Is this a pyramid scheme?

The following question came in from a visitor to the Phonatic web site:

   I was approached about selling WEB SITES for Adverworld.
   It looks like it may be a pyramid scheme, or a very
   elaborate multi-level marketing outfit.  They sell web
   pages for $99/month; each salesperson gets a commission
   from that fee every month.

One of my goals in setting up this web site was to help identify various types of scams, so I am gratified to receive this question.

I generally prefer to identify problematic or abusive aspects of a particular plan rather than to simply label it as a pyramid scheme. I believe this is advantageous for several reasons:

It is more defensible, legally speaking, to identify specific attributes of a plan which can be supported by facts, than to call something a pyramid scheme, which might be interpreted to be a claim about the legality of that plan (though when I am aware that a particular attribute violates specific state laws, I do not hesitate to say so).
It avoids certain kinds of nonsensical responses from mlm advocates that frequently occur when one mlm or another is called a pyramid, such as:
- The shape of the organization isn't anything like a pyramid...
- General Motors has the same pyramid structure...
- Pyramid schemes don't offer a product or service...
In the long run, it is more useful for readers to understand what things to look out for than to just be told that a particular mlm plan is or is not a pyramid scheme.

some observations

You can check out Phonatic's opinion for two simple questions to help you determine if an mlm opportunity is worth considering, but here is what I have observed about AdverWorld:

AdverWorld's web site describes their web page hosting services and their Independent Representative offer, but provides very limited details of these offerings.
The price for a web page, apparently including the cost of creating the page, is $79 per month.
Independent Representatives are not required to purchase their own web page, but they must have at least one active customer to be eligible for commissions from their downline; purchasing their own web page will meet this requirement, however.

One of the standard ways to identify a pyramid scheme masquerading as a multi-level marketing plan used to be that the distributor was required to pay money (beyond a modest amount required for a sales kit, from which there was neither a commission to any distributors nor a profit to the company) to be eligible to participate in the business opportunity. AdverWorld's plan, as described, does not fit neatly into this category, although even allowing credit for personal purchases may violate the law in some states.

Are qualifying purchase requirements okay?

It has become almost a standard practice among start-up mlm's to have some sort of qualifying level of purchases (typically on a monthly basis) to be eligible for bonus commissions from your downline. Most state Attorney Generals don't see a big problem with this, and some AG offices even seem to provide encouragement for the practice, apparently in a delusion that such purchase requirements would prevent these plans from operating in the absence of an actual retail market for the product or service.

Phonatic's opinion is that such qualifying purchases are an abusive practice, that has the primary effect of creating an inducement for the distributor to buy (either in the distributor's own name or in the guise of a retail sale to a friend or relative) the product or service offered just to be eligible to participate in the business opportunity, a requirement which would be illegal in almost all states but for the fact that it is permissible to meet this requirement through bona fide retail sales.

Is AdverWorld a good value?

As to AdverWorld, the question is whether there is a bona fide market for developing and hosting the web pages they offer for $79 per month. I have looked at a few of the web pages. All the ones I have looked are simply individual pages with very limited content. $79 a month is a lot of money to pay for what they provide, and I am hard-pressed to believe that many of these customers are receiving satisfactory results.

A lot of people would gladly put together such web pages for ten or fifteen bucks, and most of the pages on AdverWorld would meet the content requirements for free hosting on GeoCities. I do not feel that their other added-value features are of any signficant value, but in any case, the value of these extra features does not warrant the amount of money they are asking.

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