Why you should avoid every new MLM penny auction
Amidst the tidal wave of penny auction prelaunches announced over the past few months, I decided mid last month that I’d sit down early this month and put together a snapshot of where we were with each of them.
After spending some time and researching the status of a few companies, I realised things weren’t, from a sustainability and long-term viability perspective, weren’t looking good.
Sitting back and thinking about the rest of the companies on my list that I hadn’t researched yet (but most I had still been keeping tabs on), I quickly came to the conclusion that it wasn’t going to be a very kind reflection on the current state of the MLM penny auction niche.
“Why?”, I asked myself. Surely with the sheer number of penny auction companies in the works there were bound to be a few who were going to be succesful and carve out a long-term place for themselves in the MLM industry?
After thinking about it some more, here’s why you need to avoid every currently announced MLM penny auction prelaunch.
First and foremost is the nature of a penny auction as the core (or focal point) of an MLM business itself.
Traditionally (and please believe me when I tell you I’m not complaining about this “new fangdangled” penny auction technology I just don’t get), MLM products are made by a company and then marketed and sold by its distributors, affiliates or whatever else you want to call them.
Whether the product is digital, a service, something physical or a consumable – that’s how the multilevel marketing model is and has worked for some time now.
If you look at a penny auctions in MLM, the product is the bids used in the auctions themselves. And here’s where I might surprise you,
I’ve got no problems with penny auction bids as a MLM product (provided of course commissions are tied into the use of the bids).
The “use” caveat is there because if the bids aren’t used, well that’s no different to a MLM affiliate buying $50,000 worth of bottled juice or some such every month – with how much juice they buy dependent on how much of a commission they personally earn.
If the products aren’t actually being used but are being purchased by affiliate’s, we’d call that “front loading” and in the MLM niche of penny auctions, it’d be no different.
So, if the bids are being used (by customers) what’s the problem then?
The penny auctions themselves.
When you flip the switch on a penny auction site, you immediately introduce a rolling liability into the business model of the MLM company running it, in that, unless their penny auction takes off, they’re going to be hemorrhaging money through it.
Penny auctions work on the idea that the company recoups its money lost on selling an item well below RRP from all the losers who used their bids in the auction.
Theoretically the more popular a penny auction the more losers there are and (discounting the hordes of angry consumers who realise they’re spending money without winning anything and leave), the more money the penny auction makes.
As critical as I might sound about it, there are of course succesful legit penny auctions around – although they are far and few between. Quibids in the US are one commonly cited example… however I can’t recall any other names mentioned that have been around for any credible amount of time.
In anycase, for the purpose of analysis only one penny auction company needs to be successful in order prove the business model is viable.
Thus far, the only truly succesful penny auctions we’ve seen have been of the non-MLM variety. And here’s where we start to get into the meat of the problem.
Looking at the grandfather of MLM penny auctions, Rex Venture Group, unlike pretty much every MLM penny auction today, they actually bothered to research and test the viability of a penny auction on its own, before pairing it with a MLM compensation plan for marketing (Zeek Rewards).
How sucesfful their penny auction Zeekler was prior to Zeek Rewards is debatable but ultimately neither here nor there. The fact is they ran a penny auction for roughly a year before attaching Zeek Rewards to it.
Now regardless of whether Zeekler was sustainable or not without Zeek Rewards, quite clearly once they added Zeek Rewards to it, things spiralled out of control and within a few months Zeek Rewards’ internal affiliate volume far surpassed any legitimate retail volume Zeekler might have been experiencing prior to the launch of Zeek Rewards.
Over the next year and a half things only got worse and by the end of it the MLM industry had a $600 million Ponzi scheme on our hands.
But if I’m to give credit to Zeek Rewards for anything, it’s that at least they tried to run a penny auction before bringing in the marketing affiliates. Let’s not forget that if a penny auction can’t sustain itself, a boatload of marketing affiliates certainly isn’t going to help.
At the end of the day bidders need to feel there’s value in the penny auctions and thousands of affiliates hocking off “free bids” for their own vested financial interest doesn’t convince anyone (other than those participating in the business opportunity).
