That’s right, I went there.
Multilevel marketing (MLM) is a strategy that some direct sales companies use to encourage existing distributors to recruit new distributors. In MLM schemes, there can be hundreds or thousands of members worldwide (or in the case of YouTube, Instagram and the likes, millions upon millions), but relatively few earn meaningful incomes from their efforts, indicating a possible pyramid scheme. Multilevel marketing is also referred to as ‘referral marketing’.
The entire premise of multilevel marketing is that people make sales for a company without being actual employees of that company. The ‘consultants’ make a small commission for their work and those higher up at the company will always be the one’s making real money. While companies like LulaRoe, Amway, Mary Kay Cosmetics and Avon might be struggling in a pandemic-ridden 2020 due to the structure and nature of their corporate pyramid, YouTube has been reaping the rewards of their corporate pyramid one-hundred-fold over the past decade.
Before you roll your eyes, hear me out!
Content creators are not employees of YouTube. They’re consultants. They don’t get benefits. They don’t have taxes taken off of the money YouTube pays them. They don’t earn a regular income. They’re paid based on performance. And, if they so like, they can take some of that payment from YouTube and put it directly into the membership costs of belonging to a YouTube network that promises to help them grow their platform. Furthermore, YouTube relies on content creators to bring in new creators and grow the YouTube platform further and bring in more money. In the case of YouTube, content creators are selling advertisements.
Now, let’s compare YouTube to Mary Kay Cosmetics, a widely known MLM. Mary Kay Cosmetics does not hire employees, they instead opt for a company structure that sees consultants making sales for the business, and, bringing in new consultants. Consultants are not paid a regular income, instead they earn based on performance. The more they sell, the more they earn. Mary Kay Cosmetics consultants also have the option to take their earnings and put it towards a network that will allow them to grow their platforms, and (hopefully) in turn sell more makeup.
Sounds familiar, right?
YouTube operates monetization on a sliding scale. Content creators are required to meet certain thresholds with their channel in order to even become monetized in the first place. As an audience grows for a particular content creator, new opportunities open up for them on the platform, such as being able to live-stream, finally earning a portion of the adsense dollars that YouTube is already making from their videos, and eventually even being able to open up their own ‘Membership structure’ for their channel in which people can pay the content creator directly for things like shout outs or sneak peaks. The better you perform, the more chance you have to earn. But also, if you don’t perform at all, it does not hurt the company whatsoever.
Mary Kay also operates their pay structure on a sliding scale. Sales consultants are required to make an initial investment in the company and sell ‘x’ amount of dollars worth of product before they’re able to even earn a profit. Depending on the amount an individual is able to sell, Mary Kay opens the opportunity for said sales consultants to earn bonuses – these can be anything from extra commission to free trips to the chance to drive a pink, branded car. The better that you perform, the more chance that you have to earn. But also, if you don’t perform at all, it does not hurt the company whatsoever.
In both cases, networking is pretty key to finding any sort of moderate success.
Now, wait a minute, wait a minute. The initial investment into a company like Mary Kay Cosmetics is one that you pay directly to the company. What is the initial investment in YouTube?
I’m glad that you asked.
While the initial investment one must make to begin a YouTube channel is not paid directly to the platform itself, you are required to have some form of technology – be it a phone, camera or computer – that allows you to film, edit and post videos to the platform. No, you don’t buy those phones, cameras or computers directly from YouTube. But, what you do give YouTube is your time. And time is valuable. For reference, when you’re just getting started with video editing, it can take as much as thirty hours to edit a single ten minute video. For someone like myself, last year I worked for an economic development firm part-time. The hours weren’t regular, but when I was working, I was earning $20 an hour. If I spent 30 hours on a project, I would earn $600. For a new content creator on YouTube, until they reach 4,000 hours of watch time, 1,000 subscribers or more and compliance with YouTube’s community guidelines, they’re not earning a single cent. That’s 30 free hours of work they’re providing YouTube with, each time they upload a video.
