Understanding the Difference between MLM and Pyramids
An easy and quick way to get started in the fantastic world of Internet Marketing is affiliate sales. That is pretty straight forward: Promote someone else's products or services, and get paid a certain amount per sale. Like a sales rep on commission. You can do this on your own website, via search engine marketing, ezines or any other online (or even offline) method.
Several of these affiliate providers also offer a different way of making money: recruiting new affiliates for them. Typically, you get paid a certain amount for each new affiliate you recruit for them, who will do the same as you, which is to sell their products and services and possibly recruit new affiliates. In many cases, you also get paid a certain amount on their sales as well. This is what everyone is striving for: recurring, passive income. Once you build a good group of active affiliates, you can make money every day without doing anything! This is called MLM, or Multi-Level Marketing.
It is a business venture that has a very nice potential, but can take some time to build. Patience is of the essence. On the other end of the spectrum, you will find pyramid schemes. These will often claim to be MLM programs, because this term is much more positively accepted. Don't be fooled though, because pyramids are not MLM programs. They are money pits, where the vast majority of participants lose large amounts of money.
How can you differentiate them? It's not always easy, but essentially, pyramids don't sell anything except membership to the pyramid. There is no value-add. There is no product or service involved. If all you do is pay to be in the program, then is a pyramid. They will almost always try to disguise it, so it is important to understand that money doesn't multiply itself without any value add.
Here is how a typical pyramid scheme works: B is recruited by A and gives him money, and perhaps also to B. Then C will need to find D and E to break even, and recruit F to start making money. Then F does the same, etc. As you can imagine, only the few people at the very top of the pyramid make money, the middle struggle to break even and the bulk of the participant, located at the bottom, just send their money to the top and don't make a dime before quitting.
Another important difference: Pyramids are ILLEGAL in most countries. MLM programs on the other hand are perfectly legal. Some are very hard to make money with, some are profitable, but that's another debate altogether. Just make sure you do your research before joining any kind of program involving recruiting others to do the same thing you do.