Thursday, 12 July 2018

Is 'Shopify' -The corporate-front for yet another 'Income Opportunity/Prosperity Gospel' cultic racket?

Over the last few months, I've received several enquiries about a Canadian-based, New York Stock Exchange publicly-traded company called 'Shopify'. 


Image result for andrew left citron



'Shopify' became the subject of debate last year, when it was compared to 'Herbalife,' by Andrew Left of Citron Research (see articles below). 




Earlier this year, Canada's Prime Minister, Justin Trudeau, appeared at a mystifying 'Shopify' event where he sat next to one of the company's instigators, Tobias Lütke (a German-born computer programmer b. 1980). 

Essentially, I've been asked if 'Shopify' is an 'MLM' but the real question is, whether 'Shopify' is the corporate-front for yet another 'income opportunity /Prosperity Gospel' cultic racket?



Image result for shopify business opportunity

From the evidence I've examined (including the video featuring Justin Trudeau), the answer to the above question would appear to be, yes. That said, as Robert FitzPatrick pointed out last year (see article below), the enticing Utopian fairy story entitled 'Shopify e-Commerce Platform / Business Opportunity' is a modified version of the 'MLM' original.

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'Multi-Level Marketing' Warning




The following deconstructed analysis has been formulated to sharpen the critical and evaluative faculties of all unwary persons approaching 'Multi-Level Marketing' from the dangerous (subjective) point of view that it must be a business, rather than from the safe (purely-objective) point of view that they don't really know what it is.

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More than half a century of quantifiable evidence, proves beyond all reasonable doubt that:


  • the widely-misunderstood phenomenon that has become popularly-known as 'Multi-Level Marketing' (a.k.a. 'Network Marketing') is nothing more than an absurd, non-rational,  cultic, economic pseudo-science maliciously-designed to lure unwary persons into de facto servitude, dissociate them from external reality and not only steal their money, but also deceive them into unconsciously acting the role of bait to lure other unwary persons (particularly their friends and family members) into the same trap. 
  • the impressive-sounding made-up jargon term, 'MLM,' is therefore, the misleading title for an enticing structured-scenario of control which has been developed, and constantly acted out as  reality, by the instigators, and associates, of various copy-cat, major and minor, ongoing organised crime groups (hiding behind labyrinths of legally-registered corporate structures) to shut-down the critical, and evaluative, faculties of victims, and of casual observers, in order to perpetrate, and dissimulate, a series of blame-the-victim 'Long Cons*'  - comprising self-perpetuating rigged-market swindles**, a.k.a. pyramid scams (dressed up as 'legitimate direct selling income opportunites') and related advance-fee frauds (dressed up as 'legitimate: training and motivation, self-betterment, programs, recruitment leads, lead generation systems,' etc.).
  • Apart from an insignificant minority of shills (whose leading-role in the 'Long Con' has been to pretend that anyone can achieve financial freedom simply by following their unquestioning example and exactly-duplicating a step-by-step-plan of recruitment and self-consumption)the hidden overall net-loss/churn rate for participation in so-called 'MLM income opportunities,' has always been effectively 100%.
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*A 'Long Con' is a form of fraud maliciously designed to exploit victims' existing beliefs and instinctual desires and make them falsely-believe that they are exercising a completely free-choice. 'Long Cons' comprise an enticing structured-scenario of control acted out as reality over an extended period. Like theatrical plays, 'Long Cons' are written, directed and produced. They involve leading players and supporting players as well as props, sets, extras, costumes, script, etc. The hidden objective of 'Long Cons' is to convince unwary persons that fiction is fact and fact is fiction, progressively cutting them off from external reality. In this way, victims begin unconsciously to play along with the controlling-scenario and (in the false-expectation of future reward) large sums of money or valuables can be stolen from them. Classically, the victims of 'Long Cons' can become deluded to such an extent that they will abandon their education, jobs, careers, etc., empty their bank accounts, and/or beg, steal, borrow from friends, family members, etc.



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** The enticing structured-scenario of control fundamental to all 'rigged-market swindles' is that people can earn income by first contributing their own money to participate in a profitable commercial opportunity, but which is secretly an economically-unviable fake due to the fact that the (alleged) opportunity has been rigged so that it generates no significant, or sustainable, revenue other than that deriving from its own ill-informed participants. For more than 50 years, 'Multi-Level Marketing' racketeers have been allowed to dissimulate rigged-market swindles by offering endless-chains of victims various banal, but over-priced, products, and/or services, in exchange for unlawful losing-investment payments, on the pretext that 'MLM' products/services can then be regularly re-sold for a profit in significant quantities via expanding networks of distributors. However, since 'MLM' products/services cannot be regularly re-sold to the general public for a profit in significant quantities (based on value and demand), 'MLM' participants have, in fact, been peddled infinite shares of their own finite money (in the false expectation of future reward). 

Thus, in 'MLM' rackets, the innocent looking products/sevices' function has been to hide what is really occurring - i.e The operation of an unlawful, intrinsically fraudulent, rigged-market where effectively no non-salaried (transient) participant can generate an overall net-profit, because, unknown to the non-salaried (transient) participants, the market is in a permanent state of collapse and requires its non-salaried (transient) participants to keep finding further (temporary) de facto slaves to sustain the enticing illusion of stability and viability.

