Non est hic mercatus per corios multos!
The other convention going on in parallel to USENIX Security at the San Francisco Marriott was an international convention of Forever Living. From just a few features of the convention and its attendees, I guessed that Forever Living might be a multi-level marketing company. It's true!
What surprises me is that Forever Living is extremely open about being an MLM enterprise. I'm used to seeing (and sometimes receiving) business prospects which insist that This is not multilevel marketing! And they say so because they realize that MLM is the subject of tremendously negative perceptions -- at least within certain communities.
What's wrong with MLM? The only specific objection I've heard is that most MLM enterprises (sometimes "MLM schemes", like "DRM schemes", you know?) aren't very good deals at all for most of their participants. This creates associations in people's minds between MLM and pyramid schemes. In fact, if you search for mlm pyramid, you can see that many people have made this association explicit.
In a pyramid scheme, participants are told to send their money "up" the pyramid and then to collect money from newly-recruited participants "below". There are many fewer people up on top than in the lower levels. And the people on top receive transfers from participants below. But the pyramid will have to collapse eventually, because no real value is being exchanged, and the money is simply being taken from the people on the lower levels and given to people on higher levels. Eventually, the world will run out of new prospects to be drawn into the base of the pyramid, and then the pyramid will collapse, leaving people on the lowest levels without their money.
The anti-MLM claim is that much of MLM works like a pyramid scheme, because people form "downlines", and constantly purchase in the hope of being able to sell to new resellers. If all buyers were resellers, then an MLM scheme would be essentially the same as a pyramid scheme. The pro-MLM claim is that, unlike a pyramid scheme, MLM actually involves the sale of an intrinsically valuable commodity. So real buyers will actually purchase the underlying item, and they will actually want it and benefit from it, and a useful transaction will have taken place. Since real commerce is going on, there is no reason for the pyramid to collapse -- goods are flowing down the pyramid and money is flowing up, and that situation isn't structurally different from more conventional multi-layer commerce in which there might be, for example, a wholesaler and a retailer, or maybe several wholesalers and several dealers. (In the rare book business, a book could be bought and resold by several dealers before it reaches its ultimate buyer -- and that buyer might actually be a collector who's hoping to make money as a result of building up a nice collection. Or the buyer might die and the buyer's heirs might sell the collection to another dealer.)
One reason to be skeptical of MLM is that some MLM schemes proliferate middlemen -- or "levels" -- for no apparent commercial reason. Each middleman may have to pay the people above, so there's an incentive for the people up above to keep piling them on. But that doesn't mean that the market will be any more efficient or effective at delivering things people want. (And the incentives may lead people to be misleading about the profit opportunities or the quality of the product, although I guess both of those things happen in ordinary business, too.)
Can anybody else think of other specific risks of MLM?
