Affiliate marketing has been a part of our lives since the mid-90s. Over the years, it has helped brands expand, boosted sales for businesses, and even allowed influencers to make a living off of their Instagram accounts. However, some people are still skeptical about it and believe that affiliate marketing is a pyramid scheme.
This article aims to dispel the myths around it and show you why affiliate marketing is a legitimate way to make money online.
Is Affiliate Marketing Legit?
Affiliate marketing is an advertising model used by companies of all sizes and industries. The way it works is similar to a referral program.
Bloggers or other types of influencers sign up for an affiliate marketing program to get the referral, or in this case, the affiliate links. Then, they promote the product and publish the links with their review. When someone uses the affiliate link to make a purchase, the person who posted it gets a commission.
We don’t see anything wrong with that, and neither does the FTC, as long as the affiliate links are disclosed as such.
Not only is affiliate marketing legit, but in a way, it is a win-win-win for all three parties involved:
- Paying commissions is cheaper than spending money on marketing that may or may not deliver any sales.
- Affiliate marketers get to add an extra revenue source to their platform.
- Customers have the chance to get to know a product by reading or watching a review about it before they decide if they should buy it.
Why Is Affiliate Marketing Not a Scam?
Let’s compare affiliate marketing to some other commission-based business models. Nobody questions the legitimacy of professionals like real estate agents, travel agents, and sales engineers.
Nowadays, customers can get a bonus or a discount for referring a friend to almost every service. Suggesting a nice Airbnb vacation home to your friend and earning some credit for it is certainly not a scam. This is very close to what affiliate marketers are doing, only they do it on a much larger scale.
There is nothing “scammy” about promoting a product and then earning a reward for your efforts. Moreover, if affiliate marketing is a scam, world-renown brands such as Amazon and Best Buy would stay away from it, rather than embrace it. Affiliate marketing statistics show that the number of Amazon Associates is close to a million.
Difference Between Affiliate Marketing and a Pyramid Scheme
Now that we know what affiliate marketing is, we need to take a look at pyramid schemes and how they work.
A pyramid scheme is a fraudulent business model that relies on recruiting new members rather than advertising products to generate revenue. To join a pyramid scheme, you have to invest a certain amount of money in the program. The promise is that you will get the money back and earn much more every time you get new members to join it.
That’s it. There’s no production, promotion, selling, or trading of any goods or services, which is the most significant difference between affiliate marketing and a pyramid scheme. The only income streams are the new people gullible enough to waste their money.
Eventually and inevitably, these victims will run out. The people at the top of the pyramid (the ones who started it) will get away with most of the money, while those at the bottom (about 90% of the other users) will end up losing money.
Because this “business model” is so clearly a scam every way you look at it, pyramid schemes are illegal in most countries.
How Is Affiliate Marketing Not a Pyramid Scheme?
Affiliate marketing is not a pyramid scheme because the two have almost nothing in common. In fact, it is hard to find similarities between the two. These are some of the most outstanding differences when comparing a pyramid scheme vs an affiliate marketing program:
- Pyramid schemes are illegal, and affiliate marketing programs have no reason to be.
- Affiliate marketing programs run for decades, and pyramid schemes quickly pop up and disappear without a trace.
- You don’t need to pay anything to join an affiliate program or trick others into joining it.
- Affiliate marketers promote products and services, while pyramid schemes have nothing to do with advertising or selling.
- Affiliate programs are likely the future of marketing, while pyramid schemes are just bad memories of those who were unlucky to get caught in one.
Difference Between MLM and Affiliate Marketing
Another common misconception is confusing multi-level marketing with affiliate marketing. While they have a few similarities, MLM is actually closer to being a pyramid scheme than a legitimate business model.
To be fair, MLM involves promoting and selling products. However, there’s also the scammy part where people need to pay money to join the program and recruit new members to increase their earnings. This is sketchy, to say the least, and the biggest difference between MLM and affiliate marketing.
Namely, in MLM, there are multiple tiers of membership offering different benefits. Members of the higher tiers can earn commissions from the sales made by the marketers below them. However, becoming a part of the highest tier requires you to invest a considerable sum of money, which is almost impossible to get a return on without recruiting more people.
This is where MLM programs meet pyramid schemes and diverge from affiliate marketing. In a nutshell, MLM is a pyramid scheme with an affiliate marketing program facade to avoid troubles with the law. While legal in the US, MLM is considered controversial due to its predatory recruiting techniques.
Is Affiliate Marketing Better Than MLM?
Affiliate marketing has every advantage over MLM from the consumer’s and marketer’s point of view. MLM is only profitable for the owners of the companies that leverage it. If you are still not convinced, here are a few ways affiliate marketing is better than MLM:
- You can start an affiliate marketing business with no financial investment.
- Because they are free to join, you can be a member of multiple affiliate marketing programs simultaneously with no drawback.
- Affiliate marketing doesn’t require you to recruit new members with intrusive and annoying methods.
- There are affiliate marketing programs that align with almost every niche that exists, so you can promote products you actually care about.
- You don’t depend on the sales of other marketers in affiliate marketing, and the commissions are usually higher than in MLM.
The Bottom Line
To sum it up, affiliate marketing is a legitimate, performance-based business model that relies on promoting and selling products to generate revenue. There is nothing illegal or immoral about it. Most affiliate marketers will tell you it takes a lot of effort and dedication to make affiliate marketing worthwhile, just like any other business.
Pyramid schemes and MLM programs, on the other hand, promise easy money and getting rich overnight with minimal effort. Unfortunately, this is true only for the people who start them.
Hopefully, this clears things up, and there are no more dilemmas and debates over whether affiliate marketing is a pyramid scheme, a scam, or illegitimate.
Learn more: Is affiliate marketing worth it?
