dress, cemetery plot or flu shot).

Marketers are working hard to corrupt the way we feel about our friends and the people we respect. I think, in the end, it’s not going to work. We’re hardwired to respect real authenticity, and at some level, that means trusting the motives of the person we’re listening to.

Bottom line: just because the net makes it much easier to measure things, share things, create downlines and hierarchies and yes, scams, doesn’t mean its the best way to make something that lasts.