Trader’s Narrative

A few weeks ago, I digressed from my usual topic and wrote a public service announcement on a new make money online scheme called Agloco. I was more surprised than anyone, when it made it to the front page of digg and even more so when my host took a licking and kept on ticking.

I thought, I’ll revisit this in a few months when Agloco implodes to have a good I told you so moment and do a Nelson: ‘Ha-Haaaa!’ (point finger).

From the Horse’s Mouth

But it turns out that it won’t take that long. When monitoring my traffic, I noticed many coming from the official Agloco blog. So I went to see what was up and I discovered this message posted by Brian Greenwald (bold is my emphasis):

AGLOCO’s early revenue will not immediately translate into cash distributions to Members. While we do not know how large our initial revenue will be, we do know that AGLOCO has operating costs to pay.[…] As such, the cash payouts will not begin until there is a comfortable balance between AGLOCO’s free cash flow and AGLOCO’s expenses.

I wonder how many of the Agloco pumpers and ‘members’ would go to work at a company that said, Sure, we’ll hire you, but you’ll have to work for months and months… we really can’t say how long… without pay. But we’ll give you a salary just as soon as there is a comfortable balance between our revenues and expenses..

Mmmmm-kay. Riiiiight.

Do the guys behind this crazy scheme really expect people to pollute their screen with the Agloco (still non-existant vaporware) viewbar and not be compensated? … until some, yet unknown, date in the future?

What does “comfortable” mean anyway? And how comfortable would it have to be before a ‘member’ sees a red cent?

And what about all the accounting chicanery that can go on? As much as they like to misrepresent this and say that the ‘members’ own the company Agloco is a private company. And as a private company they are not held to the more stringent standards of disclosure that public companies are.

Not that being a public company ever kept corporations from playing creative games with their books. Ever heard of Enron? WorldCom? Tyco? Global Crossing? Do I need to go on?

Think of the savings! Agloco doesn’t even have to hire $500/hr accountants. They can just present some scrap pieces of paper and say, Umm, sorry guys, not this month. Came close though. Let’s try for next month. Keep surfing (suckers).

Beginning of the End

This is the beginning of the end for Agloco. Before they could’ve succeeded they needed to have a massive base of people using their (still non-existent) viewbar. To begin with the scheme wasn’t all that attractive: a circuitous path through several shifting stages where 5 measly hours a MONTH would be swapped for ‘agloco hours’ (??) and then several other stages to finally reach a pittance of a payment.

But now, who is going to surf, with a viewbar crowding their screen, spewing ads… all for… what? a promise of some kind of payment when Agloco’s non-public accounting is ‘comfortable’? who’s going to expose themselves to the viewbar without knowing when or if they will ever be compensated?

To me and you it might seem obvious that Agloco is done. But human nature being what it is, not everyone will want to acknowledge the obvious. Some will even deny what is in front of their faces and keep on promoting Agloco. But it won’t matter.

As signups don’t convert to downloads and users, it becomes irrelevant when (or if) they ever release this fabled ‘viewbar’ (which, by the way, just missed another release date!) And without a user base, Agloco’s advertisers will pull out since there is no audience.

If you have an Agloco URL, better start trying to sell it now to some sucker who might think it is still worth something. Within a few weeks or months it will be worth nothing.

“Buddy, Have I got an URL for you. It’s brand new, hardly used. Worth its weight in gold. Trust me, would I lie to you?”

John Chow is in Toronto this weekend. Hopefully we’ll get together for lunch with other area bloggers and see if we can hash this out. It would be very cool to meet John within a week of getting together with Darren and the b5 media team. As the dot com mogul, I know John will insist on springing for the check

Agloco is a pay to surf MLM scheme that exploded onto the interwebs late last year. It is backed by the same team as AllAdvantage which crashed and burned in the bubble years. Check out this article from Business 2.0 on AllAdvantage (pdf).

AllAdvantage had a simple proposition: pay people a fixed hourly rate for the hours they spent browsing the internet with their software and use an MLM structure to attract new users. As you’d expect, this lead to legions of bots that pretended to surf. In contrast, Agloco uses a tortuously roundabout path to go from surfing to actual payment of money.

