The Business of “Internet Business” Scams
For the longest time, I’ve been fascinated by “internet business” scams. You you’ve seen the ads: “I EARN $10,000 A MONTH PASSIVE INCOME FROM MY INTERNET BUSINESS AND NOW LIVE IN A FLORIDA BEACH HOUSE WHERE I DO NOTHING ALL DAY BUT SURF AND LIVE THE NEW RICH LIFESTYLE!!!”
The “business of internet businesses” are all get-rich-quick-scam. No one is earning $10,000 a month in passive income, apart from the people who are running the scams. (And even then I suspect that their income is anything but passive.) If it were that easy, everyone would be doing it.
I decided to try and take apart one of these offerings, and what I found was a base that actually is a sensible proposition, decorated with bullshit. In this piece, I’m going to highlight the stuff that is good, accepted, sensible best practice in internet marketing, whilst pointing out the single piece of enormous “don’t look behind the curtain!” whitewashing that makes the scam work.
The one I followed, which I chose at random, was Lurn.com. This is run by an individual called Anik Singal, who claims to have made ONE QUARTER OF A BILLION DOLLARS selling online business courses. Honestly, show me a set of accounts for that, but anyway let’s crack on.
I started with a ad on the excellent YouTube channel: LGR. This advert runs for a few minutes and sets out the offer — specifically that you, yes, you too can make an unrealistic amount of money from an internet business.
At the end of the advert comes the “call to action”, or CTA. The video presents a single core message — “you can make $10,000 passive income from your own internet business” — that feeds into a single call to action. If you have “hooked” on the messaging in the video, you will follow through to the CTA.
The CTA takes you to a single landing screen, which is a “lead capture” screen. Specifically, the CTA is looking to capture an email address, and the landing screen is specifically designed to hook on “immediacy”, and the offer is that you can learn how to create your $10,000 per month passive income NOW if you join an online seminar, which starts in ten minutes. Ten! Minutes! We’ll then see that the seminar looks to get you on the phone with a salesperson, and the salesperson’s job will be to sell you a training course in how to set-up your own passive-income, $10,000 per month, internet business.
The actual video that you watch at this point is ridiculous. It is set-up as a live seminar, as if you are in a person in an online audience, but it’s obviously just a recording that happened — what are the chances — to start exactly five minutes after you click the link at the end of a YouTube video ad. The presenters, Singal and a co-host big up the fact that the place is packed out, and you’re just one of the crowd.
The video is divided — like all good stories — into three acts. The first act is 20 minutes of Singal talking about how amazing he is, and how rich he is, and how — hey he’s rich and doesn’t need to — but he’s going to make you rich too. This is all about building authority, and like many things in this process is done from two angles at the same time. Firstly, you are set-up to believe that you can be as “rich” as him. Secondly, you are set-up to believe that Lurn is massive corporate enterprise where the bathroom fixtures are solid gold and everyone in the building is so stinking rich that, if you’re not careful, you’d actually from overexposure to dollar bills if you were lucky enough to find yourself visiting one day.
Singal then hands over his co-host, who starts talking about email marketing. This whole thing is about email marketing — specifically about building up an email marketing list.
This is where things start to go a bit… awry.
The absolute best way to sell, B2C or B2B, is relationship marketing, and email marketing is one example of relationship marketing. (I wrote a book on this, in fact.) All sales operate in the same way — you have to hook a need onto a proposition. If your proposition fits (for some value of “fits”) you will make the sale.
Relationship marketing is smart because the process of buying isn’t based on a single point in time. You may get permission to talk to a customer before the point in time when they are ready to buy — in this case, we’re getting an email address — and if you have permission to repeatedly deliver a message to a customer over time, you increase your chances that your message will be in front of them when they are ready to buy.
This is the basic structure of a “sales funnel”. You take leads, nurture them, and some of them turn into opportunities. (They become opportunities when they are confirmed as being in some way “real”.) Those leads that don’t become opportunities, die off. You take the opportunities, nurture them, and some of them will close and become sales. All in all, only a very small number of leads that you get will turn into sales. It’s called a “funnel” because it’s thick at one end (the lead end), and thin at the other (the sales end).
