Facebook goes MLM? Oops…!
February 3rd, 2009 | 
Author: 
I’ve received a rash of emails and press releases in the last few days trumpeting the news that Facebook is about to go MLM with a new text-to-chat application that will do everything but remove your dog’s fleas.
Eight levels of residual payouts using a simple matrix compensation plan. And all payments to be made through… PayPal?
New domain — http://facebookpays.com — and use of the official Facebook logo… it all sounded very exciting and seemed to be getting a lot of people very excited, including some good friends whom I respect. But it bothered me that PayPal was going to be the payment channel, knowing how strict PayPal is when it comes to its anti-MLM Acceptable Use Policy (no more than a single level of payments or your account is frozen).
Still, a buck is a buck, and I thought maybe Facebook had found a way to come to an agreement of some kind with PayPal because of the sheer numbers of Facebook members. (Ebay, PayPal’s parent, is not known for turning a blind eye to a chance to grab extra cash.)
I couldn’t pin down whether this was a Facebook-created app or a third party app, so I wrote to Malorie Lucich at Facebook this morning, with three simple questions:
1. How did you manage to get PayPal to agree to waive its Acceptable Use Policy (anti-MLM etc provisions) in order use PayPal to pay commissions?
2. Are there any specific steps that other PayPal business account holders could adopt, from your experience, that would enable them to achieve a similar result? (Talking to PayPal is a pointless exercise — like talking to a lamppost. But when you’re Facebook, getting its attention is likely to be different.)
3. Any advice to offer on avoiding conflict with PayPal — including freezing of funds and closure of accounts?
Malorie’s response was just as simple and quick:
Hi John,
The application was built by a third party developer, and was recently disabled for violating Facebook’s Terms of Service (outlined here: http://developers.facebook.com/terms.php)
Malorie
Oh dear.
I guess that would include “passing off” as Facebook, unauthorized use of its intellectual property, and general cluelessness about PayPal and a whole bunch of other issues.
I don’t know whether it was a scam or just plain, bone-headed stoopid. But it sure sucked in a lot of people. And a lot who should have known better, just like with WebProsperity.
Plus ça change, plus c’ést la même chose.
—
Posted in Bad Practices, Compensation Plans, Dubious Practices, MLM and the law, MLM Companies | 
Tags: dumb, dumber, facebook, facebookpays, paypal, text-to-chat
6 Responses to “Facebook goes MLM? Oops…!”
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Hi John,
I have a feeling that PayPal is becoming less strict when it comes to its anti-MLM Acceptable Use Policy. I think so because recently I’ve read that ForMor, the MLM Company I’m a distributor for is also having an agreement with Paypal to have payments via Paypal.
I don’t know the exact agreement and I didn’t really study the new rules yet.
ForMor is also intruducing a new Compensation Plan starting February 1, a few days ago.
This New Compensationplan will be working together with the old one for the people who were in your team before February1, 2009.
The new Compensationplan will be for all destributors joining your team now, since February 1, 2009.
But because of the plans to let payments run via Paypal for me that is an indication that PayPal is changing its rules and is less strict with their MLM restrictments.
This is just what I think and the reason why I do think so. I’m not sure.
Hi Deana
Interesting — but I somehow doubt that PayPal is changing its anti-MLM rule for an MLM company.
I don’t have any details, but my guess would be that ForMor is planning to allow members to use PayPal to make purchases from the company — which is a sensible move.
That’s not a problem. Problems would arise if ForMor decided to use PayPal to pay bonuses to distributors.
They’re quite separate issues.
John
Interesting perspective – allowed me to dust off and re-promote SellerBeware
Deana,
I checked out FMI’s new compensation plan… interesting.
They’ve chosen to go the breakage route to re-distribute the bonus pool, using personal group volume qualifications. (They already had the highest percentage payout, so there’s no extra money in the pot.)
With breakage, the company will be able to attract more heavy hitters by stripping money from part-timers — but that’s standard practice for MLM companies anyway.
It’s good that existing members will continue to be paid under the old plan, but it begs the question: if the new plan is so much better, why penalize existing members? Or is this really tacit acknowledgement that they won’t earn as much under the new one?
John
John,
Don’t forget, with the old compensation plan,the compressed unilevel, on the second tier the commission is 45% and in the new compensation plan for all the distributors and new recruits after Februari 1, 2009 this percentage is decreased to 20%.
Not only will the company be able to attract more heavy hitters, also the existing big teams builders have relatively a small amount of people on their second tier,so not only the bonus pool also the commission decrease on the second tier will give the company the room to pay deeper, where the heavy hitters have much more people in their team.Maybe they think that’s the way to keep the heavy hitters they already have and prevent them from leaving where they can get paid deeper.
Maybe this also will inspire more people to build bigger teams and go deeper than in general most of the mlm marketers build.
I don’t think the plan is so much better for the existing part-time builders. But don’t forget the FMI is now runned by the son of the person who started the Company. He probably wants more of a general MLM standard practice than his father wanted.His father wanted a Company that paid good to the average MLM builders. His son wants more of an MLM and less of a Direct sales type of Company.
Maybe FMI was more of a direct sales Company than the standard MLM and with this new Compensation plan the Company can attract more heavy hitters.
I have to tell you that also the start up amounts have changed and the big one disappeared, now they have two instead of three amounts that people can start with and the second one is also decreased.
It is cheaper to start.That’s not bad.
Deana
Deana,
I don’t want to get into a discussion about people here. I’ve known both father and son, personally, for more than a decade. You’re correct about the father. But trust me, it’s not about the son wanting a better deal for anyone but the company. Enough said on that subject. (Professional ethics constrain any further discussion: the company is a past consulting client.)
A couple of fundamental principles we shouldn’t lose sight of here:
1. A company can only afford to pay out a set proportion of the wholesale price in bonuses or it will go broke. How that bonus pool is divided is just arithmetic.
2. The only way to increase the rewards for one group is to reduce the rewards for the other. in other words, you can only pay upline leaders more by robbing downline distributors, and vice versa.
3. It’s ALWAYS about finding the right balance — and ensuring that everything you do is the right thing for the right reasons.
4. Proper balance covers a range of issues. For example, if you pay upline heavy hitters more, they’re going to have to recruit more to replace the downline people who’ll drop out because they can no longer earn enough to make it worthwhile for them to stay.
In other words, the recruiting funnel becomes more like a cylinder, where both ends are the same size. People fall out the bottom end as fast as they come in at the top. Retention plummets, activity drops and fear of loss increases for everyone — including those heavy hitters.
5. When people can’t get into profit within a reasonable time, they quit. They also talk about their experience. This is how the public perception of network marketing gets trashed so widely and constantly.
6. The moment a company introduces personal group volume requirements for bonus and ranking qualifications, its true motives are clear: hidden, ‘windfall’ profits through breakage that roll up to reward heavy hitters and the company at the expense of 99% of distributors.
Naturally, no company will ever admit to this. Instead, they trot out the plausible ‘spin’ that it forces everyone to work harder, so they’ll all earn more money.
No. That’s NOT what happens. People actually earn LESS — except the top 1% and the company.
(Breakage is like catnip for MLM company owners… they can’t resist it. Once hooked, they’ll never give it up. This is why companies NEVER change their plans except to introduce or increase breakage. This reality is common knowledge amongst company managements. As a professional management consultant to MLM companies I’ve run into this for more than 20 years.)
Call me a cynic if you like, but these changes have nothing to do with making the deal better for the part-timers (90% of any network) — the original vision of network marketing:
They have everything to do with the flawed contemporary vision of “network marketing”:
That’s the first choice anyone getting involved in network marketing really needs to make.
John