Monday, November 12, 2012

Genre Analysis: MLM and... Penny Auctions? Round 2

EDITOR'S NOTE: Genre Analysis is my personal opinion on a particular genre of network marketing, like MLM + penny auctions, or MLM + daily deals, and so on. 

Back in July (01-JUL-2012), in response to an editorial by Troy Dooly of MLMHelpDesk, I tried to analyze the penny auction + MLM genre, and why they don't really make sense, esp. how Zeek Rewards is doing it. Little did I know that mere month and a half later, Zeek Rewards would shut its doors and formally charged as a Ponzi scheme by none other than the Securities Exchange Commission (SEC). 

A few days ago (08-NOV-2012), OzSoapbox of BehindMLM published a formal warning: that any income opportunity seeker should avoid penny auction MLM genre altogether. This is after Funky Shark decided to kill its own pre-launch, after realizing they have already engaged in illegal conduct. 

I decided I would analyze the same problem from a different view: does the mix of the two genres make any sense? The answer is "not really". Let me show you why. 

In general, MLM model is used when traditional marketing either cost too much, or do not work. It doesn't matter what "industry" it is attached to. While you can mix almost anything with MLM, MLM works best for pushing products or services that is best sold face to face, like cosmetics, cookware, and sometimes, nutritional supplements. Sales force adds value to the product by teaching stuff like practical applications and so on. They are essentially consultants, not merely salespeople. 

So what is the product that you can sell for penny auction? The only product is the bids, or bidpacks. And those are sold BY the auctioneer (and you get commission)  

Penny auction (among many other things) is not really something you need to sell face to face. All you need, or can do, is show the person how penny auction works (but a video would explain that easily). Buying bids would be up to him or her. You can answer questions, but all that can easily be done via a website, a video FAQ, or the auction website's own FAQ / support section. 

In contrast, a Mary Kay or Avon salesperson is likely to be proficient in makeup and other cosmetics application, how to choose a foundation to match skin tone, and so on, and offers advice and service for their client. They offer individualized service not available anywhere else. 

Penny auction doesn't need that sort of special attention. Bids are bids and are used the same way all over. There are no needs to sell face to face. There's also no "new" products with penny auctions. The bids are the ONLY thing you can sell... EVER. Cosmetic companies can launch new products and thus more stuff to sell. 

Thus, MLM and penny auction makes no sense. The "product" is not suitable for MLM. 

Furthermore, consider this: all (virtually all?) existing penny auction MLMs are marketed as "income opportunities", which means they are looking for a team of sales people. 

Why would a penny auction company need a legion of sales people? How do these sales people offer value to the company? The short answer is... it doesn't. It *seem* to, at first glance, but if you look a little deeper, it makes no sense. 

Another point to think about is... there is no need for penny auction companies to adopt MLM, when non-MLM, or a pure-commission model, would work fine. Quibids is a prime example: pure penny auction, It doesn't have affiliates, nor does it need any, muchless "MLM". 

Apparently the people who promote these penny auctions can't make it by selling bids, so they are selling "founder positions". Funky Shark was selling "founder positions" for $1000 each, and if you manage to bring in more founders (who also paid $1000 each to join) you get a rebate. That would not only make it a pyramid scheme, it would also make the company guilty of "selling unregistered securities". When it was reminded of this fact, they closed up shop rather than deny the reality. 

Zeek Rewards did to same thing, except you're told that you're buy "bids", not selling bids. According to Zeek's official story, you are supposed to buy bids, then give them away, so you can share in the profit. The more you buy, the more you share. That would make is a security, thus, they got shut down by SEC. You don't sell bids at all. You BUY bids. They say there's a product, but you're not selling them. 

Penny Auction is not new nor exotic, and thus, it does NOT need MLM to sell it. Nor is the product / service suitable to be sold via MLM. The sales team adds no value to the product. Finally, the genre had been tarnished by the Zeek Rewards ponzi scheme. 

Recommendation: do NOT join, no matter how legal they say they will be. 

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  1. Bidify is a pyramid/Ponzi scheme, using the Bidsson penny auction as 'product' camouflage.

    Bidify is run by Frode Jørgensen, former CEO of the Ponzi/pyramid scheme Plexpay Network, with icelander Larus Palmi Magnusson.
    On 20 September 2005, Plexpay was raided & shut down by Norwegian police, and Frode J arrested.
    On 15 Dec 2009, after appeals, the Norwegian Supreme Court sentenced Frode Jørgensen to 2 1/2 years prison for operating an illegal pyramid scheme.
    He has also run the Ponzi/pyramid schemes AmityFunds and Juugo.
    Don't pay money to criminal pyramidster Frode Jørgensen!

  2. My friend was telling me about all the cool stuff she has gotten off penny auction sites. I have never even heard of such things until she told me. I thought ebay was the only online bidding you could do. This is an interesting post, thanks for sharing.