MLM App Prospective: What Is The Future Of Network Marketing Mobile App Companies? Pt. 1

Since late in 2012 we have seen several “Network Marketing” Mobile App companies launch. I use parenthesis because I am still not convinced these companies fit the legal description of a direct selling company aka MLM or network marketing.

Please do not take my words above as a slam on the business model, that is not what I am talking about. If we look at the most common definition of Direct Selling .vs Direct Marketing I think you will see what I am referring.

I will use Wikipedia for the two most common understandings first then will add a little extra from the IRS.

Direct Sales:

 

Direct selling is the marketing and selling of products directly to consumers away from a fixed retail location. Peddling is the oldest form of direct selling.[1] Modern direct selling includes sales made through the party plan, one-on-one demonstrations, and other personal contact arrangements as well as internet sales.[2] A textbook definition is: “The direct personal presentation, demonstration, and sale of products and services to consumers, usually in their homes or at their jobs.”[3][4] (Read Full Definition)

Direct Marketing:

Direct marketing is a channel-agnostic form of advertising that allows businesses and nonprofits organizations to communicate straight to the customer, with advertising techniques that can include Cell PhoneText messaging, email, interactive consumer websites, online display ads, fliers, catalog distribution, promotional letters, and outdoor advertising. (Read Full Definition)

Now here is what the IRS has to say…

Retail Industry ATG – Chapter 3: Examination Techniques for Specific Industries (Direct Sellers)

Direct selling companies market their products through person to person contact away from a fixed retail location through a network of independent sellers. Frequently these sales presentations are in the home, in the form of a sales “party,” or through door to door solicitations, or sometimes, as part of a get-together – one person to one person. In any case, these approaches are all considered direct sales. In addition, direct selling provides a channel of distribution for companies with innovative or distinctive products not readily available in traditional retail stores, or who cannot afford to compete with the enormous advertising and promotion costs associated with gaining space on retail shelves. (Read Full Definition)

The IRS doesn’t really separate out Direct Selling from Direct Marketing. Although, they do have a whole section on Internet Based Businesses…

Retail Industry ATG – Chapter 3: Examination Techniques for Specific Industries (Electronic Business, Online Retail)

To most people, e-business implies online shopping, but web shopping is only a small part of the e-business picture. E-Business also refers to other business transactions including online stock and bond transactions, Business-to-business purchases (EDI), and electronic telemarketing. In retail businesses the examiner is likely to find that retailers make a substantial percentage of their purchases of goods and supplies online. (Read Full Description)

Now we should also realize there are two completely different associations for the Direct Selling Industry and the Direct Marketing Industry. Again bringing into light that the common understanding is that there are two completely separate business models.

Direct Selling Association:

The mission: The Association’s mission is “To protect, serve and promote the effectiveness of member companies and the independent business people they represent. To ensure that the marketing by member companies of products and/or the direct sales opportunity is conducted with the highest level of business ethics and service to consumers.” (Read Full Description)

Direct Marketing Association:

The Mission: DMA is dedicated to advancing and protecting data-driven marketers in Washington, across the States and around the globe.

So based on the above confusion, for now we will assume that all app companies with a compensation structure attached will fall under the tax code governing Direct Selling even though most of the MLM App companies might not gain membership to the DSA.

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The Future Looks Promising…

If all the new MLM Mobile App companies create solid compensation plans, that rewards the affiliates based on the sales of products through their apps, then I would say they are off to a great start.

However, if the compensation plans, rewards affiliates based on recruiting aka, generating the majority of commissions through the sales of “licensing rights” to give away something for free, then I believe there will be huge liabilities, and the affiliates will once again be put into harms way.

Over the next few weeks, I will be traveling and interviewing some of the leaders in the MLM Mobile App industry.

Living An Epic Adventure,

Troy Dooly

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3 thoughts on “MLM App Prospective: What Is The Future Of Network Marketing Mobile App Companies? Pt. 1”

  1. At least Level 9 and iLA are selling SOMETHING to non-members. I am not too worried about them. They’re in that “gray area” Kevin Thompson talked about. It is their choice if they want to stay in it or get out.

    So far Rippln is just selling an empty idea. They keep TALKING about monetization and in-app purchase, but without any apps to recommend / refer / or whatever, it’s all vaporware.

    I think we can call this “vaporbiz”. All talk, no walk.

    Wazzub was exactly this way last year. They eventually launched some sort of startpage and social network, except those are done with somebody else’s search engine (startpage and blinkx) and an off-the-shelf PHP script from DZOIC (costs $300).

  2. kschang,

    I can see your point, and that is a concern. It is my understanding that at least with Level9 the majority of revenue is from the products and services sold through the app.

    Have you seen anything written where folks are talking about receiving commissions from the products or services?

    I am just now getting into the digging mode.

  3. The problem with iLA and Level9 is they are functioning as members recruiting members, and thus is very likely to run afoul of the regulators as a potential pyramid scheme. According to their own websites, both offers “life advice” (source unknown). Free members access a tiny portion of website, subscribers access more. Subscribers earn by recruiting other subscribers, and that’s a no-no according to the FTC.

    Rippln… so far has NOTHING to evaluate. It’s all vaporware. So what the heck are they going to “train” people on in Vegas? Hmmm?

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