Discussion  - 
tl;dr version: here is a picture of a toy pyramid scheme I did for one day (yesterday) with my friends. People who made money are in green, people who lost money are in red. I think it's a stark picture of what MLM really looks like!
Okay, so, you guys: did you hear the Planet Money podcast about Herbalife? I did, and I've had pyramid schemes on the brain. Separately, I was talking online to my high-school friend Chris Young, who played Bryce Lynch on Max Headroom, had a bunch of jobs, does 3D modeling now, and is generally my Friend Who Is A Celebrity Now.

For a lark, we decided to put together a toy pyramid scheme, where for a dollar, you could buy verified friendship with chris, an Actual Celebrity. If you PayPal-ed me a dollar, I would make you a one-page website of Chris holding a (real) sign: "I'm Friends with YOURNAME!"

Here's a representative example:

On each page, we put a PayPal form where you could recruit other people to be friends with Chris for a dollar. Each "sponsor" was tracked, so if you paid a dollar, half would go to Chris, and the other fifty cents would travel up the stream, leaving half of itself behind at each step. So your sponsor would get twenty-five cents; their sponsor would get twelve and a half cents; THEIR sponsor would get six and a quarter cents, and so on.

After just ONE day, I was startled to discover that pyramid schemes are fractal; our tiny joke pyramid among friends had taken on the behavior of a great big international pyramid scheme.  To wit:
* A tiny fraction of the VERY earliest people were making "good" money
* A small fraction of early adopters were breaking even
* EVERYBODY else was losing money, most commonly all their money.
* Things get REALLY complex, really quickly. Software can handle that complexity, but there's no way anybody is going to intuit whether they're being cheated or not. The whole thing is very opaque, and perfect for embezzlement/obfuscation.

Our little game wasn't like a real pyramid scheme because it was for a lark, and in most cases everyone went to high school with Chris, et cetera. But I was a little dismayed to see what the network looks like. I know that I'm going to stay far away from MLM in the future!

Anyhow, the fun parts of doing this were to calculate how the "upline" would work -- I decided to go with how prize money was distributed in the Horatio Hornblower books, as best I could. And it was fun to make a bunch of one-page subdomain websites with Amazon S3.  But I'm glad we only did this for one day. Already, our cute little pyramid-scheme toy was looking at me and saying "FEED me, Seymour!"
Susan Jones's profile photoW Vann Hall's profile photoJohn Young's profile photo
Thanks, that makes sense.   (I got stalled at Middle Level Management and Munchkins Losing Money)
A while back, I picked up a couple-month-long gig doing QA on the revamp of the site for a popular fitness/exercise MLM, well, empire. The site as-existed used a leading commercial social networking site builder to front-end a leading MLM accounting system back-end; the front-end was also wrapped with plenty of home-grown code to segregate people who weren't currently marketing the company's products but wanted access to workout advice and personal progress-tracking tools from those who were also bricks in the pyramid. A situation had arisen necessitating reworking or replacement (can't recall which) of the back-end, which others interpreted as a perfect opportunity to further elaborate the structure and interrelations of the various member classes.
     Unsurprisingly, the project eventually collapsed in exhaustion, virtually the entire executive team churned at least once, and life went on. I never heard how they finally dealt with the crisis that triggered all the activity in the first place -- which was the back-end system originally was incapable of issuing monthly payouts to early pyramid members of more than $99,999.99....
Whoa. This is just the kind of fruit I was hoping for when I shook this tree! What an excellent anecdote.
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