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The Web 2.0 pyramids: Agloco, eMax and KushCash

Posted By Matt Marshall On 5th April 2007 @ 15:49 In Business and Technology | No Comments

Each Internet boom creates its batch of [1] pyramid-like schemes. Theycater to the lust for easy returns dominant in euphoric times.

That’s not to say they’re fraudulent. Most of these schemes are plausible on their face, and that’s their allure — and whatone person believes is sham, another takes as a golden opportunity. This latest boom has given rise to a number of moreinnovative business models, which so far have skirted around scam, and remain quite intriguing — though still withquestion-marks hanging over them.

We’ve already [2] mentioned eMax and Agloco — both promising you shares in their stillunformed public companies, if you sign up with them to download a toolbar (in Agloco’s case) or submit up your favoriteretailers and evangelize for them (in eMax’s case; more on eMax below). And you get rewards if you encourage others tosign up. A host of Web 2.0 companies offer contests, promising iPods and other gizmos, a way to drive up traffic numbersat their sites, usually having microns of difference from a dozen other sites. There are related jobs like [3] Jigsaw, whereyou can [4] buy and trade business cards for cash points, and which many sales people find quite useful; the list goes on.

Today we look at [5] KushCash, an Orange County-based “mobile wallet” service that allows you to send and receive humble amounts of money with your mobile phone, and offers users theability to make money off their friends, their friends’ friends, and their friends’ friends’ friends.

The process goes like this: First, you register your mobile phone number at KushCash’s website and create an account.This lets you download an app to your phone (or you can rely on your phone’s WAP browser). You can transfer funds witha credit or debit card, wire money to any KushCash user you choose, receive payments from fellow users, and transferaccumulated funds to your bank. You can only withdraw money by transferring it to your bank account, and waiting a fewdays (though KushCash plans to speed it up). Presently, the service targets the 18-34 year old demographic. So far, sogood.

KushCash makes money charging for transactions. While sending money is free, receiving it or transferring it to your

bank costs $0.50, and KushCash takes 2.8 percent of any money you add to your account. But thanks to its recentlyunveiled “Spare Change” feature, nickels and pennies start rolling in when you convince friends to sign up. With SpareChange, you get 10 percent of any of your referred friends’ future transaction costs (or 5 cents per transaction, and 0.28percent of their amount added). If your friends are similarly intrepid in recruiting, you get 5 percent of their friends’ costs, down to the third degree of separation, from which you get percent.

If it sounds like a pyramid model, that’s because it is. But unlike an everyday scam involving some fly-by-night entity thatexists only to extract money from the pockets of unwitting fools, KushCash’s pyramid is built to get people to use its coreservice and give them an incentive to spread the word. This is what eMax and Agloco argue too.

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Jeppe Dorff, a KushCash co-founder and its CTO says the company has raised a “substantial” amount in angel funding,but wouldn’t elaborate. KushCash’s user base is in the “high double-digit thousands,” he said. He’s had offers from VCs,but has found them uninteresting, he said. Meanwhile, Kushcash’s closest competitor, [6] Obopay, charges only $0.10 pertransaction and has raised over $17M from RedPoint Ventures, Onset Ventures, Richmond Capital, and Qualcomm.Obopay is on a roll, building [7] a stacked management team, [8] acquiring a small competitor, and [9] partnering upwith Citi to propel itself into the world of personal finance. (Tap Blog has some good coverage of the two companies [10]here.)

This says nothing of the threat from PayPal, which last year launched an SMS-based mobile payment service of its own,and is about to [11] launch Mobile Checkout, an even smoother mobile payment solution.

Dorff says KushCash has some big announcements in the pipeline.

Finally, we [12] promised to report back on [13] eMax. This is not a prank, which we feared last month when we firstwrote about the site. We reached owner Elliot Lee, and he told us a little more about his plans. Like the other site, Agloco,eMax wants to gather users together so that they can boost their purchasing power through group buys. Lee is coy indescribing his strategy, because he hasn’t launched yet. The idea, he said, would be if people were to say they liked toshop at say [14] Nordstrom, eMax would barter with Nordstrom on their behalf and get them better deals than if theywere shop their alone. Similar to the way Borders gives you 25 percent off if you say, buy $500 worth of books, eMax willget retailers to offer a discount by rounding up 500 customers. Right now, though, before it launches, you can sign upand get three shares in the company. You get an extra share for each person you sign up. Founder Lee doesn’t see this asa pyramid; rather, he sees it as the most efficient way to quickly maximize the number of members. (Lee adds, humbly,that his targeted market this year is $100 billion)

Still, old-timers who have been watching the scams through the years, say they doubt the ability of some of thesecompanies to succeed. They rely on arbitrage, which is risky: Other people enter the market doing something similar, andyour advantage dwindles to naught - and you lack substance at the end of the day. There was [15] AllAdvantage, andClickRebates’ ClickDough, and mValue — all of which died a quick death around 2000. And in the [16] wave before, therewas PowerAgent, circa 1994-1998.

These were all viable companies at one time, just as the latest wave of companies may be. From time to time, though, itmerits saying caveat emptor .

[Dan Kaplan, a contributing author at VentureBeat, helped with the reporting on KushCash]

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