Meanwhile an insignificant (permanent) minority direct the 'Long Con' - raking in vast profits by selling into the rigged-market and by controlling/withholding all key-information concerning the rigged-market's actual catastrophic, ever-shifting results from its never-ending chain of (temporary) de facto slaves.

Although cure-all pills potions and vitamin/dietary supplements, household and beauty, products have been most-prevalent, it is possible to use any product, and/or service, to dissimulate a rigged-market swindle. There are even some 'MLM' rackets that have been hidden behind well-known traditional brands (albeit offered at fixed high prices). Some 'MLM' rackets have included 'cash-back/discount shopping cards, travel products, insurance, energy/communications services' and 'crypto-currencies' in their controlling scenarios.

No matter what bedazzling product/service has been dangled as bait, in 'MLM' rackets, there has been no significant or sustainable source of revenue other than never-ending chains of contractees of the 'MLM' front companies. These front-companies always pretend that their products/services are high quality and reasonably-priced and that for anyone prepared to put in some effort, the products/services can be sold on for a profit via expanding networks of distributors based on value and demand. In reality, the underlying reason why it has mainly only been (transient) 'MLM' contractees who have bought the various products /services (and not the general public) is because they have been tricked into unconsciously playing along with the controlling scenario which constantly says that via regular self-consumption and the recruitment of others to do the same, etc. ad infinitum, anyone can receive a future (unlimited) reward.

I've been examining the 'MLM' phenomenon for around 20 years. During this time, I've yet to find one so-called 'MLM' company that has voluntarily made key-information available to the public concerning the quantifiable results of its so-called 'income opportunity'.

Part of the key-information that all 'MLM' bosses seek to hide concerns the overall number of persons who have signed contracts since the front companies were instigated and the retention rates of these contractees. 

When rigorously investigated, the overall hidden net-loss churn rates for so-called 'MLM income opportunites' has turned out to have been effectively 100%. Thus, anyone claiming (or implying) that it is possible for anyone to make a penny of net-profit, let alone a living, in an 'MLM,' cannot be telling the truth and will not provide quantifiable evidence to back up his/her anecdotal claims.



Although a significant number of 'MLM' front-companies (like 'Vemma', 'Fortune Hi-Tech Marketing', 'Wake Up Now') have been shut-down by commercial regulators, some of the biggest 'MLM' rackets (like 'Amway' ,'Herbalife', Forever Living Products' ) have continued to hide in plain sight whilst secretly churning tens of millions of losing participants over decades.

The quantifiable results of the self-perpetuating global 'Long Con' known as 'Multi Level Marketing,' have been fiendishly hidden by convincing victims that they are 'Independent Business Owners' and that any losses they incurred, must have been entirely their own fault. 






Blog readers should observe how (in the above linked-videos) chronic victims of 'MLM' cults are incapable of describing what they were subjected to in accurate terms. Even though they are no longer physically playing along with the 'Long Con's' controlling-scenario, they unconsciously continue to think, and speak, using the jargon-laced 'MLM' script - illogically describing themselves as 'Distributors.' 

Chronic victims of blame-the-victim cultic rackets who have managed to escape and confront the ego-destroying reality that they’ve been systematically deceived and exploited, are invariably destitute and dissociated from all their previous social contacts. For years afterwards, recovering cult victims can suffer from psychological problems (which are also generally indicative of the victims of abuse):

depression; overwhelming feelings (guilt, grief, shame, fear, anger, embarrassment, etc.); dependency/ inability to make decisions; retarded psychological/ intellectual development; suicidal thoughts; panic/ anxiety attacks; extreme identity confusion; Post-Traumatic Stress Disorder; insomnia/ nightmares; eating disorders; psychosomatic illness, fear of forming intimate relationships; inability to trust; etc.  

David Brear (copyright 2018)
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https://citronresearch.com/citron-exposes-the-dark-side-of-shopify/

https://lazymoneymaking.com/shopify-stock-drops-business-model-compared-to-mlm


Image result for shopify

Shopify Stock Drops as Business Model Compared to MLM


It’s been a rough few days for Shopify as their business was compared to notorious MLM Herbalife earlier this week.
On Wednesday 4th October, stock short seller and activist, Andrew left, reported on his website Citron Research, that Shopify’s marketing is in violation of the same FTC rules that landed Herbalife with a lawsuit resulting in a $200 million settlement.
Citron Research sounds grand, but it isn’t a financial institute, it is the evolution of Andrew Left’s original self-published blog StockLemon.com, in which he issued free reports and newsletters on company stocks he considered overvalued.
That is not to say Citron Research isn’t respected or influential: Andrew Left has had his stock reports evaluated by the Wall Street Journal and been invited to speak at Harvard Business School.
The Wall Street Journal found that there was an average share price drop of 42% of those companies Left reported as having overpriced stock in his opinion, and given he focuses on those companies that he considers to be engaged in fraud or deceitful marketing practices, the subjects of his reports have frequently sued.
To date, Left claims that no company in the US has been successful in that endeavour against him.
So he’s not just some chump with a blog, farting up an opinion in whatever takes his fancy: you can take the guy seriously, because the stock market does.
Shopify’s stock fell nearly 12% following Left’s latest report on its business and promotions activities. To put that in perspective, that’s $1.5 billion wiped off their share price. So folks in the know take this dude’s pronouncements real serious.
Here’s Left explaining what his concerns are with Shopify in a Bloomberg interview:

