ACN video phone part VII: Behind the game

In the comments of my previous post, Ravi Nayar writes:

To clarify on above, ACN’s IRIS 2000 Videophone supports calling any phone number in the world. What makes it special is that there is no long Distance charges to call USA, Canada & Puerto Rico. Furthermore later in 2008 when ACN launches the Videophone in Europe there will be no Long Distance Charges to call Videophones in Europe from North America.

The IRIS 2000 Videophone supports analog phone equipment. You can plug your current home phone into the IRIS 2000. This allows you to have extensions throughout your home to work.

The IRIS 2000 Videophone are made in South Korea.

So effectively the IRIS 2000 video phone is a standard VoIP phone with standard H.263 (i.e. previous generation) video, and not the revolutionary piece of equipment touted by ACN.

What’s not clear from Ravi’s comment is whether the IRIS 2000 supports calling other video phones that use the same protocols. Such capabilities would expose ACN to direct competition, but at least then the ACN would be slightly useful.

Finally, Ravi says that the lack of long distance charges are what makes the ACN video phone “special”. But it also happens to be what makes Skype-Out “special”, PennyTel “special”, Vonage “special”, etc etc.

You can find a reasonably complete list of VoIP providers reviewed at voipreview.org.

Note that ACN is not exactly near the top, and only ranks 3 stars despite obvious attempts by ACN marketers to skew the results.

ACN part VI: The video phone business model

I finally found the specifications for the Iris 2000 video phone that ACN is trumpeting as the Next Big Thing ™.

It turns out – it does use SIP! Halleluyah. And H.263, and all the other IETF-recommended standards.

The same standards supported by:
Leadtek
Grandstream ($299, which has far better protocol support including H.264)
D-Link
Many, many more

And so on.

The difference?

ACN’s video phone is barely mentioned anywhere on the web, despite it essentially offering the same features as those other phones. Google “SIP video phone” and you’ll be taken to voip-info.org, whose video phone directly lists all the major players.

ACN isn’t there.

If I was considering hitching my commercial wagon to a video conferencing company, which would I pick? One made by Cisco? Or Linksys? Or a company that doesn’t even appear in the search results?

For a company that intends to become the “biggest company in the world”, this is a poor start.

What’s more, there’s no evidence that their video phone supports calling outside their own network.

In addition, this means that ACN’s claim that their phone is based on “proprietary technology” is a lie. It’s based on off-the-shelf, rebranded parts, probably sourced from the same factory in Taiwan that makes all the other video phones.

Nothing special here. Move on.

ACN part V: People are trying to discredit me!

This is the super fun part. I love it.

An earlier commenter said he liked my analysis of ACN’s MLM program (selling useless videophones and marginless/commoditised mobile plans) and would post it on his site. I was chuffed, of course.

But then his post appeared. And, while he did take the time to quote me, he rounded it out like this:

Does Dan know what he talking about? Who is Dan?

“Dan (or Daniel) Walmsley is a comedian, musician and programmer currrently living in Melbourne, Australia.”

So can a comic really know that much about lame technology? Or is Dan lame himself?

Well, the obvious answer is “Yes, I am lame. But not as lame as a multinational company trying to pull the wool over the eyes of naive aspirational people by using deceptive MLM marketing techniques”.

Now, let it be known that I’m not some kind of super-expert on business or MLM. I’m a technologist. But I’m not just some random guy that likes to mouth off – I do have significant domain knowledge.

So, of course, I responded on his site. I’m not sure yet whether he’ll approve my comment, so I reposted it here:

Way to raise doubts without engaging with any of my criticisms in a constructive way 😛

Fascinating that you would post such a negative (or at least dubious) review of my post given your comment on my site:

“I will shoot you a link from my site because this is a nice and clear business analysis with what is wrong with ACN product.”

And now you raise doubts about me personally? Well, I didn’t want this to be about me, but since you insist…

It turns out that Dan does know what he’s talking about. Despite the modest resume on my site I have over a decade’s experience in the telecommunications and programming industry, a degree in Computer Science and Engineering with Honours, am a domain-knowledge expert in podcasting and video-conferencing and co-founder of several tech companies working in telecoms and media.

I co-produced one of the most successful cross-media shows in Australia last year, was Solutions Architect at Sputnik Agency (a digital marketing agency considered one of the best in South East Asia), and in a previous career I was a senior programmer doing global systems integration for the National Group, handling risk management across 5 continents and dozens of major banks.

