The idea of “affiliate marketing” as we know it today was created in 1989 by a man named William J. Tobin.
He created the first-ever affiliate program for his business: PC Flowers & Gift.
Over 30 years later, I still see people asking if “affiliate marketing is a scam” or asserting “this is just like a pyramid scheme; it won’t end well”.
As it turns out, both ideas are wrong (and I will tell you why below).
If you’re scared of going into affiliate marketing because you’ve heard affiliate marketing is just another type of pyramid scheme (sort of like MLM), be sure to read this entire guide I’ve prepared for you below.
Below, I will explain my answer in detail, along with:
- The differences between affiliate marketing and pyramid schemes
- What these types of businesses are – and;
- Why affiliate marketing is legal to do (and why a pyramid scheme isn’t).
What Are Pyramid Schemes?
Pyramid schemes are a scam.
We should get that out of the way as soon as possible.
In fact, most countries have already banned pyramid schemes, and severe laws are in place against them.
This is because pyramid schemes can never make money the way the company behind it claims it can.
This is because if you join a pyramid scheme, you won’t actually be selling a product (and making money just like you would with affiliate marketing).
Instead, you would be making money when other people buy into the scheme.
Now the trickery of this all is that pyramid schemes can make money, but only for those who get in on it early.
The CEO would make the most, the few “managers” under him would also make a few $$$, but the deeper the pyramid goes, the less money to be made for the people at the bottom.
In fact, at the 12th level for the scheme, you would need 12 billion people to join in (nearly double the entire world population) if you want to have the chance at making any money.
I know this sounds complicated, and the best way to understand this is by seeing it in action.
Before I tell you all about affiliate marketing, how it works and how it differs from pyramid schemes, make sure you want this quick video below as it will help you understand better the faulty business-model pyramid schemes run on:
What Is Affiliate Marketing?
On the other hand, we have affiliate marketing, which in a nutshell, works like so:
- I have a product that sells for $100.
- You have an audience you can sell that product to.
- I issue an incentive to pay 30% for everyone who can sell my product.
- You sell my product to your audience.
- You make 30% ($30 in this case).
That is how affiliate marketing works.
Your earnings are not dependent on tiers and levels of people coming into the business under your umbrella.
Affiliate marketing is simply a “sales on commission” type of job (only it’s done online rather than “offline”).
So Why Does Affiliate Marketing Have A Negative Reputation?
I honestly have no concrete answer to that, however;
When I started with affiliate marketing sometime in the early 2010s, the affiliate marketing industry was awash with big claims of quick and easy money.
Of course, there is no such thing as a “get rich quick” business online, but sadly – many people fell for this (and I did too in the beginning).
This left a foul taste, and that is where affiliate marketing started getting a bit of a nasty reputation, which is a shame really because IMO;
Affiliate marketing is as legit as it can be.
To further illustrate this point, we’ll soon talk about the differences between affiliate marketing and pyramid schemes, but if you want to get a better understanding of what affiliate marketing is, check out this great introductory video guide by Ahrefs below:
5 Key Differences Between Affiliate Marketing & Pyramid Schemes
There Is A Real Product Being Offered
One major difference between affiliate marketing and pyramid schemes I want to bring up is that with affiliate marketing, there is a real product that is the main way to make money.
Some pyramid schemes do have a “product” to sell, but you will soon realize that the effort is not to sell the actual product but to sell memberships into the scheme.
In other words, the product is just a front.
The money is made when more and more people sign up for the “business opportunity” behind the product.
On the other hand, as an affiliate marketer, you sell the product and only the product.
You Don’t Have To Pay To Get Started
One other major difference I’m sure you want to know about is a clear giveaway and a sign to “run as fast as possible” if you have to pay to promote the product.
Yes, pyramid schemes come with a “fee” to join in the scam.
The only way you can then get your money back if you sell others on doing the same (a mistake you did).
On the contrary, all reputable affiliate marketing programs are free to join.
If you ever come across an affiliate program you need to pay for; it’s best to avoid it and find an alternative.
Affiliate Marketing Is Relatively Cheap To Maintain
Apart from affiliate marketing being pretty much free to get started with, it’s also nearly-free to maintain and run.
With MLM and other shadier forms of it (such as a pyramid scheme), you need to keep buying a product and keep spending money just for the sake of “being in the scheme”.
With affiliate marketing, I can create a website today and it will only cost me ~$100 to fund its basic expenses for a year (such as domain and hosting).
That will remain true for as long as I keep the website running.
Affiliate Marketing Powers The World’s Biggest Brands
One thing you should also know is that while pyramid schemes are illegal (more on this soon), affiliate marketing powers major brands such as:
The world’s biggest companies are all now jumping into affiliate marketing as it’s a win-win for them.
Rest assured you will never see Apple coming up with some “pyramid scheme” – at least I hope not.
Affiliate Marketing Is Not Illegal
Again, to make the point: pyramid schemes are illegal!
They are illegal to create, run and promote in just about every developed country.
This alone should be enough warning signs for you not to join any pyramid scheme, no matter how good/legit you think it is.
So, Is Affiliate Marketing A Pyramid Scheme? (Verdict)
No – affiliate marketing is not in any way, shape or form, a pyramid scheme.
As you can see from the differences listed above, affiliate marketing is a much safer and much more trustworthy endeavor than a pyramid scheme will ever be.
If you want to get started with affiliate marketing, do not think you will be getting involved in a pyramid scheme because that couldn’t be further from the truth.
However, I would recommend you be very careful about how you go about getting into affiliate marketing because many courses out there are a bit of a scam themselves.
If you’re serious about making money online with affiliate marketing, be sure to read the next piece as it will put you on the right path towards success.
Learn How To Get Started With Affiliate Marketing
If you’d like to learn affiliate marketing in a safe manner (no scams, no fake gurus, no unrealistic income goals), you should consider joining Wealthy Affiliate.
It’s where I learned how to make money with affiliate marketing. Thanks to it, this year, I will be celebrating 10 years as an affiliate.
Additionally, you may also want to see my guide showing you how I make money building simple affiliate marketing websites.