Not My Bag, Man

This sort of subject matter isn’t really the remit of what this blog of mine is about. I discuss making money via a totally different approach, and I don’t pretend to be a stock market expert or be in possession of any advice in that regard. So it’s just as well I don’t have any to give.
But I can read a report and relate to my own experience and analysis (however anecdotal that may be accused of being).
And what Andrew Left is saying, resonates with me. I think he’s right: Shopify is riding the wave of the drop-shipping/get-rich-quick fad, and I’ve said it before.

Drop-shipping

Let’s face it, drop-shipping is how most of us know Shopify. The vast majority of people are aware of it, not because they have a physical store and need a method to increase sales with a Web solution, but because they were sold on a drop-shipping webinar that came cantering into view on their Facebook news feed, ridden by a promise of a life of financial freedom.
Shopify isn’t new, either. It’s been around since 2006 – and despite being valued in the billions, hasn’t actually made a profit in any year as yet.
Shopify didn’t come up with the drop-shipping business model, I don’t even know if it was thinking in terms of that market, or that anyone could have predicted the rise in popularity of that money making ‘scheme,’ but it sure benefited from it.
That drop-shipping became a ‘thing’ as much as the fidget-spinners sold on it, was due to a combination of factors: Facebook, Aliexpress and the same hucksters who’d promote Nu Skin one week, and be an ecommerce guru the next.
Aliexpress was the main one, though, in my opinion. There were other suppliers available previously, and there still are, but Aliexpress is the supplier of choice for drop-shipping.
Amazon and eBay benefited from drop-shipping 1.0 but Shopify ushered in drop-shipping 2.0.
Woocommerce played its part too, but it was harder – it needed experience of WordPress and technical knowledge. You had to be able to setup a website, put all the pieces together yourself or pay someone to do that. It has a barrier of entry to a certain extent.
Shopify threw that all wide open.
You just signed up, and you had a done-for-you and working ecommerce store in as little as an hour.
No payment system hassles, no web designer fees, one simple process and you had a legit store. Or one that looked that way anyway, depending on what your purposes were.
And one that looked exactly the same as half a million other stores using the same free template, but never mind.
But then you still needed something to sell. Creating your own branded product range is expensive and risky. Hooking up with a supplier is easier but many required minimum orders and that still entailed risk. Not to mention that suppliers in themselves for drop-shipping could be risky. There were numerous posts and catalogues warning of cowboys and rip-off merchants, and where to find reputable companies to deal with – these posts are still kicking around on the Web from back in the day.
Some of those sites and catalogues incurred a joining fee too, before you could even begin perusing them just for supplier names, never mind products.
So it wasn’t all that simple to get going in drop-shipping, it needed quite a bit of dedication and perseverance just to get setup.
And Aliexpress removed the final barrier in terms of presenting a supplier who didn’t need minimum orders, wasn’t looking for credit checks or a physical premises or even a website, didn’t care about your eligibility as a long term customer or that you ordered one item or one thousand, all it cared about was that you had the money to pay.
Aliexpress isn’t even the supplier, it’s just the portal to other suppliers willing to sell piecemeal instead of wholesale, and it’s stuffed with drop-shippers itself! A lot of the ‘suppliers’ are using the same product images because they just swiped them from the original producer, and intend going to them once you place your order. Their margins are minimal but they’re doing it with just about everything Aliexpress sells, no website or other costs except buying, and you’ve already bought, so they have the money, and it’s just pass the parcel.
Then you’ve got the hucksters who spotted an opportunity to sell a digital info product, repackaging information from folks who actually were making a few bucks at drop-shopping, hype it all up, and sell it as another tantalising get-rich-quick scheme. That these people could claim riches themselves was never from the execution of their advice in the product, but from selling it.
Much like, as I always say, I could resell Schwarzenegger’s advice on body building, Bruce Lee’s training method, but beyond being able to talk at length on their writings – and sound perfectly legit and knowledgeable – it’d be all theory as I’ve never achieved anything with their advice; too much like hard work.
Put all that together, Shopify, Aliexpress, and the hucksters easy access to you in the Facebook news feed – and Facebook helpfully even targets just the right people they’re looking for as marks – and you get the drop-shipping fad.
The fad Andrew Left objects to.