I’ve been presented twice this year to mobile phone and social networking industry groups and am participating in the MEGA program for enterprise mobile development.

You could say I know a thing or two about the telecoms industry. I’m not just a comic, and I don’t find what ACN is doing particularly funny either. I think it’s deceptive – borderline exploitative – and nothing I’ve heard from them or anyone else so far has convinced me otherwise.

Like I said, I didn’t want this to be about me. I think my analysis speaks for itself, and that my arguments can be engaged with on their own terms.

I have taken it upon myself to simply say what I think about ACN online. Because ACN’s marketing techniques only work if people aren’t exposed to counter-arguments or more detailed technical analysis of the market and the product. They rely on hyperbole and fluff to sell the-idea-that-other-people-want-this-product without presenting a rigorous analysis of the marketplace.

Such an analysis would inevitably show that the pie for resellers is much smaller than it seems at first blush.

And no, I’m not performing the bulk of that analysis. I have a day job, and better things to do. I’m just giving people enough information that they might seek to ask the right questions.

ACN and MLM marketing techniques, part IV

Ok, so I think I’ve found my new hobby.

I was checking my PageRank today (somehow I suspect ACN will become the new Meegos – no bad thing) and stumbled on a site listing the marketing techniques used to create a successful MLM (Multi-Level Marketing) organisation. Straight from the horse’s mouth.

ACN’s internal marketing advice includes the following insightful snippet:

2. Don’t Sell to Everyone

Don’t launch your presentation at EVERYONE like a dog licking strangers!

Describe your ideal prospect carefully and specifically. What kind of problem are they trying to solve? What job/business background do they have?

Once you know the problem that really frustrates your prospect, position yourself as the person who has those solutions. For example, my ideal prospect is someone who has owned a business in the past or owns one right now. My prospect is frustrated because he/she can’t find customers easily and really wants to find out how to create more customers.

Great. Now where are they looking for solutions?

They’re buying books and cds on marketing and attending marketing seminars. Now I know where my prospect hides and what I can offer as a solution to bring him/her out of hiding.

Now, where did I meet Francis? At a marketing/small business seminar. He heard me asking a question about exports (it was: “Given that most stuff is manufactured in China, and they still don’t seem too fussed about protecting your ideas, is it worth the cost of legally protecting intellectual property?”) and asked if I ran an export business.

I suspect he wasn’t at that meeting to learn anything. He was there to expand his reseller network by latching on to people who have yet to learn about how to run a business. At the very moment that it all seems pretty hard (“Wow, that’s a lot of stuff I have to learn in order to launch my business”) he’s offering them the cardboard-cutout alternative in the hope that they bite.

That, and he completely misrepresented himself (“I’m in video conferencing” != “I’m creating a reseller network for Optus Mobile”).

I’m sure glad I wasted his time, but I’m still pretty annoyed that he wasted mine.

This catharsis seems to be working though.

ACN and business, part III

To bring you up to speed: A lovely young man called Francis tried to recruit me into shameless pyramid scheme ACN, and I just sent him an email asking him to consider whether they’re an organisation worth being part of.

Now, he’s written back. Get ready, folks, for the selective memory of the truly cornered.

Hi Dan,

I appreciate the research and information. I’ll be sure to forward this onto ACN’s Senior Vice President Brian Sax and the four owners because these are vital facts to be aware of if we want to save the company from complete annihilation within 5 years.

All things considered, do you want to join the team?

Now, note that nowhere did I say “you can’t make money out of pyramid schemes”. If you couldn’t, they wouldn’t still exist because at some point the owners need to get paid.

What I did say is that they’re in the business of selling a dream of working from home to shmucks on the lower rungs who will pay $500 to sign up and then never make a dime. It’s mathematical sleight-of-hand for the unwary, and it’s morally bankrupt.

So I wrote back:

Francis, to re-iterate in case you missed the subtext (and I said this at the time too): I’m sure they’re making a lot of money from signups of reps, quite possibly more than they are from the telecommunications services they sell.

I’m sure your company is solvent. It’s just that the business model makes me squeamish. I mean, the very fact that a company with your overheads is solvent in such a commoditised marketplace practically requires you make the lions’ share of revenue from signups.

If it was profitable for the resellers in terms of direct sales, then they wouldn’t have an incentive to expand the tree, would they?