That of course then brings us to the style of compensation plan a penny auction company is then using. As was the case of Zeek Rewards, the more money its affiliates dumped into the program, the larger their share of the profit pool. With that profit pool being primarily (98%) made up of their fellow affiliates invested money, that of course made the entire thing a Ponzi scheme.
Right off the bat here I’m going to state that if you’re thinking of joining any MLM penny auction that has a similar model to this (the more money you put in as an affiliate the more you earn over ‘x’ amount of days), run. I do not care what anybody says, this is an effective Ponzi scheme and Zeek Rewards clearly demonstrated that.
The alternative to this is a bid focused business model where affiliates actually aim to sell bids to customers rather than simply purchase them themselves. The most notable example of this would have to be Bidify, who scrambled to change their compensation plan following the SEC investigation into Zeek Rewards, not once, but twice within the same week.
Despite Bidsson, Bidify’s penny auction being heavily marketed as “MLM penny auctions done right”, following the compensation plan change Bidify’s business plummeted and things got so dire that we’re now waiting for an official announcement confirming the company is going to revert back to the Ponzi scheme style compensation plan they were previously using.
Another MLM penny auction prelaunch Funky Shark recently announced they would be launching with an alarmingly similar compensation plan to that of Ponzi scheme Zeek Rewards.
Following consultation with their legal counsel however and presumably being told running a Ponzi scheme wasn’t a good idea, they balked at the idea of relying purely on the viability of not even launched yet penny auctions and shut the whole thing down.
Given that they’ve paid out some commissions already, currently Funk Shark appear to be in the predicament of now owing more money in refunds to their members then they have.
Other companies like Global One abandoned their plans to launch with a penny auction, but have since been sitting in never-ending pre-launch limbo with not much happening since.
Looking at the bigger picture, do both the examples of Bidify and Funky Shark mean a retail bid orientated MLM penny auction can’t work?
Are we likely to find out anytime soon if one is viable?
If we take a look at the current offerings in the MLM penny auction prelaunch niche – Sadly, the answer is also no.
For some reason the MLM penny auction niche seems currently hell-bent on doing things arse over backwards. Rather than launch a penny auction first, let the business grow organically on a retail level and then introduce an MLM affiliate marketing force (sounds counter-productive I know, but Bidify has already proven the opposite approach didn’t work), they are all focused on injecting as much capital into the ventures.
They do this by charging their affiliates (founder positions, membership fees, blahblahblah), with the idea behind this appearing to be a safeguard to keep the company running until (hopefully) their penny auctions take off and sustain commission payouts.
It’s no secret that in MLM penny auctions are marketed as some sort of ridiculous cash cow holy grail that the industry has been searching for, and that no matter how many of them launch, they’re all guaranteed to explode and bring in billions.
If this were indeed the case, Bidsson wouldn’t have died out following Bidify’s compensation plan change and Funky Shark would have gone ahead with their plans despite being told they had to rely on retail penny auction profits and couldn’t run an affiliate funded Ponzi scheme.
One could argue that without a marketing force a penny auction site is doomed from the start and thus we introduce a sort of paradox (no chicken, no egg – no egg, no chicken), however with the alternatives already proven to have failed – what choice does the MLM penny auction niche have?
Don’t get me wrong, penny auctions and MLM might very well still pan out but at the moment, to the best of my knowledge, nobody is putting in the legwork to even attempt to build a long-term viable penny auction.
Whether you try and run a “give bids away” compensation plan or a “strictly retail” bid purchase compensation plan, fundamentally you still need to have a succesful penny auction behind the opportunity.
How many MLM penny auction opportunities will need to fail before they realise this is anyone’s guess. Demonstrably however, the methodology of launching a penny auction after you’ve launched a MLM business opportunity and banking on theoretical penny auction profits to see you through does not work.
With little to nothing distinguishing the slew of third-party dropship product based penny auctions being attached to MLM opportunities these days, it’s hard not to just look at it as a convoluted effort to grab as many people who fell for Zeek Rewards and make them fall for the same type of garbage again.
Until someone puts in the time and effort to build a successful penny auction business before attaching a MLM opportunity to it, I’m pretty confident all we’re going to be left with is an even bigger mess than what we have now when the MLM penny auction niche dust finally settles.