Shopify’s MLM-like Marketing

Left has a point and he highlights Shopify’s advertising which makes classical scamster claims about becoming a millionaire and quitting your job.
Not a Lottery advertisement
It’s true. Shopify Facebook ads make claims that no one else would get approved: “Become a Facebook Millionaire.”
But Facebook only tends to get ethical when your ad budget is $5 a day, not $5,000.
The drop-shipping courses help push the dream too. I posted just recently on one I liked, but came with the claim of making $0 – $1.1m in its first ever of quarter of trading! Like I said in that post, is that net or gross? Because them Facebook ads cost and you gotta buy the product too first in drop-shipping. James Beattie claims to know drop-shippers posting $300k a month sales figures but still don’t make shit as it all goes on ads to get the sales.
Andrew Left also objects to the advertising for Oberlo, an add-on for Shopify for importing products from Aliexpress, that suggests you don’t even need to have a firm idea for the niche you want to found your store on.
It’s like “create a business in anything, even if you have no experience, and become successful!” The Timothy Marcpitch in other words.
Another beef of Left’s is Shopify’s own Exchange Marketplace, a facility it offers in order to sell your store.
Or have you cling onto it a bit longer, still paying your monthly subscription fees, while you try and claw something back for the investment in the hoped for sale of a ready made, but most likely failed, store.
I’ll be honest with my drop-shipping store, I built it with Woocommerce, using a pre-existing hosting package I have with SiteRubix, that allowed me multiple sites and a SSL certificate for each and everyone of those sites. I dabbled by my own admission, I still have plans for that site, but I haven’t really looked at it in the last four months. I had that luxury as it wasn’t costing me anything. The same hosting covers this site so it wasn’t a loss, I was still getting value. I wouldn’t have been able to say that, though, if I was paying out $29 for the basic Shopify plan every month and neglecting it.
But if I was, then the idea of maybe making some of that back, not to mention the ad spend on failed products, via a Shopify Exchange sale, might well get another couple of months subscription out of me.
Not that my twenty-nine bucks is going to make or break Shopify, but there’s four hundred and fifty thousand other people more or less in the same boat according to Andrew Left.

Shopify’s Customer Base

Left references Shopify’s own CEO Tobias Lutke in an interview with Bloomberg in which he states that Shopify is home to 500,000 merchants. Of those, 2,500 are on the “Plus” plan, which requires the sort of heavy-duty support you’d associate with a serious retail outlet dealing with substantial traffic and sales. Left then guesstimates another 20,000 or more users as being on the “Advanced” plan, so that being the case he reckons that leaves some 450,000 as Basic to ‘regular’ price plan subscribers.
And Shopify won’t release figures for “churn” which Left says is Shopify’s “Dirty little secret.”
That’s the turnover rate of customers; the numbers joining and leaving every month.
Left says this is an obvious problem for the company and the reason why it instigated the Exchange Market.
Which if you take a look at the top revenue earning sites up for sale on it, you can see a ‘crash & burn’ cycle being repeated in all of them.
Left cites “Head Over Heels Couture” as at time of posting, it’s currently the highest priced Shopify store at $875,000(!). These are its sales and visitor stats:
What those stats say to me is maybe not so much crash and burn re the product or market, but for whatever reason, the store stopped advertising – and as soon as it did, sales crashed.
I would guess they probably stopped advertising, because as previously said, they weren’t making any margin on it.
$1 million in sales isn’t so impressive if you have to spend $995k to get it.
This is the bugbear of drop-shipping, and a conversation that dominates all drop-shipping groups: making Facebook ads profitable.
So much so, that a whole other industry purporting to do just that, make Facebook ads work, has sprung up around drop-shipping and is thriving.
Most of the ‘experts’ being hucksters who spotted an opportunity, too, it has to be said.
And there’s also a whole industry of creating and (trying to) flipping Shopify stores as well.

Shopify’s Churn

So what does Shopify’s churn rate mean for the business?
According to Andrew Left, it means it’s unsustainable.
He says that as half of Shopify’s revenue is not from its monthly paid plan subscription fees, but lower margin revenue from merchant solutions i.e. card and payment fees.
He also points to the Shopify Partner program, that encourages members and non-members, to recruit people to the service.
Left feels this is all very MLM-like, that you can make more from promoting and recruiting people to join Shopify, than you can from actually trying to run a successful store on the platform.
He highlights one time Herbalife huckster Keder Cormier (“From Beginners to Millionaires”) who uses the hardsell of presenting a luxury lifestyle as the reward for creating a successful drop-shipping business on Shopify.
Like a MLM, once the recruitment slows or ceases, Shopify will crash – because no recruitment means no subscription fees and no percentage take on what little they can sell via their store – which as above accounts for half of their revenue.
Or at least Shopify’s share value will crash even if the company doesn’t immediately.
Because drop-shipping could well be a fad. I don’t know if it’s here to stay or if something else will replace it.
There’s already Vick Strizheus advocating another way with his ECOM Entrepreneur but I suspect that approach is still advocating Shopify as the medium by which to sell, so even if your own brand takes over from generic Aliexpress items, Shopify won’t be going anywhere and still benefiting.
As will Aliexpress as the initial products will be selected from that site, or at least the suppliers will be.