My friends are too smart for me to join, I’m afraid. The recommended sales practise of “asking for a huge favour” wouldn’t wash with them.

Kind Regards,
Dan

I bet my pagerank against ACN is going ballistic right now. I can almost feel the semantic G-Force pressing me back into my chair…

ACN video phone malarky update

I sent Francis a letter. It was the least I could do.

Hi Francis,

Thanks for your time yesterday, but I have to tell you honestly that ACN seems like a bit of a dead end for someone with your skills. As someone who has graduated from an entrepreneurship program, you should know that ACN’s business model is antithetical to the idea of entrepreneurship (except, of course, for the owners), and a bit of napkin math would show you that such models exploit the vast majority of people involved as resellers.

A good business idea is worth doing properly. Employing people, paying them a wage, guaranteeing them an income in return for their skills. ACN guarantees nothing and anything more than a cursory examination of the marketplaces in which they compete would tell you that they’re highly competitive and have very low margins, therefore the chances of success are extremely low. Only the first one or two levels in any decent sized market (say, more than a few million people) are likely to make any money.

You say there’s no risk, but actually there’s a lot of risk.

$500 = initial financial risk.
MLM = risking your relationships with friends and loved ones.
The fine print = risk that, if your customers don’t pay, you are personally liable for their debts.
Hours spend trying to sell to your family and friends = risk that time won’t pay off financially.

There are also a multitude of conditions under which your commission can be revoked, and the commissions structure is designed such that it incentivises growth of the reseller network far more than growth of the customer base. At a depth of around 7 levels, the outgoing commission claimed by the reseller hierarchy is around 10.25%, which is a non-competitive level compared to retail and jeopardises the ability of ACN to even make money – unless the point of ACN is to make money by getting resellers to sign up at $500 a pop.

ACN isn’t in the business of selling telecommunications products (or at least that’s secondary). They sell people the idea of a dream – to work from home, to get a guaranteed linear (or, worse, exponential) reward for effort, to be their own boss, to generate passive income. In order to sell this vision, they strategically withhold information about the costs of being involved and the specifics of the technology. And aspirational, naive people want to believe this dream so badly that they sign up.

I feel sorry for them.

All the best,
Dan

I will crush you under a pyramid of lame

So I was at a seminar the other day on starting a business, and a (very) young guy called Francis approached me afterwards and struck up a conversation. He seemed sincere enough, and said he was part of a VoIP Video business. Intrigued, I agreed to meet him for lunch 2 days later.

That meeting was today.

Some context: I am interested in VoIP video-conferencing at the moment because (a) I’ve been broadcasting live events using various technologies, and I’m always interested in new ones, and (b) a few friends are interested in integrating video conferencing into their businesses.

The first thing I asked was “how does the technology work, what protocols does it use?”. I was shown a brochure whose only mention of technology was accompanied by the word “proprietary”, which immediately rang alarm bells.

The entire history of the PSTN has been a fight against proprietary communications networks. They are the enemy of connectivity and utility. They are a technological leech, a barrier to communication creating problems where none should exist.

By the way, we do have open standards for video conferencing. They’re called SIP and H.264, or H.323, or whatever. They work well enough. My friends and I can buy different SIP-phones and still talk to each other. By contrast, proprietary protocols are the bugle-call of the Cavalrey of Lock-In Hell.

I asked him to tell me what these proprietary protocols were, and he had no idea. He called his boss, and his boss (allegedly) had no idea. Uh-oh.

So I proceeded to tell him that I wasn’t interested, and he said “let me show you this DVD, it might explain the technology”. Right.

The DVD showed a lot of people driving fancy cars, and living in enormous homes filmed through vaseline-covered lenses, populated by actors who run the gamut of ethnic backgrounds and age groups. No dice.

The owner (or some other senior guy) comes on.

“ACN will become the biggest company in the world.”

Alarm bells.

Then, Donald Trump comes on. Donald Trump! Now there’s a man whose image conjures up respect. For the death penalty. For white-collar crime. When the revolution comes.

Trump opined: “ACN offers a great opportunity for you to start your own business with none of the risk and costs associated with starting a normal business.”.

Louder alarm bells.

He went on: “In the coming years, the video phone market could become bigger than the property market.”

Alarm bells so loud they alter the orbits of nearby satellites.