Depending on the content creator, it can take a couple of months before earning monetization, or it can take a few years. This is why hustle culture on YouTube can, at times, be very toxic… which is not unlike the culture among any MLM company on earth. In YouTube, and in Mary Kay Cosmetics, the deck is stacked in favour of the bold, the beautiful and those who are the most ‘commercial friendly’. But, when you’re getting the tips and tricks of the trade from someone in the trenches, they’re not going to tell you that.
Someone with heavy investments into Mary Kay Cosmetics is definitely not going to tell you how hard it is for them to earn an income because they need you to sign up to help boost the income they’re struggling so hard to earn.
Someone with heavy investments (yes we’re counting time and money) into YouTube isn’t going to tell you the cost/value ratio of a single YouTube video because the minute they do, they’re going to lose out on opportunity for earning potential. Yeah, there’s a reason why YouTuber’s don’t comment about how much money they make. The moment they do, YouTube can flag their channel and decrease their earning potential. And, in an industry in which their money isn’t guaranteed, they don’t want to risk earning less if they don’t have to.
In a 2020 world, especially with the ongoing pandemic, marketers and large corporations have realized that there’s a certain je ne sais quoi about having regular folk advertise their products. What better way to do that then to enter every person’s home/life through the technology they already have. Advertisers pay YouTube to be able to run commercial campaigns during videos on the platform. In turn, YouTube promises advertisers that their ‘Consultants’ (Content Creators/Regular Folk) will bring enough people to the platform to bring a valuable return on investment in said advertisement. When you really stop to think about it, this isn’t that far removed from well known MLM companies that do the exact same thing through Instagram and, in a lot of cases, YouTube as well.
Somehow, though, YouTube has morphed itself into a ‘Legal’ pyramid scheme. One where those at the top get richer, and those, even in the upper echelon of the platform, still seek out sponsorships and affiliate codes/links to earn the majority of their income.
YouTube was estimated to earn more than 15 billion dollars in Ad Revenue in 2019. (From Business Insider) Only between 10-30 percent of that revnue is distributed to the content creators who are responsible for earning that income in the first place. That means that between millions of content creators who earned YouTube that 15 billion dollars, high-end estimations of that would suggest they shared 4.5 billion. And that’s being reaaaaaaaaaaaaaaaaaaaaaaaaaally generous.
Sure, a portion of 4.5 billion sounds great, right? Let’s say that there was 4.5 billion to go around and approximately one million channels on YouTube to split that among. That’s $4,500… for a year of work. Now take into account that those dollars aren’t being spread evenly. Those who performed better are going to be earning a larger piece of the Adsense pie. Realistically, the dollar amount a content creator could be making from YouTube could be absolutely abysmal compared to a regular nine-to-five job. This is why there are sponsored videos, affiliate links and free giveaways. But that’s a story for another day!
The pandemic has hit this world hard. People who work for companies like Mary Kay Cosmetics can’t just go do what they’ve always done because hosting a ‘Mary Kay Party’ to show off the merchandise isn’t exactly recommended when there’s a deadly disease sweeping the planet. They’ve taken to Instagram and YouTube and made some sponsored content of their own to try and keep their company afloat amidst all that is going on in the world. And, while the blow YouTube might be suffering due to the pandemic isn’t quite as large, they’re hurting too. It’s not easy for companies to produce advertisements for YouTube when their entire staff is/was working from home. For this reason, YouTube has recorded a loss in their second quarter profit earnings from ad revenue. That is also the reason why there are so many more ‘this video is sponsored by’ and ‘this product was gifted from’ videos circulating YouTube. In a work-from-home world, content creators are learning the already low revenue they were earning from adsense is going to be even less in 2020.
What really gets me, though, is when I’m watching a YouTube video and there’s an advertisement for an MLM company or product within the video itself. It’s become a bit like Russian Nesting Dolls… an MLM within an MLM, within an MLM. As the world continues to adapt to circumstances around us, these instances are only going to become more and more prevalent. Especially since YouTube won’t be going anywhere any time soon.
And, because I went ahead and called them the ultimate modern day MLMi in the title, I will add that where struggling MLMs require high investments for you to even test the product, all that is required to test YouTube is technology and boredom. Thus making them a far superior MLM to any other in existence right now.