Email marketing works in this model because you can keep sending messages to clients to try and move them towards a point of purchase. By sending well-crafted messages over a period of time, you can (sometimes) nurture the prospect towards close. Internet business scams use this model precisely because, for real business, it’s a very effective, logically defensible marekting method.
The next part of the video talks at length about how to set-up an online email capture and marketing funnel. It looks like this, and there’s one important part of it that is total, complete, and utter rubbish. But like all good scams, the rest of it passes muster.
What you’re looking at there in that slide is a sales funnel. On the left, they have “TRAFFIC”. The example in red talks about delivering traffic to a website. They don’t like this, because only 1–2% of people delivered to a web site will convert to a sale. What they prefer instead is driving traffic to a landing page. This is, again, actually a sensible strategy — landing pages are single-function pages that present one message, and one call to action. They are designed to drive intent down from a click on an aggregator (like Google or Facebook), down through to your sales process.
The CTA they talk about on their landing page is email capture, which you then put (with permission) into a database. They claim you can build a landing page in 20 minutes, and that landing pages turn 40–60% of visitors into “leads”. This figure is actually crap — you won’t get anything like this — but for the rest of this piece I’m going to assume a 50% capture rate on the landing page is doable.
Once in the email marketing funnel, Singal’s buddy then says that you just keep emailing them your offer. Again and again you email them until they a) buy, b) die, or c) unsubscribe. As hinted at above, this is a workable email marketing strategy. If you have a good enough list, and you send them good enough messages, a percentage of people in the email marketing database will buy what you’re selling.
At this point, no one has spoken about what your offer actually is. This is the first place where the sheen starts to come off of this. What actually is your internet business offering? It’s never mentioned in the seminar — as far as the storytelling in Singal’s offering goes, the actual nature of the offer isn’t even vaguely important. All that’s important is that you set yourself up as an entrepreneur with an internet business. “What do you do?” “I’m an internet business entrepreneur.” “…OK.”
Anyway, onto the next bit. At this point, you’ve been told to set-up a landing page that captures an email address (with permission). You then continually email that email address with an offer (unspecified) until the recipient, buys, dies, or unsubscribes.
There’s another bit of magic here in that they say to get the email address, you have to give away something free. The only thing that scales here is to give away something electronic — i.e. a piece of content — and the only type of content that is doable in this context is to give away an ebook. Again, in fairness to the scam, giving away ebooks in return for email addresses with permission to keep emailing the prospect works in the real world, and works pretty well. But, in keeping with the theme, no one actually mentions how you actually make this ebook. As a semi-professional author, I will say right now that this process of generating a decent ebook for this kind of use falls firmly into the realm of “non-trivial work”.
The next slide looks like this:
There is only one figure on that slide that is important, and it’s the “Conversion: 2%” figure in the top-right. This is actually a decent figure for conversions.
The other numbers are red herrings, and indeed if we start to look at the numbers the whole proposition doesn’t fall apart as much as it disintegrates entirely.
“Open rates” and “click rates” are metrics for email marketing that show the quality of lists, and are important measures to track over time if you’re doing this properly. You can ignore these figures and concentrate on that 2%. What that is saying is that for every lead you generate, there is a 2% chance of converting it to a sale. (Hence “conversion rate”.) It is of fundamental importance that you recognise that this about adding to the list. Singal’s buddy glosses over this. You can’t just have a database of email addresses and market to them again and again, because over time the list becomes less effective. (Singals’ buddy gleeful talks about an email address of a million people.) This is stupid — self-evidently if you have a list of “x” people, if you keep marketing at them, it is never going to be the case that 100% of those people will convert to sales. Someone who has not bought on the tenth email they’ve received is not going to buy on the hundredth email.
No, the important part is the “2% chance of conversion”. What this really means is that every lead received — i.e. every email address registered on the landing page, there is a 2% chance that that will lead to a sale. Therefore, we need 50 email addresses to make a sale. Given on the previous slide we know that 50% of visitors to the landing page provide email addresses, we know that we need 100 visitors to the landing page to make one sale.
The slide also gives a revenue from the sale of $50. So for every 100 visitors on the landing page, we make a sale of $50. Part of the fun of these internet business scams is that they completely ignore the fact that whatever you sell you need to buy. Our $50 sale is revenue, whereas the $10,000 a month is income and, as far as an individual is concerned, this is a measure of profit.
