Matrix scheme

From Free net encyclopedia

A matrix scheme or elevator scheme is a non-sustainable business model involving the exchange of money primarily for being added to a waiting list for a product. Once a list receives enough new members, the person at the top of the list receives the product, and the next person in the list moves up. Matrix schemes are heavily promoted across the Internet, especially on sites such as eBay and craigslist.

1 Operation
2 Legality
3 References
4 News articles
5 External links

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Operation

The operation of matrix schemes varies. To move upward in the list, the person must wait for new members to join, or refer a certain number of people to the list. The rewards for those at the top of the matrix list are usually high-demand consumer electronics, such as portable digital audio players, plasma and high-definition television sets, laptop computers, and cellular phones. More people joining a list improve the likelihood of people near the top receiving the product, but the large number of newcomers decreases the likelihood that sufficient quantities of new people will join the list to assure all the more numerous recent joiners will reach the top. Critics note that since mathematically this process cannot continue, eventually the matrix must collapse. Supporters claim that additional revenue streams from advertising are used to keep the lists moving, but since the key for keeping the list moving is new members, not money, this does not work. There are other methods for keeping the lists moving, and each site employs different techniques.

However, any method of keeping a list "moving" is eventually going to run out of people. If a list requires a mere 4 people to cycle 1, that means only 20% of the list can ever cycle, however large the list gets. If the entire world were to join the list, 80% of the world would be unable to cycle, and only the top 20% would receive anything. Adding more people to the list does not change the fact that the majority will receive nothing.

Additionally, the amount of time needed before a given individual will receive the product in question is often mistaken. In a matrix in which 50 people are required before it will cycle, the first person to join only needs 50 sign ups, but the second person needs 99, 49 more for the person above him, and then 50 more for himself. The third person on the list likewise needs 148 more signups, 48 for the person on top of the list, 50 for the person directly above him, and then 50 for himself. And then number of people required continues to grow for each new person joining the list.

Unlike most pyramid schemes, a side product is delivered to each newcomer in the course of the enrollment purchase. Most matrix site owners sell electronic books or software CD-ROMs as the product, and then add the purchaser to the product list as a "bonus." In most cases, the product alone could not reasonably sold for the price listed, and so legal experts claim that regardless of what is said, the real product being sold is the "bonus" in question. Steven A. Richards in particular, a lawyer dealing with these issues, states that if the item in question isn't actually worth the amount of money tendered for it, and most people would not make the purchase if not for the bonus in question, it's probably illegal. 1

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Legality

While Matrix site owners claim their sites are within the law, their claims are disputed in the courts. In addition, the U.S. Federal Trade Commission and the U.K. Trading Standards have issued warnings to the public about the sites. Several matrix sites have been shut down due to overwhelming legal fees defending lawsuits, such as the legal action taken against the grandfather of the matrix site, EZExpo.com.

Matrix site supporters claim that considerable research should be performed before investing in any such venture, but argue that the rewards for investing in a good matrix scheme are substantial. However, any research should reveal the ethical and legal problems with operating any form of matrix scheme.

Further, the U.K. Office of Fair Trading considers them to be scams. On July 1st, 2005, the Office of Fair Trading in England declared that matrix schemes are a form of illegal lottery. [1] While matrix sites may claim that they can declare themselves to be a private lottery, and thus operate legally, the very definition of a matrix scheme does not allow it to be defined as a legal private lottery. [2] A private lottery must sell tickets only to existing members of an already established club, society, workplace, or residence, and the club or society cannot have been formed for the purpose of having the lottery (which all matrix sites are). All the proceeds of the lottery must exclusively go to the prize or to benefit the society as a whole (no profits can go to the founder). Advertising the lottery outside the club, workplace, etc, is also illegal (all matrix sites require advertising of some sort to attract new members). And so on.

Beyond governments, PayPal mentions matrix sites specifically as a violation of acceptable use policy [3], grouping them together with Multi-level marketing, Pyramid and Ponzi schemes, as well as nebulous "Get Rich Quick" buisnesses that seem too good to be true. Violating this can lead to frozen accounts and other investigations [4].

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