Good for Andrew Left

As Left bets on short stocks, if he’s right then all this is very good for him, as he’ll make money from it.
He’s been right a lot too.
To help things along he’s also submitted a report to the Financial Trading Commission (FTC) calling for a Herbalife-like investigation into the marketing practices of Shopify and its claims.
Personally, I think he’s on a lot weaker ground when it comes to levelling a charge of ‘fraud’ at Shopify as opposed to something like Herbalife.
Shopify has attracted the used car salesmen hucksters to its promotion, and it’s certainly benefited from their efforts that’s for sure, and maybe it hasn’t done itself any favours by adapting its advertising to appear to support the line of these marketing sharks, but I still think Shopify is a long way from being a Herbalife or a MOBE: the product is actually of use and a genuine ecommerce vehicle.
Is it likely to make you a millionaire, though? As likely as MOBE is.
But I think you can make more with it than you can with MOBE, and for a lot less in the pay-to-play stakes.
You can go into drop-shipping, as the model is currently touted, and not lose too much if you just dabble.
The same can’t be said for MOBE et al.
If you take out a subscription to Shopify, and your idea fails, it’s not really their fault, as their remit is just to provide you with a stable platform with which to sell from. Maybe drop-shipping doesn’t work, but Shopify isn’t just there solely to supplement that sales model.
Even if it can be argued that its growth and share value has relied on it.
MOBE on the other hand is the idea and the platform, and you’re selling the platform, not using the platform as a means to execute an independent business idea.
You don’t join Shopify primarily to sell Shopify in other words.

Shopify and Users Respond

“We vigorously defend our business model and stand resolutely behind our mission and the success of our merchants,” Shopify said in a statement to CNBC.
In Shopify’s additional defence, the Irish Times reports that back in August of this year Chief Operating Officer Harley Finkelstein “readily admitted that many businesses on the platform fail, but said the point of the company is to make it easy and cheap for merchants to experiment with new ideas and eventually find success.”
“We’re not changing physics here, some small businesses simply don’t work,” Finkelstein said. “But the ones that do succeed will stay with us for a very long time.”
I’ve been unable to find a link citing the original source for that but it sounds credible.
On Facebook groups and ecommerce forums users have been defending the platform against charges of MLM-like practices, which is perhaps not too surprising, but again in Shopify’s defence, I can’t say I’ve really felt they push recruitment of the service; no more than web hosts do i.e. the affiliate program is there if you want to join, and they tell you how best to go about making the most of it, but I’ve never seen anything that says to make misleading claims.
Even if Andrew Left is saying that’s exactly what Shopify does.

Final Thoughts

I think Left could well be right (and he often is) that Shopify’s share price is overvalued, but haven’t folks also been saying that about Facebook, Instagram et al for years?
Okay, seems they were right about Twitter, but all the social media giants are still around and don’t look like they’re going to be usurped any time soon.
Shopify is certainly the out-of-the-box ecommerce platform giant, but whether its future is shakier I don’t know.
I still recommend Shopify, though, despite using Woocommerce myself.
I’ve used Shopify, and if you’re not computer literate it makes sense to use it. I really couldn’t advise going off and attempting to learn what all’s required with WordPress and Woocommerce, not when you need an immediate solution, which is what Shopify is.
If I wanted a quick store, like within an hour, I’d use it myself.
But it’ll be interesting to see how all this plays out. I suspect Shopify will reign in some of its “become a millionaire” rhetoric in its advertising, but beyond that will carry on as normal as this report by Andrew Left recedes into the distance as yesterday’s news.
It remains to be seen if the FTC will deem the information grounds to initiate an investigation, and if they do, these things never progress at a fast pace.
But, while like I said, this isn’t really a financial market blog, Shopify and MLMs are certainly a topic for discussion around here, so I think this news piece is worth highlighting.
You can read Andrew Left’s original article here.

Lazy Money making (copyright 2018)

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Sorting Sham From Scam, The Debate Over Shopify And Herbalife

