RealClear Markets

Why Is TikTok Targeting MLMs?

Senior Fellow and Director, Center for the Economics of the Internet
Legal Fellow, Center for the Economics of the Internet
(Photo by Chesnot/Getty Images)
(Photo by Chesnot/Getty Images)

Last year, TikTok became the first major social media platform to completely ban multi-level marketing, or “MLM,” content on its platform.  TikTok did this quietly and with little fanfare, via a regular periodic update to its “Community Guidelines.” 

The company’s blog post announcing this update made no mention of MLMs or related business models.  Yet under the monikers “[i]llegal activities and regulated goods” and “[f]rauds and scams,” TikTok now explicitly bans “[c]ontent that depicts or promotes Ponzi, multi-level marketing, or pyramid schemes.”  Items banned below and above MLMs in TikTok’s list of “Community Guidelines” currently include drugs, tobacco, and sports betting. 

There are two major issues with this.  First and foremost—MLMs are not illegal.  They are not frauds or scams.  They are not the equivalent of drugs, tobacco, or sports betting.  Nor are legitimate MLMs pyramid schemes.  

MLMs are a perfectly legal business model, wherein transactions are based on trust in the person making the sale, as opposed to trust merely in the product or distributor itself.  MLMs are particularly powerful business arrangements in countries where government oversight and regulation of products is lacking.  Unable to inherently trust products, brands, or the government to oversee and regulate them, consumers in these regions instead rely upon trusted friends and relatives, who personally recommend products and services for purchase. 

Of course, this business model is powerful in the U.S. and more affluent nations as well. Just ask the millions of Americans who purchase their cosmetics from their local Mary Kay representative, or buy cookies from their neighborhood girl scouts.

This directly ties into the second major issue with TikTok’s decision on MLM content.  TikTok, like its peers Instagram and YouTube, is dominated by “influencer” culture.  Just like MLM representatives, “influencers” maintain a personal brand that customers trust.  Utilizing this trust, influencers advertise various products and services on their accounts, often via anecdotes of personal use of the product, or posts featuring the products.   

Influencer culture on social media has grown so large that entire companies have cropped up to facilitate the relationship between these influencers and the companies that wish to advertise their products and services via their accounts.  Not to be outdone, TikTok released a “Creator Marketplace” tool, which allows companies to “[c]hoose the best partners based on data” by “[t]ap[ping] into TikTok’s…insights on audience demos, growth trends,” and more.  Influencer culture has grown so large the FTC had to recently get involved, to ensure that social media users are aware of when influencers’ posts are, in effect, a paid sponsorship.  If one commissioner’s comments are to be taken seriously, FTC scrutiny is far from over.  

Given TikTok’s whole-hearted embrace of influencer culture on its platform, it makes little sense why MLM content is being singled out. MLMs operate via the same principles of trust and personal branding as influencers. And unlike influencers, the commercial underpinnings of MLMs are transparent and well-known. Influencers, by contrast, often cleverly hide paid advertisement relationships with brands via hard-to-discern “#ad” designations or other monikers buried deep in a post—if they disclose the relationship at all.

So why is TikTok targeting MLMs but not influencers?  One theory is that the change is a response to recent anti-MLM movements that have appeared on YouTube, Reddit, and elsewhere on social media.  Perhaps there is some sort of fear of litigation, given the network’s users skew younger than its social media peers.  Perhaps TikTok does simply does not want MLM content on its platform.  Or perhaps there is some other reason for the move. 

Regardless of the reason, one thing is clear. TikTok does a disservice to its users by arbitrarily banning MLM content on its platform. TikTok should reverse course and allow MLM content to flourish on its platform, right alongside the influencer content that, like MLMs, promotes products and services based on the personal endorsement of trusted users.

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