TikTok’s take on Ponzi, Pyramid and MLM Schemes - The impact on MLM Industry

TikTok released a new version of its community guidelines recently. With more emphasis on the trust and security of its users, TikTok declared to ban content promoting Ponzi, Pyramid and illegitimate MLM schemes on the platform. TikTok has taken strict measures to ensure the security of its users by keeping a check on the content that may cause any personal or financial harm. While this may hamper the fraudulent activities of tricksters, it will help in the general cleansing of the MLM industry to a certain extent. This is not a major concern for legit MLM companies but TikTok’s turn on MLM as a whole is quite surprising. Social media is undeniably a major influencer in the purchase decisions of a good percentage of today’s population. TikTok, though not a giant in the social media industry, has shown immense growth recently. With this new measure in place it is going to win the credibility of its users. But does that make a difference to the MLM industry in general? Before looking into that, let’s learn about how MLM works.

For those who are not aware of how MLM works, MLM, or multi-level marketing is a business model in which the company uses independent salespeople to sell their products directly to the customers. The salespeople, also known as distributors, don't get a fixed salary, instead, they get paid in commission and bonuses for selling the products and also for recruiting people to join the company.

This business model was always on the receiving end of criticism despite being a legit business model that provides income opportunities for millions of people. Fraudsters with illegal money-making schemes and pyramid schemes pose their business model as legit MLM and attract vulnerable people into it.

Now let’s come back to our question. Does this move by TikTok make a difference to the MLM industry in general? A social responsibility is best applied by weighing the positives and negatives of a system and then to decide whether to ban or alter the system. In this case, though Ponzis and Pyramid schemes pose a serious threat to society, legit MLMs don’t. FTC itself has issued guidance to consumers on this matter. As a responsible and popular platform, TikTok is expected to act more responsibly to curb social evils rather than banning the whole of it. Identifying best business practices will also benefit their users in getting a fair knowledge about legit business opportunities especially during this pandemic era. To support the good and prevent the bad is undoubtedly the best practice for the society to exist in harmony.