Robert FitzPatrick
Consumer Educator

Summary

The short-thesis presentation on Shopify by Andrew Left has led investors to compare Shopify with Herbalife, which was prosecuted by the FTC.
The two companies share a common, illusory space of selling "home-based" businesses as the economic remedy for millions of people.
The short-sellers, William Ackman and Andrew Left, share common views and strategies. Both single out "multi-level marketing" companies, without context, and expect the FTC to prosecute only those.
In regulatory terms, the main question is whether Shopify, which is not "MLM" or a pyramid scheme, sells a "business opportunity" or just exploits the delusion of home-based businesses.
Seeking Alpha has published several articles discussing the short-thesis of investor, Andrew Left, who is making publicized claims of deceptive business practices against Shopify (SHOP), a mass marketer of personalized e-commerce sites and tools. The short-thesis argues that investors should classify Shopify with Herbalife (HLF). Because of their fundamental similarity as enterprises as well as similarity of business practices, the thesis argues, the fate that befell Herbalife from the FTC inevitably awaits Shopify.
This is a misleading, unfounded and confusing characterization. Yet, with the investment factors of these two equities being based more on the sins of Dante's Nine Circles of Hell, e.g., deception, public harm, pyramid scheming, secrecy or subterfuge, illegality and prosecution by authorities, than on market factors, making distinctions cannot be a matter of defending either enterprise.
Nevertheless, even in an ethics-free zone of pure speculation, shams still deserve to be sorted from scams. In such an investment arena, the overriding issue may not be illegality, but rather assessing the level of possible prosecution and measuring the amount of potential fines or restitution. Whichfederal agency might bring charges becomes the concern, not whether a prosecution is warranted. Prosecution, class action lawsuits, large fines, and government imposed changes in business practices are blithely treated as routine costs of doing business. Herbalife easily paid off $200 million to the FTC. Amway paid out $50 million in a pyramid scheme class action case, etc.
As a consultant, I have had several recent inquiries and consultations about whether Shopify is a pyramid scheme, a multi-level marketing, aka MLM, enterprise, and a marketer of a "business opportunity." Most importantly, I have been asked if the FTC were to act against Shopify, how severe would the penalty likely be? In other words, even if Shopify is illegal as Herbalife was found to be, is there a grade level of wrongdoing in "business opportunity" schemes?
Most of these questions were generated by the misleading and confusing implications contained in Left's guilt-by-association presentation on Shopify. But the inquiries also reflect Wall Street's enduring lack of understanding as to what "multi-level marketing" is. This blind spot, in the face of all the information generated around Herbalife, can only be characterized, using Rolling Stone writer Matt Taibbi's description of the SEC's posture toward Bernie Madoff, as "aggressive cluelessness." Many just don't want to know.

Common Cause

Before pointing up the distinctions between Herbalife and Shopify and the common jeopardy they both pose to investors, it is necessary to note some common characteristics shared by the two protagonists, whose short-sale theses brought these two companies to the forefront, William Ackman of Pershing Square Capital and Andrew Left of Citron Research. Both are inexplicably selective in their condemnations of certain "multi-level marketing" enterprises. Left has presented short theses against Herbalife's first cousins, Nu Skin (NUS) and Usana (USNA). He has been prominently silent about the charges against Herbalife, even though his claims against his two MLM targets are essentially the same as those made by William Ackman against Herbalife. Ackman, for his part, has asked Wall Street to believe that Herbalife, based on its "endless chain" business model, "conscripted" purchase incentives and recruiting-based pay plan and income promises, is a criminal enterprise, a pyramid scheme, with a net value of zero. By implication, he also asks investors not to notice that other MLMs such as Nu Skin and Usana and all other similar companies are, essentially the same as Herbalife, and there is nothing truly significant about Herbalife in the MLM field.
There is no factual basis for either investor's laser focus on their respective MLM "frauds," to the exclusion of hundreds of others in the field. This narrow view, accompanied by the short-sellers' public expressions of personal concern for the victims of their respective short targets lead many people, reasonably, to question the basis of their claims. Showing selective outrage and calling for targeted government intervention only against companies they would gain profit from, casts a shadow of doubt over the validity of their well researched factual presentations. Government regulators are also placed in an untenable position by these selective campaigns. Doing nothing, FTC may appear to ignore publicized, verifiable facts about illegal behavior. Responding, it may appear to be aiding privileged hedge funds in yet more profit-taking, while the greater public interest regarding the same harm caused by all other MLMs is continues to be ignored.
Neither William Ackman nor Andrew Left has addressed the reality that Herbalife, Nu Skin and Usana are essentially identical enterprises and that they are representatives of a large syndicate of companies, known as "multi-level marketing," all exhibiting the same fundamental traits. Neither has called for an industry-wide investigation or spoken about the MLM model, its history or practices. MLM enterprises are all structured with the same "endless recruiting chain" as Ackman's and Left's short-sales targets are; they all internally transfer new money from later recruits to earlier ones in a closed market; induce pay-to-play fees and purchases in the same manner; make the same extravagant income claims and promises; employ identical reward formulas; indoctrinate followers with the same methods; and they all produce exactly the same financial consequences, huge loss and churn rates, year after year, which are the inescapable outcomes of the model and pay plan. Neither of these investors has acknowledged that, if their respective short targets are as they describe them, an industry-wide investigation of "multi-level marketing" by the FTC is indicated, not "fenced in" prosecutions.
This essay is not intended to address the price performance of the MLM stocks Ackman and Left have targeted, however, it is impossible not to wonder if the limited, contradictory, illogical, self-serving and credibility-stressing approach taken by these two famous personalities has not affected the reluctance of regulators and the rest of the investment community, leading to the stocks' continued inflated pricing.

