There was almost a full page ad in this spot. The same ad was also going to be in the issue following this one. This ad promoted a new Web-based company recently begun by a group of five young men, four of whom are UWEC students. We pulled it.

The company in question is named "PaidtoPurchase." The company is set up to offer a Webpage to anyone who signs up, where they may sell the company's stock of CD's and DVD's, collecting a small commission for each item sold. (There is an enrollment fee. Details below.) These members are given a further opportunity: They will be given $10 for any additional members they can recruit and $2 more for each month each of the new recruits remain onboard. The same deal goes for the new members as well. Graphically, a model of how it works looks something like a pyramid. Since beginning March 2nd, 2004, their pyramid has grown to 150 members.¹

What PaidtoPurchase is setting out to do is known as a multi-level marketing system. A visitor who didn't know better might visit PaidtoPurchase's site and come away believing its founders have hit upon a brave new idea for our entrepreneurial world (prime targets for new recruits are described as "intelligent, forward thinkers"²), and not a different take of something that has been around since Amway started it in 1959.³

A tip the Federal Trade Commission gives for when encountering systems such as this one is: "Be cautious of plans that claim you will make money through continued growth of your 'downline' (...) rather than through sales of products you make yourself."⁴ And indeed, PaidtoPurchase is quick to point out in the "Learn More" section of their site that any individual's returns are dependent on the time that individual is willing to put into the business. This is followed by stick figure illustrations of people arranged in a, well, pyramid shown getting fatter at the bottom.

Many multi-level markets, or MLMs, are blatant scams from the concept to the reality, while some are started in the honest belief that the system can work. At a guess, PaidtoPurchase is in the latter part of the range.

It must be noted that PaidtoPurchase sets limits on their downlines. Their downlines only go down seven levels. You would recruit as many people as you could (your first level), they would recruit as many as they could (your second level, their first), continuing until the recruiting down the road gives you seven levels. Past that point, you would not collect any further monthly residual income. This ensures that referral doesn't become a steadily decreasing reward.

The maximum of seven levels also makes the program a partial Forced Matrix. A complete version would limit how many referrals members may have in their first level. I.e., you could only refer three friends, they could each only refer three... Such setups benefit the creators at expense of the members. PaidtoPurchase is not so exploitative. That does not mean it is a good idea to get into, or that we would advertise it.

And there's more to this. The difference between an illegal pyramid scheme and legal multi-level markets (putting aside any discussion of practicality) is the presence of a product of which the goal is to sell, and the characteristic, of course, of selling being the goal. Otherwise, an MLM is a pyramid scheme with window dressing. Some MLM's make it very clear that sales are the objective by making the bonuses coming to you from your referrals entirely dependent on how much they sell. However, I doubt much that strikes anyone to be as good an incentive program as PaidtoPurchase's. You, and everyone above you, get a monthly commission regardless of sales, plus the upward traveling sales commission.

Let us say that after signing up, you get three friends to also sign up. As explained abvoe, you would then be given $10 for each of the three referrals you've just made, and receive $2 every month for each, as long as they remain members (paid for by the company through your friends' $15 a month website fee and their minimum purchase/sale of one CD/DVD per month). That $2 is termed "residual income." Only first level referrals are this much; second level is $1, third through sixth are $0.50, and seventh is $1.

Pyramid schemes are illegal because they collapse when no new distributors can be recruited. That makes the people at the bottom lose the money they'd just bought in with. PaidtoPurchase is different in two ways here. One, there is a product open to the public. If they could not be sold to non-members, that would be a pyramid scheme, and federally illegal. Secondly, no promises are made of instant riches. Such promises are another mark designating an instant breach of law.

But, whether or not multi-level markets are less predatory in nature--in any incarnation--than pyramid schemes seems moot to this writer. Make no mistake, there are a very finite number of people who will ever buy into this sort of thing, and no matter how many iterations of referrals the process goes through, there will be people at the bottom who get the very short end of this stick. Although if it was practical for a member to recoup their losses by selling the product, that would be another matter.

Start up fee is $45, plus the first installment of a $15 monthly charge. This gives you a Webpage and site-building tools, and "unlimited access to a competitively priced CD/DVD distributor."⁵ And there you have them: the keys to selling a product on the Internet's unbounded market--and unbounded competition. Part of the fun you would encounter while playing at being a salesperson is determining just how to convince someone you've never met of little things like why they should buy a CD like Evanescence's Fallen from you ($15.23)² instead of new from Amazon.com ($13.49). Sure. Two words: dot, coms.

And consider this quote from Robert L. Fitz-Patrick, co-author of False Profits and president of Pyramid Scheme Alert, concerning the mindset of always being on the lookout for a sale: "In MLM, everyone is a prospect. Every waking moment is a potential time for marketing. There are no off-limit places, people or times for selling. Consequently, there is no free space or free time once a person enrolls in (an) MLM system."

I invite every reader to go to the company's website, www.paidtopurchase.com, and decide for themself whether the emphasis is on getting the company's product to consumers, or on recruitment. Keep this quote from FitzPatrick in mind: "The marketing thrust of MLM is accordingly directed to prospective distributors, rather than product promotions to purchasers. Its true products are not long distance phone services, vitamin pills, health potions or skin lotions, but rather the investment propositions for distributorships, which are deceptively portrayed with images of high income, minimal time requirements, small capital investments and early success." Mr. FitzPatrick is considered one of the nation's foremost experts on pyramid schemes in their various forms. He has called MLM strategies a marketplace hoax.

However, if a reader visits the site in question and sees nothing wrong with it, and if perhaps this reader happens to have many "intelligent, forward thinkers" for friends, and if perhaps they all should decide what they find seems to be indeed trustworthy, then I will be all too happy to give PaidtoPurchase this free advertising. And perhaps economic Darwinism will take its course.

Footnotes:
1 Stat taken from body of text advertisement sent to The Flip Side.
2 www.paidtopurchase.com
3 http://www.mlmwatch.org/01General/mlmstart.html (Source provided for date given.)
4 http://www.ftc.gov/bcp/conline/pubs/invest/mlm.htm
5 From the PowerPoint available for download from www.paidtopurchase.com.