Marketers Move to a New Multilevel: That of High-Tech

It’s a sales technique traditionally associated with the lowest of low-tech: plastic containers, New Age vitamins and Amway detergents. But perhaps inevitably, multilevel marketing is now coming to the high-technology business, thanks to a Valencia company called FutureNet Online Inc.

FutureNet’s growing legion of “distributors” do sell cheap jewelry and skin cream and a potion called Performance and Libido Enhancer. But the core of the company’s recruitment and sales activities today is WebTV, a device that turns the television into an Internet-surfing terminal.

Founded in September by Alan Setlin, a 63-year-old retired Los Angeles insurance executive, FutureNet uses the standard multilevel marketing setup: Distributors, or “consultants,” make money by selling products, but they can make even more by recruiting others to sell the products and taking a cut of the recruits’ sales.

The philosophy behind FutureNet, said Setlin, is that selling an Internet access device to computer novices requires a great deal of hand holding--and thus is perfectly suited for multilevel marketing. The machine--designed by WebTV Networks of Palo Alto and manufactured under license by Philips Consumer Electronics and Sony Corp.--is far easier to use than a personal computer but still more complicated to install and operate than most consumer electronics.

FutureNet consultants, who sell the Philips box, often employ what they refer to as the “puppy technique,” leaving the machines with potential customers for 72 hours in the hopes they’ll get hooked, and provide basic instructions along with the product.

“If you don’t do that, if people don’t know how to use the machine, it’s just an unattractive paperweight,” Setlin said.

Already, according to Setlin, FutureNet has 15,000 consultants on board, and more are joining every day. At a recent recruiting meeting at the firm’s headquarters in Valencia, 15 people listened as national marketing director Larry K. Williams explained how the FutureNet opportunity is “better than a fantasy.”

Becoming a consultant, he explained, costs $195, a price that includes access to “business tools,” training and the right to buy the WebTV boxes for a wholesale price of $225--25% less than the retail price of $299.

But what really seemed to inspire the attendees--most of whom had participated in other networking marketing programs--was the $694 recruitment package, which includes a demonstration machine, training services and the ability to recruit others into the program.

“You can sell [the machines] at $299, but why would customers go to you?” asked Anis Cohen, a FutureNet consultant in Los Angeles, noting that the machine could be bought at an electronics store for the same price. “We sell the whole thing--how to get into the company.”

Williams, the FutureNet marketing director, said that companywide, the sales efforts were divided about evenly between recruiting new consultants and retailing the equipment.

Too much emphasis on recruitment, rather than product sales, can be a red flag in multilevel marketing, according to Al Sheldon, a California deputy attorney general in charge of consumer law. Although many multilevel marketing companies, including Amway and the long-distance reseller Excel Communications, are large and well-established, others have been accused over the years of resembling pyramid schemes that rely on constant recruiting to make money.

“It all depends on how people make their money,” Sheldon said. “If money is only made by introducing people into the program, then it’s no good.”

Just this month, state and federal authorities forced Irvine-based World Class Network, a multilevel outfit selling travel agent tutorials, to repay customers $3 million and to cease using multilevel marketing. The state attorney general also filed charges recently against Nu-Concepts in Travel, another travel-related multilevel marketing company based in Irvine.

FutureNet is technically a public company with a listing on the Nasdaq bulletin board--a fact often cited by company executives in their presentations to potential consultants and others. So far, though, the company has been exempted from full financial reporting requirements, a Securities and Exchange Commission spokesman confirmed. Setlin said an auditor’s report should be ready by the end of the month.

In the meantime, FutureNet is trying to raise $5 millions in private placement. The money would be used for expansion, said Setlin, who took pride in pointing out that the person sent by underwriter M.H. Meyerson to do the due diligence has now joined the company as a distributor. M.H. Meyerson, based in Jersey City, N.J., declined to comment on its relationship with FutureNet.

When FutureNet was launched last year, the main product was the Baby Bear, a $500 Internet TV set-top box made by Taiwan-based Mitac International Corp., Setlin said. The company has said it sold thousands of the machines, though it acknowledges today that the devices were mediocre at best.

“On a scale from 1 to 10, assuming the Philips WebTV is a 10, I’d give it a 2,” Setlin said.

The distribution deal signed with Philips in March is therefore a major breakthrough for the company, said Edgar Guess, a Beverly Hills doctor who has been a consultant since September and has made a “better-than-five-digit” amount of money thanks to FutureNet.

Microsoft’s announcement last month that it would acquire WebTV Networks has given the devices even more cachet. Mike Fisher, a Mariposa resident and aerospace worker who was at the Valencia recruitment meeting, said the Bill Gates factor weighed heavily in his decision to get involved with FutureNet.

Both Philips and WebTV say they’re delighted with FutureNet, though they won’t disclose any sales figures.

“It’s a good opportunity to get to a different market,” said Kristy Lepley, public relation associate with WebTV Networks.

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Marie-Claude Lortie is a visiting journalist from La Presse in Montreal. She can be reached via e-mail at mc.lortie@latimes.com