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I’d like to call everybody’s attention to something that all internet marketers need to be aware of and keep an eye on, whether you’re involved with this particular business or not. The reason is that the CA Attorney General has decided to declare war on companies that sell web sites for money-making purposes and are coupled with monthly maintenance fees, especially when most of the buyers either mis-interpret what’s being sold and/or fail to take the action needed to earn any money from those businesses.

Several articles have appeared around the country today (8/5/08) announcing that the California Attorney General has just filed a suit against YTB (YourTravelBiz.com) alleging that it’s nothing more than a “gigantic pyramid scheme.”

Think about this in the context of most Internet Marketing products you’ve encountered, including most membership sites, forced continuity programs, and product launches.

In this case, YTB charges $449 (one-time) and a $49/mo maintenance fee for a turn-key web site that allows buyers (called RTAs) to earn commissions when purchases are made through that web site. The purchases in this case are travel-related, and can range from $50 to $50,000. The RTAs earn 60% of the commissions that are paid on purchases. Commissions range from a flat $10 for air fare to 25% or more from cruise ship bookings.

We all know that people read and hear what they want to, and one common mis-interpretation around YTB is that RTAs earn “60% commissions on sales”. The articles I’ve seen quote people who’ve complained to BBB and the CA AG’s office who feel they were misled into believing they were actually going to earn such ridiculous commissions! I don’t get how the CA AG’s office could seriously defend these people, yet here we are.

In case you’re not aware of it, virtually every airline today pays a flat $10 commission on every booking, regardless of the VALUE of the tickets sold or the NUMBER of tickets sold. Thus, NOBODY is ever paid more than that for booking air fare. RTAs earn 60% of that, or $6, per booking. If you’re a travel agent working for a large corporate travel company like American Express, you’ll never earn more than $10 for each air fare you book. Even if the ticket was for a round-the-world multi-hop flight and cost $50,000, you’ll make at MOST a flat $10 commission on the sale.

Interestingly, this little fact will probably never be cited by the CA AG’s office. If it was, it would make them look rather stupid for defending people who think they’re entitled to make more than the airlines are willing to pay them. That has nothing at all to do with the business in question (YTB), and everything to do with common industry practices. It’s hard to tell if the AG’s office is attacking YTB or the industry in this case.

If people feel ripped off earning such little commissions by booking air fare, they would be far better off selling something that earns them bigger commissions, like cruises. It’s entirely up to them. Yet the CA AG’s office feels it’s their responsibility to defend their poor choices and lack of business acumen, and punish the company offering these products.

Let me pose this question: does anybody here feel a little ripped-off by earning just a few cents per click from Google AdSense ads rather than fatter $10-$15/click that more “competitive” keywords would pay if they showed up on your web site? Do you think that if enough people complained to the CA AG’s office that they’d accuse Google of running a big scam by misleading people into believing they can make a lot of money by putting AdSense ads on their site when in fact most will only make a few dollars a month? Especially when it’s clear that the average CPC payout is probably well under a dime?

I don’t know about you, but I find the CA AG’s posture in this matter just a bit scary!

Like many of the membership sites we’ve all seen and used, everybody who buys one of these web sites has the option to sign up as an “affiliate” for free (YTB calls them “Reps”) and thereby earn commissions on sales of these web sites. Commissions are paid on an ‘n-tier basis’, making this compensation model a “multi-level marketing” (MLM) model rather than a single-tier affiliate model we’re more used to seeing.

The practical impact of this is that more money flows to more people whenever a sale is made, rather than just to one affiliate and the guys at the top. (In case you don’t know, insurance companies look so much like MLMs that the only way to tell them apart is because states license insurance companies and the people who sell their “products”.)

One article I saw had the following comments:

“YourTravelBiz.com operates a gigantic pyramid scheme that is immensely profitable to a few individuals on top and a complete rip-off for most everyone else,” Brown said in a statement. “Today’s lawsuit seeks to shut down the company’s unlawful operation before more people are exploited by the scam.”

The way this is worded leads me to conclude that the CA AG’s position is that any company where a few individuals on the top profit and a majority of the rest feel ripped-off MUST be a scam and shut down.

The CA AG’s office would apparently feel more comfortable with this business if FEWER people were earning MORE money on each sale, since they’re defending the larger number of people who are NOT earning ANYTHING and claiming it must therefore be a scam.

The latest statistics I saw about Executive Compensation for the top 500 publically-held US Corporations show that the most highly paid Executives earn nearly 400x what the average employee earns, well over $100M per year in salary and perqs. In fact, these same executives earn more bonuses as they manage to move increasing numbers of jobs off-shore and cut the average hourly wages paid to employees while improving overall worker productivity.

Are we to believe that the CA AG is going to shut these guys down too, since these businesses are also “immensely profitable to a few individuals on top and a complete rip-off for most everyone else“? I mean, the thousands upon thousands of American citizens who’ve been getting laid off as their jobs are being replaced by $2/hr workers in Malaysia and India must feel just a little bit “ripped-off”, don’t you think?

