Big Tech is Like Multi-Level Marketing
Jay Van Andel and Rich DeVos founded Amway in 1959 on the premise that anyone with enough ambition and the right social network could build a business by selling cleaning products to friends and neighbors. The products were real; the business opportunity was considerably more complicated.
Amway is the founding institution of multi-level marketing (MLM), an industry that by the 2020s had enrolled an estimated 120 million people worldwide. The business model compensates them not just for selling products but for recruiting others who will also sell products, and for collecting a percentage of everything their recruits sell, and everything their recruits’ recruits sell, in a chain extending downward through a downline.
The mathematics of this structure are simple, but tend not to appear in recruitment materials. If each participant recruits three others, and each of those recruits three more, then a chain seven levels deep involves over 2,000 people all of whom must sell product to sustain the commission structure above them. A chain ten levels deep requires over 59,000. Most of the value flows upward. The US Federal Trade Commission found in a 2011 analysis that in one major MLM company, fewer than 1% of participants earned a net profit after expenses. The other 99% subsidized them.
So let’s talk about the platform economy… When Uber launched, it told drivers they were entrepreneurs: captains of their own ships, free from the indignities of employment, with no boss, no fixed hours, and all the flexibility they wanted. What the pitch omitted was that Uber would set the price, determine which rides were offered to which drivers, deactivate accounts without meaningful appeal, and systematically reduce driver earnings as market penetration increased.
Other platforms have taken this model further. Amazon Marketplace allows third-party sellers to list products, reach Amazon’s enormous customer base, and pay Amazon a commission on every sale. It also allows Amazon to observe exactly which products are selling well and then launch competing Amazon Basics versions, using the sales data it collected from the sellers it hosts. The sellers provide market research at their own expense. Marketplace recruits more sellers by showcasing successful ones, in the same way that MLM recruitment materials feature the rare success story while omitting the statistical reality for the average participant.
In gig platforms and MLMs, the participant is simultaneously product, salesperson, and customer. The platform does not need to advertise to its own workforce because its own workforce is its advertising. Social media scales this model even further. Facebook’s users generate the content that makes Facebook worth visiting. They also generate the social ties that make Facebook difficult to leave. And they pay in attention and behavioral data for the privilege of generating that content on Facebook’s infrastructure under Facebook’s terms of service. As many have noted, the users are the product. This is not a metaphor: it’s a statement of the actual business model that appears plainly in investor materials.
Herbalife, one of the largest MLM companies in the world, has faced regulatory action in multiple countries. In China, direct selling companies including Herbalife were banned from multi-level commission structures in 1998 following widespread consumer harm, but adapted their operations to comply with local law while continuing to recruit through social networks. Herbalife paid $200 million to settle FTC charges in 2016 without admitting wrongdoing and continued operating.
Deliveroo, the UK food delivery platform, classified its riders as independent contractors until 2021, when the UK Supreme Court ruled that Uber drivers were workers entitled to minimum wage and holiday pay (a decision reached only after sustained litigation at the workers’ expense, which the companies resisted at every stage). In both cases the reclassification happened only after legal compulsion, and the companies extracted full value from the disputed classification throughout.
The biggest difference between MLM and social media is that MLMs are occasionally subject to regulatory action. The platform economy has largely avoided that outcome by being larger, more diffuse, and more politically connected. The most honest description of both sell is hope: the hope that this time, for this person, the math will work out.
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- FitzPatrick2020
- Robert L. FitzPatrick: Ponzinomics: The Untold Story of Multi-Level Marketing. Pyramid Scheme Alert Press, 2020, 9780970975430.
- Srnicek2016
- Nick Srnicek: Platform Capitalism. Polity Press, 2016, 9781509504862.