Saturday - August 03, 2013

Get Rich Quick Scheme Not For Me

I was approached yesterday by an old friend who has become a sudden, rabid believer in the secondary energy supplier sales machine called Ignite. Ignite is the sales arm for a Texas based energy provider called Stream Energy. In states that have not be deregulated, local gas and electric companies enjoy territorial monopolies. You get service from them, or you don’t get service at all. A number of states have deregulated at this point, NJ among them. You can now sign up for an alternate service provider, which can save you money. Sometimes. Generally you still get a bill from the old power company, which owns the pipes and the wires; they now split the bill into a generation part and a delivery part. You still have to use their gas pipes and their wires to get your energy, so the theoretical savings are in the generation part. And you can save hundreds of dollars on your energy bills. I use one, and the savings are real.

There are more than 75 alternate providers operating in NJ.  Alternate provider energy is not a scam. You can save considerable money. Sometimes. Almost all of these companies give you a discount of several cents per Kwh (or cubic foot or whatever for gas) compared to your original provider. Some make you sign a contract for a couple years. Some promise a very low rate to begin with, with an adjustable rate later on, rather like an APR mortgage ... and we all know how dangerous that can be IF you don’t get out of it soon enough. Caveat emptor.

But for the most part, these alternate providers are on the up and up. “Energy” is pretty much a commodity, so they “buy” in bulk at wholesale, then “sell” to you a little every month at a competitive rate. It’s legit; this is how many of the late 90s phone companies made fortunes in the long distance market. They bought a few zillion minutes from AT&T, sold them to customers at a big discount, and made money. The problem for AT&T was that they had so much overhead (huge staff, giant computer systems, etc) that they couldn’t/wouldn’t match those rates, and eventually went under, being out-competed by other little companies selling their own product. This is not going to happen to the big power companies. Their infrastructure is leaner and simpler than what Ma Bell had, and most of them have modernized and minimized along with everyone else. Which is something AT&T would not/could not do. Plus they still get a slice of the pie from the delivery charges, so don’t fear that Con Ed is going under any time soon. Not going to happen.

BUT. Nearly all these secondary providers get new customers by advertising. Billboards, mailers, web sites. Stream, through it’s Ignite marketing arm, works differently. They use “multi level marketing”, MLM, where sales associates use a word of mouth campaign to sign up new customers. MLM has a dark side and is commonly known as a pyramid ploy or a Ponzi scheme. Technically those terms only apply if there is no end product for sale; I’m sure that Bernie Madhoff can explain this in detail from his prison cell. They are completely legal when and end product is for sale, as in this case. Energy.

BUT. These same sales associates spend as much, or far more, time recruiting new sales associates to “spread the word” as they do getting people to sign up to get their energy from this secondary provider company. And the part that makes my eyes cross is that you have to buy in to become one. Riight. They charge you more than $325 for the right to become one of their worker bees. And you get no territory, no sales area, that is exclusively yours. But it’s so easy! Just switch over your own house and convince a few friends and family members to do that too, and you’ve earned your initial investment back. In less than a day! I sat and watched the digital presentation, heard all about how “regular folks just like me” are making tens of thousands of dollars per week, how this was a “ground floor” opportunity, yadda yadda. And every time I asked about that the discount rate was I got cut off and told that it didn’t matter, that I was “stuck in the weeds” and not seeing the forest for the trees. I spent an hour an a half watching the videos, looking at the web pages, hearing about all the fantastic success stories. And I decided this was not for me.

Oh, I could become a believer. I could. IF. I accept that this is a legitimate business model; it isn’t a Ponzi scheme, a pyramid ploy, because there is an actual end product for sale. So it’s not just a shell game. But the emphasis seemed to be 95% on the shells, and only 5% on the hidden pea under one of them. Seriously, I must have heard “energy, schmemergy” 30 times. As if it didn’t matter. Heck, I was told a dozen times that it didn’t matter at all.

No. It does matter. Just about every one of those secondary providers here in NJ will sell you electricity for about a nickel less per Kwh than the big boys charge. And just about every one of those providers offers you a rate that is at best only a few hundredths of a cent less than that nickel discount. In other words, even the secondary providers are a commodity. So why bother? Oh, I should transfer to Stream to a)help a buddy out, b) get in on this life changing opportunity myself, and c) stick it to big business who doesn’t care about me. Hey, you know what? I like our power company. The power here is pretty darn reliable, and when it isn’t they have crews out working hard day and night to fix things. Yeah, they charge a bit much, but I’ve already signed up with another secondary provider, 2 year contract I think, and I’m getting that nickel discount. So not only is there no financial incentive for me to switch from my current secondary to this one, I couldn’t do it for another year even if I wanted to.

So, why didn’t I want to become one of their salesmen, and get in on this “ground floor opportunity” to get rich myself? Well, NJ has been deregulated for several years now. Stream/Ignite has been working in NJ for nearly two years. To be a successful salesman, they want you to complete the “3 and 10” sales model in 30 days: sign up 10 people as customers, and also sign up 3 new people as salesmen. And then the money will just start flowing in automatically. And the more new sales folks you get on board, the more impressive your job title becomes, the bigger your slice of pie grows, and the faster your race to fame and fortune. By merely passing along the good word to your friends and by helping other folks get on board this solid gold train to the promised land.

Hmm. A year has 365 days. That’s 12 30 day periods. If I join in, and make my “3 and 10”, and every new salesperson I sign up does the same ... in one year that’s 3^12 new salesmen. 531,441 to be exact. And 5,344,100 new customers. In just one year. All of them under my own personal hierarchy. Fantastic!! Cha-ching $$$!!!  Except that a) NJ has a population of 8.9 million living in 3.4 million households, b) Ignite has already been playing here for nearly two years (3^24=282 billion, 35 times more than the earth’s population), and c) since the salesmen aren’t territorially limited, and since Stream Energy already has several hundred thousand sales people ... you do the math. Sure, you can probably make a little money doing this. But I would be flat out amazed if it amounted to more than a couple thousand dollars per year, no matter how much effort you put in. This isn’t the ground floor. It’s the 3000th floor. The market is super saturated with sales chumps already.

This is a great marketing effort for Stream Energy. They get themselves a gigantic sales force at almost no cost to themselves. Not a cent spent on any traditional advertising. And many/all/most/lots of their sales people are also willing to pay $25/mo for access to the company web page with all it’s sales secrets and motivational videos, and to get their very own boilerplate promotional web page too! So Stream has a nice fat cash cow there as well. Outstanding. And it isn’t actually a con. No, because some very select few are getting rich here. And hope and greed are the best motivators out there.

It isn’t a real shell game, but it can’t be anything other than mostly a shell game. Not for me, I’ll pass.

Posted by Drew458     on 08/03/2013 at 10:52 AM   
Filed Under: • Big Business • Economics •  
• Comments (3) • Trackbacks(0)  Permalink •  

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