Still, most people mistakenly see Agloco as having a simple, linear model. Consider the following a public service announcement. If you’re a shrewd trader or investor or ever sat through an economics class (awake) you have no need to read further.

For the rest, let’s break it down:

[1] First, you have to download and install Agloco’s viewbar. This software (vaporware?) has yet to be released and every time a date is given, it makes a nice whooshing sound as it passes by. For the sake of this analysis, let’s assume it is actually released.

[2]So you surf the web while running the viewbar. But you don’t get a one-to-one proportionate credit for the actual hours you spend online. No matter how much longer you spend online, you’ll only get five measly hours accrued a month. And they “reserves the right to change these rates at any time for any country”.

[3]Next, these ‘Agloco hour units’ will accumulate. At some point, who-knows-when (if ever) they will be converted to something else. Note that they “reserves the right to change the [conversion] rates at any time”. So you can find yourself on shifting ground and get much less than what you thought you’d get.

Now, here’s the knee slapper: Agloco will convert these ‘hour units’ not into cash but into shares. But Agloco is a private company in start-up mode; has no public shares to distribute; is not profitable; hasn’t even released a product; and its founders failed the first time they tried this venture (what they lack in creativity, I suppose, they make up in persistence). Furthermore, according to SEC regulations, Agloco can not distribute unregistered shares to the public. While the ability of Agloco to produce and distribute value hinges on being able to going public, it’s ironic that the least amount of attention has been paid to this point.

From Agloco’s website:

“Remember, the company is 100% owned by the Members…”

No, it is not. It is a private company owned by a very few. I can cut them some slack for aggressive promotional copy but this is a bald faced lie.

[4]Assuming it does actually go public (I would really like to see an investment banker sit through a meeting with a straight face) Agloco will then have to use its shares as currency to pay its members – that was the original point, before all these twisty turns, remember? When it begins to do so, the proverbial shit will hit the fan.

If we assume Agloco is successful, they will have to regularly pay their considerable and probably growing user base a massive amount of money. Which means selling a massive amount of shares on the market. Guess what will happen to the value of the shares when this unflagging selling takes place? Guess what will happen before the selling hits as smart traders position themselves ahead of the avalanche of sell orders?

[5]But wait, maybe I’m being too harsh here. Let us again give them the benefit of the doubt. Let’s assume that people don’t make a mad dash to cash in their shares… eventhough they’ve been slaving over a hot monitor for months. The next hurdle to the ‘members’ seeing money is for the firm to become profitable.

[6]The chances of this are very slim for obvious reasons. Even if they do become profitable, the founders will rightfully want to get a return on their risk capital before paying anyone else. Again, let’s assume not only that Agloco becomes profitable but that their board declares a cash dividend (as opposed to a sneaky stock dividend).

[7]Now here is the payoff that the ‘members’ had been waiting for. Assuming all the above, we finally get to the single mention of cash payment to users in Agloco’s website:

“As Agloco grows and the company generates positive cash flow, we will be distributing the excess cash to Members and shareholders of the company.”

At this improbable point, having jumped through hoop after hoop and assumed everything but the kitchen sink, the members are getting paid a pittance: dividend ‘cents’ on any ‘dollar’ shares owned. And that is assuming that in Agloco’s glorious ascent, hackers the world over haven’t unleashed massive ‘bots’ to mimic surfing and made it a victim of its own ’success’. Or that the SEC hasn’t nabbed the founders on charges of attempting to circumvent securities law by promising the public unregistered securities in return for membership.

If you are more jaded than I am, you may point out that at each node through this circuitous path, Agloco has built in several mechanisms to control the amount of ‘value’ they distribute – whether limits on hours, conversion rates of shares or cash, reserving the right to kick anyone out for any reason, etc. These built in ‘firewalls’ are there for the protection of the founders and the business but they can also be used quite easily to manipulate the user base to extract the most from them while reciprocating a minimum.

Having said all that, I don’t think Agloco’s a scam. It is a poorly conceived scheme that appeals to those who know very little about finance, share issuance and regulation. I really do wish Agloco would go public. How else would I get a chance to short it?

I’ve been DUGG! If you would like to make this information available to more people, follow this link to digg me up.

UPDATE: If you enjoyed this, then don’t miss: the beginning of the end for Agloco.