I clicked the next menu item. Ooh! A bit about the phone!

It’s just a video phone. You can only talk to other people using the same video phone. You can make normal phone calls with it too. Nice, but kinda useless and not exactly revolutionary.

The video stops and I still know nothing.

My first question: “What makes you think people are going to pay $30 a month for a video phone service when they can get the same thing for free with their PC and a webcam?”

“Sure”, says the kid, “Telstra make money don’t they? We charge the same way they do.”. Uh, yes, and Telstra has a government-granted monopoly. This is not exactly comparing apples to apples.

I go on for a while about how proprietary consumer-level VoIP is a stupid idea, and then it hits me: he’s not asking me to use their tech; he’s asking me to be a reseller. And not just any reseller – a multi-level marketing reseller.

That’s right, folks. ACN is a pyramid scheme. Note that I said scheme, not scam. They are legal (they barely escaped prosecution for violating the Trade Practises Act of 1974), but they’re also extremely deceptive and when you run the numbers it’s simply not possible for the vast majority of participants to make money. I didn’t have a calculator in front of me at the time but I told this kid that I reckoned only the top 30% make any money, and that the top 5% make 95% of the money.

Turns out my guesstimate wasn’t far off. And I wasn’t even including the vast array of hidden fees that you can find listed elsewhere.

So I tackle this with Francis, and he seems a little perturbed but presses on. It turns out they also sell mobile and fixed line telecommunications products.

Ok, so they sell:

(a) A product nobody wants (proprietary videophones that don’t talk SIP), and
(b) A product so commoditised that there’s practically no margin in it (mobile and fixed line phone plans)

But the common link between these two products? They’re both new enough that normal people don’t understand the market dynamics yet. They think they’re getting in “ahead of the curve”, when in fact they’re taking a sharp turn off a cliff.

I could go on, but I won’t. Suffice it to say: They won’t be getting my $500 sign-up fee. They won’t be convincing me to sell stuff to my friends they don’t need. They won’t have a chance to lock me into bizarre non-compete contracts that take any hope of true business initiative away from me (you can’t do your own marketing. You can’t cold-call. You can’t approach suppliers directly. Etc).

And, hopefully now that I’ve written this, they won’t have any more customers or representatives in Australia. Fingers crossed.

Useful links:

The cost of climate change

Mood: Angry

I was reading the front page of “The Australian” today, and apparently scientists and economists are having a hard time predicting the exact economic impact of reducing our carbon emissions (and hence, obviously, saving the environment). They’re talking about power stations closing, household prices shifting, and so on.

So-called “free market capitalists” are decrying any moves to regulate anything as being damaging to the economy, cutting jobs. The free market will sort it out, they say.

I see one enormous problem with everyone’s thinking on this. The very reason why the capitalist system has been so successful: Change creates opportunity.

That’s the reason why you can’t model the impacts of this change: The outcomes of all these opportunities will be the product of the collective inventiveness of private industry to accomodate them, and nobody knows what radical means will be invented to do this, but invented they shall be.

What’s more, government already regulates heavily to prevent harm to society from industry. For example, they discourage you from killing anyone in the course of doing business. This had to be legislated, and is now in operation in most countries, and we seem to be doing just fine.

So, by extension, we shall accomodate the costs of not killing the environment. The only question is when those costs are imposed.

To summarise: If the government regulates to reverse the damage to our environment (whether by a tax, or regulation, or law), then surely this will create an economic cost. But it will also create a need, and therefore new economic opportunities. The whole point of the capitalist system is that it is resistant to these kinds of shocks – industries emerge to accomodate the new reality (i.e. high cost of emitting CO2) and everyone proceeds on their merry way and makes megabucks.

And sure, you need to keep the shock small enough that everybody doesn’t starve. But then, if it’s too small we’ll all starve as well – that much is certain.

To digress momentarily: In engineering, you always make things 3 times stronger than you need them to be, because there’s a chance things will get worse than you think.

Which is why it infuriates me so much that governments the world over are only legislating to implement the merest fraction of the required changes to stabilise our environment.

I suspect the reason for all this resistance and hyperbole is one simple fact: When environmental cost is finally factored into production costs and a new status quo emerges, the people who are now at the top will be at the bottom.

If you became rich from the Century of Oil, then I think it’s safe to say that the good times are over, one way or another. The only remaining question is whether we let them take us down with them.