Common Market

To properly evaluate Left's Shopify short-thesis, it is necessary to understand the common market space that Shopify and Herbalife (and all other MLMs) share. This space may be called the hall of illusion of home-based businesses as the economic remedy for millions of people. Promoters in this space rub raw the sores of discontent over declining wages, loss of pensions, rising costs of life's necessities, vanishing job security, and the predicted collapse of Social Security. This dystopian vision is redeemed by their utopian dreamworld of self-employment for all, (especially those that have never run a business) independence from bosses, "extraordinary" income and freedom of time, all done from the comfort of home as "home-based" businesses. The fantasy is epidemic on Main Street, as promoters ramp up this propaganda and few people entertain expectations any longer of government help, an economic boom or any other turn of fate that might benefit them. They still believe in the American Dream, though, and so the claims by multi-level marketing and other "e-commerce" schemes, that solemnly swear they are true standard bearers of the American Dream, seem plausible, their last, best, and perhaps only hope.
Herbalife, as the FTC documented in gruesome detail, led millions of people to believe they could sustain themselves and even become wealthy selling its commodity weight loss shakes from home. The absurdity of this idea, on its face, was obscured by Herbalife's (and all other MLMs') additional offer of leveraging the recruiting chain. So, the "business opportunity" expanded from selling shakes to buying shakes as "distributors" and then gaining income, they hope, from an exponentially expanding base of more "distributors." Selling was quickly replaced by quota-purchasing and then relentless recruiting. But behind the pay-to-play trickery and underneath the delusion of the "endless chain" was the larger illusion of the "home-based" business as a viable safe haven.
Shopify capitalizes on the same mass delusion. Supposedly 500,000 people currently own its e-commerce site services or its tools for operating a site. The package is sold as the alternative or a supplement to dead-end jobs, unemployment, or as a bulwark against a host of misfortunes lurking in the economy or said to be caused by government. What will they sell on the sites? How will customers find their little sites among the millions of others? What value do they add? How do they differentiate themselves or cover marketing costs? Why buy a personal website plan from a company that is generating a host of new competitors to your own site every day? Buyers are "re-directed" away from such common sense questions with testimonials by others who struck it rich, or by general rhetoric about the exploding volume of business now done "online." Better to get in now, and figure out details later.
Herbalife and all other MLMs exploit the same general space with "home-based" business, equipped with online purchasing. The business is not only "home-based" but "infinite" in potential. How will you sell the shakes? Find customers? What about all the millions of competitors that Herbalife is generating with recruiting incentives? These concerns, like those raised by Shopify's offer, are overwhelmed by testimonials of wealth, admonitions that "believing is seeing" and by pseudo-economic claims about the benefits of "self-employment."
Andrew Left is spot-on when he puts Herbalife and Shopify in the same camp for selling illusory, essentially non-existent income opportunities, which lead to massive churn rates and the specter of saturation, though he does not describe the common market space they share, perhaps because it might also raise questions about why he did not lend support to the Herbalife-exposure campaign?

Distinctions and Differences

But after exploiting the same sad sector of mass delusion, fear and naiveté among millions of consumers, trying to make a living, Shopify and Herbalife take different routes. Andrew Left would seemingly have investors not notice the difference. First, Shopify is not "multi-level marketing." This is a massive distinction. MLM is unique in the business world, in a class all its own, the only business based on "infinity" and an internal money transfer in which "wholesale" is said to be "retail." The claims and charges against Herbalife are based not on its products or even its practices, but its business model. The flaws, and the resulting harm to participants are inherent. Herbalife is the picture of an unsustainable enterprise unless new territory can be found perpetually. Herbalife is running out of geography.
Shopify does offer a lucrative referral program that has even attracted some hucksters previously working for Herbalife, but it is not based on the endless chain, promising "infinite" payments "while you sleep." The second key feature of MLM is the closed or rigged market, a term coined by English writer, David Brear. As the FTC confirmed, Herbalife did not offer a viable retail (external) profit opportunity. Its funds for rewarding "distributors" were coming from the "distributors" themselves, inside the "chain." Shopify's income stream and affiliate rewards do come partially from subscribers who might be regarded as "members" of a closed network, subject to high attrition rates. But referral payments offered by the company could not be compared to Herbalife's classic endless chain income offer, with recruiting as the only avenue for profit.
In contrast, the majority of Shopify revenues comes from transaction fees and related purchases based on transactions. There is no way Shopify could exist with its clients just "buying from themselves." But, that is exactly the premise of Herbalife and all other MLMs. Set up your "store", buy your own inventory, consume it or give it away or maybe even sell some if you can, and then find others to do the same. Your own purchases are then magically called "retail" sales and qualify for possible "unlimited" recruiting-based reward, unrelated to retail sales. Unless recruits succeed in bringing in a long chain of new recruits, who would do the same, they will spend themselves into insolvency within a year, which is precisely the fate of nearly all that join MLMs.

