Okay let me get this straight.
You call it a sales gimmick. But what you are really saying is that
you are going to pay people to buy your cola. You will pay people
20K, over a period of time, to buy 15K of your cola.
A normal company usually makes money on the margin on their
products. So for example, if it costs me 5K to make cola that can
sell for 15K, I have 10K margin, which is my profit.
Now I may offer discounts to give customers an incentive to buy
more. So perhaps if they are willing to buy 15K of product. I give
them a 1K rebate/discount. If they buy 20K of product, I give a 2K
rebate/discount. I basically exchange a lower margin for a higher
volume of business. And it only makes sense to reduce the price if
the increase in volume more than makes up for the reduction in
price.
But it all boils down to a simple thing - I still need a margin to
make a profit.
Now when I pay someone 20K over time to buy 15K of my cola, I'm
making a loss of 5K. The more people buy from me, the more money I
lose.
There are some business models like this. For example, the console
gaming industry. The console itself (except for Nintendo) is a loss
leader. The console is sold at a loss. However, they hope to make
their money back on software sales. That's why a console is a
locked down platform. Since the console maker has a monopoly on
software releases on their console, they can charge a higher margin
on software that justifies the initial loss.
Profits from one business can also be used to fund another portion
of the business. The PS3 line is currently losing money but the
company is being sustained by the movie and consumer electronics
business. However, this is done with the anticipation that once the
PS3 is established, PS3 licensing fees will earn back the money
invested.
The reason why people think SE is a scam is perhaps because of the
way it's sold. First of all, SE is not really selling anything. If
you promise to pay someone to buy your product, is that really
selling? In other words, your cost of sales, your cost of acquiring
the customer is higher than the amount you earn from the customer.
Also, are people fully aware of the risks involved when they buy?
I'm assuming the product sold is e-points.
It appears troubling that the only cashflow coming in appears to be
from new people buying GPs. There also seems to be too many
projects going on for all of them to be funded properly.
Oh well, I would write more except that I have a dinner
appointment. Toodles.