Have you noticed the CA AG’s office going after any of THESE companies as possible scams? We’ve all witnessed the migration of these same businesses OUT of California to other states who offer them better incentives, lower taxes, and access to lower-wage workers, all of which serve to increase the compenation paid to their Executives and concentrate more money into the hands of fewer individuals in the company. These moves are clearly a rip-off to the residents of California. So, why has the CA AG’s office been so silent in these matters?

Another thing they say is this:

“More than 200,000 members in 2007 paid more than $1,000 a year to set up online travel agencies, but only 38 percent of the company’s members made any travel commissions.”

What’s not being said here is that 62% of the members didn’t do anything to earn a dime off of their web sites. Sound familiar? How many people purchase and then set up web sites to sell stuff, and never make a dime off of it? The problem is the same in both cases — if you don’t tell people about it, drive traffic to it, and promote it, you’re not likely to earn anything. The CA AG thinks this is absolutely CRIMINAL! Imagine that!

Does this mean the CA AG’s office will soon start filing indictments against every web developer and sales company who charges thousands of dollars to set up web sites that never generate a penny of revenues for the buyers?

“Consumers paid more than $103 million to the company in 2007, but made $13 million in travel sales commissions, according to the lawsuit.”

Now, this is factually incorrect, no matter how you spin it. “Consumers” don’t earn sales commissions from YTB any more than they earn commissions off of insurance or gasoline they purchase. The RTAs earn commissions from sales made through those portals. In fact, the majority of commissions are paid for travel bookings made by non-YTB members. That’s because, unlike most MLMs, YTB has no requirements that members purchase anything other than pay a $49 monthly hosting fee to keep their site online. (And if you’ve sold 6 RTAs, they rebate you your $49 every month.)

The CA AG’s office apparently considers these monthly maintenance fees to be excessive and possibly criminal in nature — because they’re being paid to sales affiliates rather than to a hosting company, I suppose. (Do you know that up to 90% of the premiums you pay for your car, home, and health insurance is paid out to sales reps? I find it hard to believe that the CA AG’s office considers this criminal!)

One thing that has been neglected to be said is that, statistically speaking, YTB is now one of the largest travel agencies in the world, based on the dollar volume of their overall sales. I don’t have the exact numbers, but I do know that average commissions paid to travel agents industry wide is around 10%. So based on the stated commission payments of $13M, they booked about ten times that, or $130M in travel, although it’s probably higher than that because most RTAs don’t earn the full commission. So this statement should probably read as follows:

“Consumers paid more than $130 million to the company in 2007, while RTAs made $13 million in travel sales commissions.”

I’d bet that if you ask American Express Travel, they’d tell you that they earn about the same in commissions from the same volume of bookings (around 10%).

In this case, those commissions were earned by only 38% of the RTAs — the people who have purchased one of these web sites who’ve made some effort to make sales through it. How do the other 68% think they’re going to earn money from this business if they don’t do anything to promote it?

If 68% of the people working for American Express Travel failed to make any sales, they’d be fired.

YTB gives RTAs the option of shutting off their web site at any time, effectively firing themselves. Yet, they choose to keep their sites active, even though they’re not promoting them or the business!

So you have to wonder, what exactly is the CA AG’s office fighting for in this case?

Are we to believe that it’s criminal to charge money to people who want to buy business opportunities, like web sites that can earn them money, as well as monthly maintenance fees for those sites? Or just because most of the fees are “immensely profitable to a few individuals on top and a complete rip-off for most everyone else”?

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If you’d like to see what all the hullabaloo about YTB is, feel free to visit my YTB Rep site where you can sign up as a Rep yourself — it’s FREE — and get your own Rep site. This will give you access to most of the training information that you can browse through and see what it’s about.

To become a Rep, click on the orange block that appears on the page here that says “It All Begins Here - JOIN TODAY”. On the next page, select the country you’re in, then click Continue. (If your country isn’t listed there, you can’t join — try back next year.) Then check the box that says, “Yes! David Schwartz is my sponsor. Sign me up!”, check the box below it that says, “I Agree to the above sponsor terms!” then click Continue.

IMPORTANT: on the next page that appears, you need to select which membership option you want. The first two let you sign up as an RTA, and they cost you $449 + $49/mo. The third option requires you to scroll down. It is FREE. It says, “Become a Rep Only (Independent Marketing Representative)“. Then click the Continue button and fill in the rest of your data.

As a Rep, there is no obligation to buy anything ever, or to sell anything ever. Yes, you can become one of the thousands of people that the CA AG’s office thinks is getting ripped off by signing up as a Rep and not earning a penny from this opportunity. But then, how much have you made lately by referring people to your Real Estate agent, your hair dresser, your insurance agent, your doctor, your dentist, your lawyer, your yard care people, you pool maintenance guys, or the local movie theatre for recommending their products or services? Maybe you need to contact the CA AG’s office and complain that THESE people have ripped you off as well. Just something to think about…

-David

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