Russell's Story: Introduction
What is Amway?
With upwards of two and a half million members, Amway is perhaps the
world's largest and most successful Multi-Level Marketing corporation. An
MLM is a business opportunity which functions essentially like a monetary
chain letter. (Incidentally, such chain letters are illegal, but to date MLM
is not.) Basically, you pay initial and annual fees for the privilege of
being involved with Amway; then you buy additional products from Amway at a
"discount" price. For every purchase you make, you get a "bonus" back from
Amway which is initially very small. The real money, supposedly, comes when
you begin to recruit friends into "distributing" for Amway.|
When you recruit a friend, and the friend pays his fees and buys
his products, you begin receiving additional bonuses for products that
the FRIEND buys, tacked on to your own as a reward for expanding the
blob-like Amway corporation. And when your friend recruits his friends,
you get a profit on them also. Thus, if your own bonus is $100 per
month, and you recruit ten friends who recruit ten friends, and each of
them causes you to receive an additional $100 per month also, they
could theoretically net you more than 10,000 dollars every month!
Astounding, isn't it?
There are at least two considerations which make such a scheme both
mathematically and logically infeasible. But as Amway representatives will
tell you, "Logic isn't contagious; excitement is." (That's a direct quote,
and it's honestly supposed to be motivational.)|
The first flaw is the sheer number of people involved. It's fine for you to recruit ten friends who recruit ten who recruit ten, but if you multiply the numbers out you will find that it just takes ten "generations" of friends recruiting friends before the number of people involved exceeds 10^10, or ten billion people, which is double the population of the earth. It takes only seven generations to produce ten million people, which is five times the number of people in Amway to date. Nobody thinks that they're the ones on the bottom of the pyramid, but the truth is that the people who don't make money in this scenario outnumber those who do by almost ten to one.
Second flaw: where is the money coming from? In statistics there is something called a "zero-sum game" -- poker is an excellent example. When you play poker you might win a LOT, and you might even help a few friends to win a lot too, but the only way to do that is by taking money away from other people at the table. There is only a certain total amount of money at the table, and so any money that you win must come from the pockets of other people who lose. Thus, a zero-sum game means that when you add up the total number of wins and losses, the result will be zero.
Now, Amway is also a zero-sum game. It has to be, because no one is allowed to directly buy products from Amway except Amway distributors, who are STRONGLY discouraged by their upline from reselling to nondistributors. (Distributors are certainly allowed to resell their goods for what tiny profit they can get, but if they spend time doing so, they are told that they should not be wasting time on this rather than building downline.) The practical upshot of this is that the money contributing to these "bonuses" inescapably comes from the distributors who are involved. So what is evident is that if people have made millions of dollars from Amway, the money has come from a group that has collectively simply proves that others have LOST millions of dollars. (How can they lose that much to a business just from buying products? I'll get into the specifics of where your money goes momentarily.)
But you get such great bargains!
Nevertheless, Amway also claims that you can profit even if you
never sign up another person, because you are buying all the items which
you normally would, and you're getting a discount for them. Here are a
few words about the "discounts." Amway's explanation of why their
prices are cheaper is this: Normally when you buy things, they come from
manufacturers who sell them to retailers who sell them to you. The
retailers must make their own profits, so they charge something like a
30% markup for everything you buy. Amway "cuts out the middleman" and
lets you buy items "wholesale." So when you buy stuff, you pay less
because you're not paying the retailer. Since Amway sells many many
products which you need in your everyday life (they proudly trumpet
their affiliation with such corporate giants as Coca-Cola and MCI), you
save money on almost everything you buy.|
The argument sounds good on paper, except for one problem. Amway IS the retailer. You buy products through Amway, and they deliver them to your door. Not only is delivery not cheap, but the 30% which you "save" is poured right back into the company in order to pay bonuses to you and other distributors. If you look carefully at an Amway catalog (which I did) you will discover that most prices can easily be beaten just by shopping around, and some large items like cars and computers are sold at WELL above market value. (According to my roommate, he found a computer whose value at the time of publishing was $2000. The catalog price was $3500.) Now, if you have not sponsored anybody into Amway, and you buy a reasonable number of personal products, then your bonus is 3%. This is immediately wiped out when you consider the shipping and handling costs you must pay.
If you're considering signing up with Amway, and you've read this far, then you might be very apprehensive already, but this is only the beginning. Buckle up to enjoy the ride, then descend into the story itself.