Research Articles

On Ponzi and Pyramid Schemes: Is Affiliate Marketing a Scam?

9 Mins read
affiliate marketing article banner

At Cowrywise, we are passionate about how Nigerians interact with money and how this affects their personal finance and wealth management. We write articles like this and create YouTube videos to explore the subject of money. We also do this to offer insight on how Nigerians can do better with their money, with a laser focus on savings and investments. This article explores how affiliate marketing in Nigeria has shifted from a legitimate business to a pyramid scheme in most Nigerian circles and platforms.

Why is it important that we explore this subject?

Our interest in shedding light on Ponzi schemes, pyramid schemes and other get-rich-quick schemes is borne out of the desire to show Nigerians how to build legitimate wealth. There is no ‘quick’ way to do it. While some Nigerians have participated in these schemes and have been scarred, there are those who still seem to be unaware or believe their case will be different. Hence, with the promise of millions in weeks, they venture into what they thought was affiliate marketing only to find themselves in a loop similar to that of a pyramid scheme. 

Welcome to Affiliate Marketing

If you live in Nigeria and have been on Twitter, you probably know that one person who keeps spreading the news of affiliate marketing, either with catchy tweets and fancy car pictures or with screenshots of credit alerts from a supposed affiliate marketing platform. Also, you may have dabbled into affiliate marketing on any of such platforms and realised that you found yourself in this endless loop. When you think deep, you realise that you’re getting the MMM, Ponzi vibes all over again. So what is happening exactly? Is affiliate marketing a scam? Is this another Ponzi scheme in the making?

What is affiliate marketing?

Shopify describes affiliate marketing as “a process where publishers [affiliates] earn a commission by promoting a product or service made by another retailer or advertiser.”

Here’s an example: Let’s say I write a digital book of poems but I am too busy to market this book myself. What can I do? I can go on affiliate marketing platforms and upload my book there for affiliates to sell. I will also add a commission, say 20% of the price. That means if the books goes for N10, 000, the affiliate who sells them gets a commission of N2, 000 (20% of N10, 000). The more copies the affiliate is able to sell, the more commission he earns and the more money he makes. It’s a simple, straightforward exchange. 

But how will the affiliate sell my book? Let’s say the affiliate is a Book YouTuber and has thousands of subscribers on YouTube. He can do a book review and tell people how much he enjoyed the book. Then in the video description, he will put his affiliate link to the book. He can also write a book review on his blog, sends the link to his mailing list and generates sales from there. If you’ve watched a YouTube video and during the video, the YouTuber makes reference to a product, talks briefly about it and then asks you to check the link ‘below’, they are most likely an affiliate marketer.

So this is what affiliate marketing is. At least, it’s what it’s supposed to be.

A Brief history of Ponzi Schemes in Nigeria – From MMM to Racksterli

In 2016, a Ponzi scheme called MMM found its way to Nigeria. It was the talk of the town and promised almost immediate wealth.  It seemed as though everyone knew someone who was into MMM. Until they weren’t. On a regular morning in December, the platform crashed. Nigerians lost millions on this platform. There were reports of people committing suicide due to the irredeemable loss that MMM cost them. MMM was a Ponzi scheme and just like all Ponzi schemes, pyramid schemes and get-rich-quick schemes, it was bound to fail. And fail it did.

In no time, new schemes took over from MMM. From iCharity to Loom to Racksterli, all these platforms rose up in the shadow of a MMM to feed a group of greedy and ignorant people who don’t want to build wealth but want to multiply money. These platforms promised exorbitant unsustainable returns, some up to 100%. Many Nigerians fell for them and after a while, like all get-rich-quick schemes, they packed up. 

Get-rich-quick schemes have traumatised Nigerians but unfortunately, there are still people today who fall for these traps. If you’re someone who is always looking for a quick way to make money without some hard work, you will most likely fall for these schemes. And this is why you should be careful to ensure that what you call affiliate marketing is actually not just a referral program or pyramid scheme disguised as affiliate marketing. 

Is Affiliate Marketing a get-rich-quick scheme?

The answer to that question depends on who you’re asking. Before writing this, I spoke to three friends who once explored the world of affiliate marketing on some Nigerian affiliate platforms. When asked to describe their experience in one word, they used the words ‘bad’, ‘terrible’, ‘deceitful’ and other related words. 

What exactly is the problem? We’ve established that affiliate marketing is a legitimate way of earning income which involves you selling products or services for a retailer and earning a commission in return. If this is what is being done in Nigeria, why are there so many people who ventured into it and came out feeling like they had just gone through another MMM? Why are there numerous Twitter influencers who wake up every day to tweet about affiliate marketing and promise ‘good money’ in a short period of time?

The answer is in the How.

How is Affiliate Marketing done in Nigeria?

The best affiliates are either those who have actually mastered the art of selling (through education, either formal or informal) or those who already have a platform on which they can sell. Using our example, the latter would be someone who already has a huge following of poetry enthusiasts. That way, they can easily sell the poetry book. 

However, in some Nigerian affiliate marketing platforms, this is not the case. In most cases, this is what happens: you are brought onto the platform by another affiliate who gets paid a commission for bringing you onto the platform. On getting into the system, you are bombarded with templates promising millions in weeks or months. You are shown ‘testimonials’ of people who have done it before you. There are templates of sales messages for you to copy and paste to the people you want to sell to. If your plan was to actually learn affiliate marketing as a business and do it for the long term, you will quickly realise that you’ve made a mistake by coming here.  This right here is not what affiliate marketing is, or should be. 

But you’ve already paid to get here and you want to get your money’s worth. While a few people actually just exit the platform and acknowledge that they’ve made a mistake, some others remain and decide to find a way to make their money. 

