The company is the first social media platform to ban multi-level marketing schemes.
MLMs are no longer welcome on TikTok.
The company is the first social media platform to officially ban multi-level marketing schemes.
If you're unfamiliar, an MLM is a type of company that doesn't pay its employees direct wages or benefits. Instead, they earn commissions by selling products and recruiting others to join the company.
Generations past sold Tupperware and knives; today, it's leggings, makeup, and candles.
MLMs are controversial and as of now, no longer welcome on TikTok.
When the company updated its community guidelines this week, it added MLMs to the 'Frauds and scams' section.
"We do not permit anyone to exploit our platform to take advantage of the trust of users and bring about financial or personal harm," says the company's site. "We remove content that deceives people in order to gain an unlawful financial or personal advantage, including schemes to defraud individuals or steal assets."
Users are warned against uploading content that "promotes Ponzi, multi-level marketing, or pyramid schemes."
So what's the big deal when it comes to MLMs?
Their business model is similar to pyramid schemes, which are often illegal because the compensation structure is unfair and predatory.
A pyramid scheme business model only allows participants to make money when they recruit others to buy into the program. For every person you recruit, you're promised a certain percentage of their commissions – and those of anyone who they bring in.
For the people at the top, it's lucrative. For the newest participants, it can be a struggle to make any money at all.
Because MLMs sell products and their participants can make a commission through sales, MLMs are legal in the United States.
However, MLMs usually also make commissions through recruitment, like pyramid schemes.
And that's why many feel that they're predatory.
Consider the following scenario:
Let's say your neighbor, Jane, tells you about her recent investment in a legging MLM. She tells you how she can work from home, set her own hours, be her own boss, and that she's turning a profit. Jane tells you that she can help you join the MLM, too. You can join her team!
Joining the MLM will involve you purchasing hundreds, if not thousands, of dollars worth of merchandise and training. But once you have your leggings, you can be like Jane and set your own hours and make your own money!
So you do it. You make the financial investment, you go through the training, and you join Jane's team. Now, you just need to sell the product. You reach out to your other neighbors, but they've already purchased leggings from Jane. You reach out to friends and coworkers and make a few sales. But not nearly enough to earn back your investment. What happens then?
Depending on the MLM, you're usually stuck with the merchandise. Officials within the organization might advise you to work harder or to recruit other people, so you can earn some of their commissions. But how can you ask other people to join this company when you've only lost money so far?
And that's a very real possibility.
One survey found that 73 percent of people who participated in MLMs lost money or made no money at all.
The Federal Trade Commission published a report where they estimated over 99 percent of all people who join MLMs will fail to turn a profit.
Is this why TikTok is banning multi-level marketing?
TikTok's users skew young, so the company might feel it an imperative to protect teens and young adults from making a naïve investment.
What impact will this ban have?
Well, multi-level marketing companies aren't going away.
MLMs are popular because they offer flexible work options. They offer the chance to stay home with your kids and make money for your family while setting your own hours and goals. It's an attractive premise, especially as unemployment rises and women are disproportionately forced out of the workforce during the pandemic.
It's just not a particularly realistic one.
Will TikTok's ban affect how MLMs recruit in America? Time will tell.
In the meantime, if you're considering joining a multi-level marketing business to earn a little cash, we recommend that you do your research.
There are women who have joined and loved their experiences. There are many who haven't. Do your due diligence and research any prospective business opportunities.
If you'd like to work from home but are unsure of where to start your job search, we've rounded up a list of side gigs for SAHMs here.
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