As such, we need to factor in a markup to the $50 sale. There is no business in the world that has more than 50% markup, and even then that’s ridiculously generous, but if we allow a 50% markup, our $50 sale is just $25 profit — specifically gross profit that doesn’t allow for the cost of sale, or any other related operational expenses (such as, for example, customer returns).
(Most of these business skirt the issue of actual product by assuming you can sell intellectual property. Even this, however, needs to factor in development costs, and so our 50% market as an absolute, absolute best case has to stand.)
The biggest expense that we’ll have is the advertising cost, which we’ll come on to. But for now, let’s just look at this gross profit figure. To get a $10,000 gross income (profit) per month, we need to make 400 sales and revenue of $20,000. (That’s 13 sales per day, by the way, or one sale ever 1.8 hours.)
To get 400 sales at 2% conversions, we need to have 50 times that many email addresses, or 20,000 emails — per month. At a 50% capture rate on our landing page, we have to get 40,000 visitors to our website, again per month.
Let’s then look at the next slide:
This is HANDS DOWN my favourite slide of all of them. What Singal’s buddy is saying here is that that left-hand side, how you build traffic to a property, is by applying butt to chair and doing some actual work — i.e. you have to do diligent, focused work on building a website and building expertise that delivers value over a long period of time.
What Singal’s buddy says instead is “hey, lol don’t do hard work, you can just buy traffic!”
At this point they stop even having the decency of being consistent with the numbers. The slide says that you can buy Facebook advertising for $1-$2 per click. This is a reasonable enough number for a $50 sale, but I would actually say that you could get this down to 50 cents, an absolute best case, so let’s be generous and use my numbers (which will still yield hilariously bad results).
Think back to the first slide. On the left was the word “TRAFFIC”, feeding into a landing page. This is the part that is whitewashed over and fits firmly in the realm of “don’t look behind the curtain”. The advertising costs involved in all of this break the model entirely. Taking it from the top, we want $10,000 per month (gross) profit. 50% gross margin says we need to sell $20,000 per month of product, at $50 per go — i.e. we need to make 400 sales. At 2% conversion, we need 20,000 email addresses, and a 50% capture rate from the landing page, we need 40,000 click. At 50 cents per click, that means we have to spend $20,000 on traffic acquisition from Facebook. (It doesn’t matter whether it’s Facebook — wherever you get the traffic from, it’s this sort of money.)
In other words, we make a $10,000 loss per month.
What this model is actually missing — presumably because it doesn’t fit with the narrative — is consideration of “customer lifetime value”, or CLV. This model presumes that the $50 sale is the be all and end all of the customer relationship. Businesses don’t work this way, because customer acquisition is too costly and difficult. Nike, for example, don’t want to sell you “a pair of trainers” when they place an advertisement. Their goal is to sell you every pair of trainers, every hoodie, cap, bag, or anything else sportswear-ish that you buy for a period of thirty years. If they placed ads with the objective of selling “one pair of trainers”, they’d go bankrupt. Instead, they remind you through their advertising that to be cool, you need to be wearing Nike, 24 hours a day, seven days a week. They can do this, because they’re a real business with an intent of being around for the long term.
These internet business scams ignore this as to propose it any differently breaks the model of getting rich quickly. If you’re trying to sell a get rich quick scheme, you by definition cannot start talking about amortising total revenue over longer periods of customer engagement.
This model actually makes more sense when realising customer value over longer periods. At $50 customer lifetime value, as per the internet business scam propositions, we make a $25 loss per sale because we have to buy 100 clicks at 50 cents each by way of advertising costs and only make $25 per sale gross profit. If we have a $900 customer lifetime value (i.e. $50 per month revenue, every month for 18 months), we still need 100 clicks on the initial acquisition, and maybe we can get that a 50 cents each (i.e. $50), but we have $450 gross profit over the life of the customer in which to absorb that initial customer acquisition costs. In reality the cost per click will be much higher than 50 cents, but the overall approach still works because the overall numbers are bigger.