… And the cycle starts.

After exploring the platform, you realise there is actually no solid product to sell here. There are courses no one would actually want to buy and even you don’t feel invested enough to sell them. However, there is one course you can easily sell which is the same course that brought you into the platform. This is because the course is quite popular and also has the highest commission.

So what do you do? You go back into the market [Twitter, Facebook, WhatsApp] and sell this same course that brought you into, you sell it to other people, knowing fully well that once they get in, they may not be able to benefit anything. Then, you join the hoard of people on Twitter who keep tweeting endlessly about affiliate marketing and making quick money. You know it’s not the whole truth but then you need to make your own money so you also sell the same course to other innocent people who also get into the platform, realise the truth and also in their bid to make their money go ahead to sell the most popular course and the one with the highest commission which is the same course that brought them in. 

Does this sound like a pyramid scheme to you?

That’s because it is. According to Investopedia, “a pyramid scheme is a sketchy and unsustainable business model used by fraudsters to lure participants with promises of quick, exceptional returns in a short period of time. It starts with a few original, top-level members or participants recruiting new members who pay them upfront costs and fees to take part in the business.

Those new members in turn recruit more new members. They themselves receive fees paid by this next level of participants. However, a portion of these subsequent fees is sent up the chain to the original members. The recruitment, payment, and funnelling of fees up through various levels of the pyramid continue until no one is left to recruit. At that point, a pyramid scheme collapses for lack of money taken in. Most people involved lose their money.

So is affiliate marketing a Ponzi/pyramid scheme?

We have published various resources on how to spot a Ponzi/pyramid scheme but it seems these schemes evolve and come afresh under a new cloak. With most affiliate marketing platforms in Nigeria, you realise that you actually did not learn affiliate marketing as you should. You only learnt how to sell the exact same course that brought you in. This same course also has the highest number of sales. It also has the highest commission. So in the end, this is the only course you focus on selling. As a result, you keep bringing more people onto the platform and these folks do the same too. And on and on it goes, the endless cycle. That right there is a pyramid scheme. 

Promises of quick cash, high returns. Little effort, fast money. The next big thing. Don’t sleep on it.

All these are common tag lines used by people who talk about affiliate marketing. The problem with introducing a business like this is that it attracts people who are greedy and also those who want to make ‘quick money’. While the business itself and the concept of affiliate marketing is not a scam; the version being run in Nigeria on most platforms is a pyramid scheme. What this does is that it creates a generation of people who are forever scarred by the concept of affiliate marketing. 

This is similar to what happened with MMM. Back in 2016, MMM came in as an ‘investment’. This was before Cowrywise and other common investment platforms. For some Nigerians, their first introduction to anything investment was via MMM. They were introduced to a Ponzi scheme being called an investment. As a result, when the platform crashed as all pyramid and Ponzi schemes do, this set of people were scarred forever. They believed that anything tagged investment was a scam. For those who did not lose their money but ‘cashed out’, they were also scarred but in a different way. They got used to the ‘get-rich-quick schemes. When legitimate investments were introduced to them, they rejected them because they had ‘low returns’. They were expecting the same kind of returns they got from Ponzi schemes.

MMM and friends messed up how Nigerians think about investments and now that there are legitimate investment platforms, some people are still imprisoned by the idea of quick cash and high returns, all because of MMM.

The future of affiliate marketing

The same is happening with affiliate marketing right now. There is a set of people all over social media who brand it as the ‘next big thing’ and the ‘quick way to start making millions after two months’. They even show you screenshots of how much money they have made. They show you credit alerts. Email screen grabs. Everything to just get you into it. If all these feel too familiar to you, that’s because it is. This is also how pyramid schemes are run. 

Affiliate marketing itself is not a scam. If someone creates a product and pays me a commission to sell that product, that is affiliate marketing. That is a legitimate way of making money. 

However, if what you do is bring people onto a platform so they can also bring people onto the platform, that is a pyramid scheme. And as all pyramid schemes do, it is going to collapse someday. 

Wealth building is gradual

There is NO quick way to build wealth. Once you have this at the back of your mind, you will easily look away from any scheme that parades itself as your way out of poverty. If you are greedy and want to make quick cash, then you will fall into their trap. You will realise too late that there is no quick way to build wealth. Hopefully, you will not go ahead to bring others into the same mess you’ve found yourself. 

Affiliate Marketing is not a scam

On the last note, affiliate marketing is not a scam. However, the way it is being practised in Nigeria is similar to how a pyramid scheme is run and that is the problem. Contrary to what you will see on most of these platforms, affiliate marketing is a branch of marketing like content marketing and social media marketing. There is nothing special or unique about it. It is neither a guaranteed way of making money nor is it a quick way of making money. It is just what it is: marketing. 

If you’ve fallen into this trap already, pick yourself up. Acknowledge your losses and forge ahead with the truth. Also, tell people the truth and save someone else from falling into the same trap you fell into. Don’t bring others into it.

If you are just about to venture into affiliate marketing, do your proper research, avoid Twitter testimonials, focus on actually learning and taking courses on globally recognised platforms. Don’t go in with the get-rich-quick mindset. And remember, wealth building is gradual. 

Here’s to building wealth the right way. 🥂

ALSO READ:

Why We Stopped Giving Money as Referral Bonus on Cowrywise

Related articles
Expert PieceInvesting

The Power of Compound Returns on Long-term Investment Growth

InvestingProductSavingsUpdates

Introducing Triggers 🎉: Build Wealth Doing the Things You Love

InvestingUpdates

Stanbic IBTC Partners with Cowrywise, Lists 4 New Mutual Funds for Investors.

Leave a Reply

Your email address will not be published. Required fields are marked *