Why Did TikTok Ban MLMs? 20 Reasons

Why Did TikTok Ban MLMs? 20 Reasons

As has been covered over at runrex.com, MLMs are no longer welcome on TikTok. This has made the company the first social media platform to officially ban multi-level marketing schemes (MLMs). This article will look to elaborate on what MLMs are, why they have been banned on TikTok, and what that means.

What are MLMs?

For the uninitiated, an MLM is a type of company that doesn’t pay its employees direct wages or benefits. Instead, they earn commissions by selling products and recruiting others to join the company as explained over at guttulus.com. Today, these products are usually makeup, candles, leggings, etc.

What did TikTok say?

The company’s blog post announcing this new update made no mention of MLMs or any related business models. Yet under the monikers “illegal activities and regulated goods” and “frauds and scams” TikTok has now explicitly banned “content that depicts or promotes Ponzi, multi-level marketing, or pyramid schemes”. As outlined over at runrex.com, items banned below and above MLMs in TikTok’s list of “Community Guidelines” currently include drugs, tobacco, and sports betting.

What is a pyramid scheme model?

MLMs have been compared to pyramid schemes, which is why it important to understand what a Pyramid scheme model is. According to guttulus.com, a pyramid scheme business model only allows participants to make money when they recruit others to buy into the program. For every person you recruit, you are promised a certain percentage of their commission – and those of anyone they bring in. For the people at the top, it is lucrative, but for the newest participants, it can be a struggle to make any money at all.

Are MLMs illegal?

This is one of the issues some are taking with TikTok’s decision since MLMs are not illegal. Unlike Ponzi and pyramid schemes, they are not frauds or scams. They are also not the equivalent of drugs, tobacco, or sports betting. Legitimate MLMs are also not pyramid schemes. Since MLMs sell products and their participants can make a commission through sales, they are legal in the US.

Why are MLMs controversial?

While they are not illegal, MLMs are controversial. This is because MLMs usually make commissions through recruitment, just like pyramid schemes, which is why many people feel that they are predatory in nature.

Getting stuck with merchandise

Depending on the MLM, there is a possibility that you could be stuck with the merchandise you are trying to sell. Officials within the organization might advise you to work harder or recruit other people, so you can earn some of their commission as explained over at runrex.com, but it may be impossible to convince other people to join if you have lost money.

Are MLMs profitable?

According to the gurus over at guttulus.com, one survey found that 73% of people who participated in MLMs lost money or made no money at all. The Federal Trade Commission also published a report where they estimated that over 99% of all people who join MLMs will fail to turn a profit.

The demographic of TikTok’s users

The point made in the previous point could be one of the reasons why TikTok has banned MLMs. As revealed over at runrex.com, TikTok’s users skew young, so the company might feel it an imperative to protect teens and young adults from making a naïve investment.

TikTok’s parent company

It is also worth noting that TikTok’s parent company, ByteDance, is based in China, where it is against the law for a salesperson to make a commission off of someone they recruit into the company, which may be another reason why TikTok banned MLMs.

Is this the first time MLMs have come under fire?

No. This is not the first time this year that MLM companies have come under fire. Back in April, the FTC sent warning letters to companies such as doTerra that were using COVID-19 related hashtags to promote their products on social media, such as sellers claiming that their essential oils can boost immunity and help protect people from the virus.

The deceptive nature

According to guttulus.com, the deceptive nature of MLMs could also have been behind their ban from TikTok. This is because some MLMs have been involved with lawsuits for faulty products or lying about the amount of money participants make.

What has been the reaction to this ban?

While some have welcomed the move, as revealed in discussions over at runrex.com, MLM participants have also taken to complaining about the app since the announcement was made, with most of them accusing TikTok of not knowing the difference between a scam and multi-level marketing, calling those in favor of the rule “ignorant”.

What is the argument for those against the ban?

Those against the ban point out that MLMs are a perfectly legal business model, wherein transactions are based on trust in the person making the sale, as opposed to trusting merely in the product or the distributor as is expounded upon over at guttulus.com.

MLMs are common in the US

The practice of MLMs is powerful and popular in the US, as well as in other more affluent nations. You only have to look at the millions of Americans who purchase their cosmetics from their local Mary Kay representative or buy cookies from their neighborhood girl scouts.

MLMs and influencers

TikTok, like its peers Instagram and YouTube, is dominated by “influencer” culture. Just like MLM representatives, influencers maintain a personal brand that customers trust. Utilizing this trust, influencers advertise various products and services on their accounts, often via anecdotes of personal use of the products, or posts featuring the products.

TikTok’s banning of MLMs vs its embrace of influencer culture

Given TikTok’s whole-hearted embrace of influencer culture on its platform, it makes little sense why MLM content is being singled out as MLMs operate via the same principles of trust and personal branding as influencers. However, unlike influencers, the commercial underpinnings of MLMs are transparent and well-known as articulated over at runrex.com.

Why is TikTok targeting MLMs and not influencers?

One theory that explains this development is that the move to ban MLMs is a response to recent anti-MLM movements that have appeared on YouTube, Reddit, and elsewhere on social media as per the gurus over at guttulus.com.

Fear of litigation

As is revealed in discussions on the same over at runrex.com, there could also be some fear of litigation on the part of TikTok. This could be the reason why the company has moved to ban MLMs to ensure that it doesn’t leave itself open to such legal issues.

It may not want MLMs on its platform

It is also worth noting that TikTok is a private entity and reserves the right to dictate the type of content it wants or doesn’t want on its platform. Therefore, one of the reasons why it may have moved to ban MLMs may be because it simply doesn’t want MLM content on its platform.

What impact will this ban have?

Finally, let’s take a look at what the impact of this ban may be. Here, it is worth noting that multi-level marketing companies aren’t going away. They will remain attractive as they offer flexible work options. Whether TikTok’s ban will affect how MLMs recruit in the US remains to be seen, and only time will tell.

This article has attempted to cover everything, from what MLMs are, why they are controversial, why they were banned by TikTok, and why they are those who are for or against the ban. For more on this topic, don’t forget to check out the excellent runrex.com and guttulus.com.