At the end of the second act, we have a complete mess of a proposition. We have a landing page, where we give away something, probably a piece of content that is so compelling that half the traffic to that page will be convinced to give up an email address. (But we don’t know how to create that content, and as a semi-professional author I flatter myself generating a compelling piece of long-form content isn’t particularly easy.) This content has to be related to what we’re selling, although we don’t know what we’re selling. We will then capture that email address and put it into an email marketing programme that will realise $50 revenue per address at a conversation rate of 2%. We’ll have to buy whatever we sell, so we’ll give $25 of that to the supplier, and keep $25. We do that 400 times per month to make our magical $10,000, but we’ll spend an additional $20,000 on advertising. Yielding a loss of $10,000 per month as an absolute best case. Smashing!
The third act is, frankly, amazing. Act 1 if you recall is Singal saying how amazing he is and how rich he is. Act 2 is Singal’s buddy playing a game of “Find the Lady” with maths. Act 3 is is now where they get you.
The purpose of this, of course, is that you don’t know how to do this yourself, so they will train you how to do it. We know the model they’re using, because we’re in it — they’re actually tell us how they’re scamming us. We know how much it cost to get us into their email database, and we know it only makes sense if we’re going to hand over a least $1,000, because we know anything less than that sort of money ends up in them being bankrupt. If I had to guess, I’d say they were targeting getting a spend of something like $3-$4k out of each customer. If I were doing it, I’d be thinking $2,750 for the initial training, and $1,250 for a booster if the original “happened” not to work for some reason.
Remember we are on this seminar which is actually a recording, but is presented as being live. I am told, immediately, that there are only 70 places into the programme. Only 70! And I am in competition with everyone else int the seminar! I have to move quickly to get on the programme!
Remember, there are no other people on this. It’s just me watching a video. But even I’m getting tugged into this feeling an emotional pull into “fear of missing out”. They make it even worse, because they don’t take just anyone — they only take people they believe in!
They start to talk about this programme called DMA. But they won’t tell you what it is — you have to be invited in. Are you special enough? Maybe! Maybe not! But unless you sign-up you won’t know…and then there’s the kicker. Do you “QUALIFY”? Your “ADVISOR” will tell you, and there is an INVESTMENT not a “payment”, an “INVESTMENT”— i.e. if you qualify, it’s time to put your hand in the pocket. (And I guarantee you everyone will find that they qualify.)
At this point Singal, his buddy, and someone else are all on the audio track asking people to virtually put their hands up (by entering text into the chat window…) to say whether they’re up for it. Then they share the sign-up URL, which they then do:
The audio goes on an on, talking about how the places are going, and that they’re trying to find new places. From time to time, there’s a “ping”, and a banner appears on the page saying that they’ve landed a sale. It’s a masterclass of how to combine scarcity with herd mentality to land the sale.
As the video goes on, we get slides like this:
Because of course this method will net the odd month of a third of a million bucks, and the odd day where you make $15k in a single day. I mean, the model yields a loss of $120k per year in an absolute best case, but you go ahead…
Note the full disclosure:
Like all get rich quick schemes, the only people who benefit from the schemes are the people who own the schemes. Which is a shame because, the actual process works and is sensible. If we break it down:
- Relationship marketing is the best sort of marketing,
- Email marketing is a good, workable, reliable form of relationship marketing,
- Landing pages with clear, focused positions, messages, and call to actions, work,
- Pay-per-click works,
- Giving away good, valuable content (ebooks mainly) in exchange for email addresses, work,
- The numbers and metrics given in the presentation, are basically right.
The only issue with this approach, the only real reason why it is such total bollocks, is because of the cost of advertising is intentionally misleading. Advertising is expensive, and only works as part of a proposition to a customer that is lasting. In fairness, this is something that non-scammy internet marketing books, websites, and experts get wrong. The cost of traffic is the thing that gets you — buying that attention, these days is really expensive.
If you even think about businesses like Lurn, that business itself is real, and that’s why it’s a scam. Each and every person working at that business, and all the other businesses like it, knows inside out and upside down the exact numbers, figures, and metrics that make a business like this work because they live it every day. Their bread and butter is running a sales funnel that pulls people down into buying training courses. Yet they feel the need to present figures to people which are, straightforwardly, deliberately misleading.
Don’t fall for it. In the history of commerce, get rich quick schemes never work. Use the same techniques that underpin these sorts of scams, but do it properly, with the intent of building something meaningful.