Biz Op

Between 2006 and 2013, the FTC deliberated and took public comment on a proposed new "business opportunity rule" said to cover all the companies selling "business opportunities" that weren't covered by the "franchise rule." Since the franchise rule had been adopted in 1979 (same year that a federal judge "legalized" Amway), solicitations for a new type of "business opportunity" began spreading rapidly across the country, called multi-level marketing. In 2006, when a new rule was opened for public comment, revenue gained by these MLM enterprises was now in the tens of billions and far more people were exposed to MLM financial solicitations than franchise pitches. The initial proposal made it perfectly clear that multi-level marketing was the main type of business the new rule would now cover. Indeed, the rule would have little point, if they weren't. Up to that time, MLMs were completely exempt from all disclosure rules based on charging an initial fee below $500, which triggered the franchise rule requirements. Many MLMs offer distributorships for $499.
During the comment period, the FTC was barraged by letters, criticisms and pressures, orchestrated by the Direct Selling Association, whose members are MLMs such as Herbalife, Amway, Nu Skin and Usana. In the end, MLM, the most pervasive and largest purveyor of "business opportunity" solicitations on Main Street, was exempted! No type of company was ever outlawed or actually regulated by the rule, only "disclosures" were required.
It is this "rule", gutted and barely known to anyone, that some are now saying the FTC will bring down like a hammer on Shopify. The main infraction that is cited is that the "affiliates" who are recruiting new subscribers and gaining Shopify's high-dollar referral rewards are not disclosing that they are getting compensated by Shopify. Perhaps this will attract the interest of the FTC. Maybe, maybe not. But unlike Herbalife's pay-to-play and recruiting-based deceptions on which revenue is existentially dependent, if Shopify is charged with this disclosure violation, it would appear to be fixable, without threatening the business model.
The larger question is whether Shopify offers a "business opportunity" at all. For Herbalife, that is not in question. Herbalife sells its own branded but illusory "opportunity." Buyers become Herbalife distributors. The income that is promised is based entirely on buying and selling Herbalife goods, and getting others to do the same. Shopify sells a platform for operating an e-commerce business - any e-commerce business. Many other companies do this too. Most of Shopify's revenue is not coming from subscribers but from transaction fees, presumably generated by commerce on subscriber sites. In contrast, the FTC did not find evidence of significant retail transactions among Herbalife's army of "home-based" businesses.
This is how the FTC itself describes coverageThe Business Opportunity Rule applies to commercial arrangements where a seller solicits a prospective buyer to enter into a new business, the prospective purchaser makes a required payment, and the seller - expressly or by implication - makes certain kinds of claims. Examples of what's covered by the Rule include work-at-home opportunities like envelope stuffing or craft assembly where the seller offers to buy back merchandise from the bizopp buyer. Also covered: opportunities where a seller says it will help the buyer set up or run the business - for example, by providing the buyer with customers, accounts, or locations to sell products or services.
Could the FTC determine that Shopify is not just selling a service or tools for running an e-commerce site, but a proprietary "business opportunity", on par with an envelope selling scheme or "craft assembly"? My own reading of the Biz Op rule is that it was not intended to cover a company like Shopify. True, Shopify leads people to think they will make money in e-commerce, but this is hardly a proprietary offer. The alleged benefits with testimonials of success in "self-employment", home-based business or online businesses are everywhere these days, with many promoters selling online tools, accounting software, courses in marketing, search engine optimization, product ideas, success-oriented attitude adjustment, and financing. Indeed, the FTC rule seems not only inappropriate for what Shopify does but after it exempted the MLM business opportunities that are sweeping the country, the Rule has no modern-day purpose of consequence. It seems written for another era, long passed.

Toothless

Apart from the merits of Left's claim that Shopify violates FTC rules in some way, and given his silence on the five-year exposure campaign waged against Herbalife, it is puzzling that he would urge investors to anticipate an imminent FTC prosecution of Shopify. The FTC has not acted against his other MLM targets, Nu Skin or Usana. In this FTC-based strategy Left is, in yet another way, making common cause with his colleague, Bill Ackman, who based his Herbalife investment on prompting a FTC prosecution. It took Ackman, who built his entire research and exposure thesis on the claim that Herbalife is an illegal pyramid scheme, two-years and many millions of dollars before a FTC investigation ensued. This was followed by two more years of FTC investigation and then the infamous settlement in which the FTC refused to call Herbalife a pyramid scheme. Today, the FTC, with only two commissioners at work, and with MLM-promoter and former MLM-owner, Donald Trump, also owner of the real estate "business opportunity" program, Trump University, as its boss, the FTC would seem even less likely to respond to a business opportunity fraud case. Meanwhile, former FTC Commissioners, including a former Chairman, are now on Herbalife's staff!

Sure Bet

At the end of his short-thesis presentation, Andrew Left raises the specter of his own dystopian vision for America, even worse than the one that recruiters for multi-level marketing promote: "What If Citron is wrong on our assessment of Shopify, "Left asks, "and the future of this world is millions of people selling fidget spinners and we all become our own flea market?"
It's a prophetic speculation. More than 15 million Americans, per year, already are buying into MLM's illusory "distributorships." Shopify says half a million currently own its e-commerce packages and sites, with some making a business out of selling the "opportunity" not just goods online. Factor in huge attrition rates annually and the picture emerges of America well on its way to Left's grim vision. What are they all selling? Anti-aging creams, protein powders, costume jewelry, energy drinks, herbal cures - fidget spinners? Or their own and others' used stuff - flea market? And whom are they selling to? Themselves? Each other?
To gaze over the delusional and exploited landscape of MLM and Shopify, in which millions desperately seek refuge in "home-based" and "e-commerce" businesses, is to realize that there will still be one very lucrative business in this dire environment - short-selling.

Robert FitzPatrick (copyright 2017)