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Summary:

“To all those saying today is different than the last bubble…well, not anymore,” we wrote when we heard about AGLOCO, a pyramid scheme based on (and founded by some of the same people who worked at) AllAdvantage, which flamed out in 2001 after just two years […]

“To all those saying today is different than the last bubble…well, not anymore,” we wrote when we heard about AGLOCO, a pyramid scheme based on (and founded by some of the same people who worked at) AllAdvantage, which flamed out in 2001 after just two years in operation — and $135 million in venture funding. AGLOCO, which launched late last year, was little more than a fresh coat of paint on AllAdvantage’s business model of paying its members to surf the web. GigaOM readers responded in fine form, with quips like, “Gentlemen, start your egg timers.”

It appears that Bubble 2.0, or whatever you want to call it, is not mirroring the past, however. AGLOCO emailed its members last night to say it was shutting down due to lack of revenue.

We would like to update you on the status of AGLOCO’s operations. We continue to believe in the AGLOCO concept, but our revenue is currently not sufficient to give Members a meaningful distribution. And though there are increases in membership, the resulting revenue is not enough to support operating costs. As a development team we are unable to continue to use our savings to fund the operations. If any Member would like to pursue continuing the operations of AGLOCO, you may contact us at agloco1@live.com .

We would like to thank every Member for supporting our effort to bring a piece of the Internet directly to the user. We hope that we can find a way to keep the operations going.

Another startup that shut down in the past week was Edgeio, a classifieds aggregator co-founded by TechCrunch’s Michael Arrington. Fittingly, he wrote the obituary.

  1. While I am not sure that technically this qualifies as a pyramid scheme, these things usually end up burning themselves out. Reminds me of the aptly named, Burnlounge. That was certainly a pyramid scheme, as the users were required to pay a “sign up fee” that was substantially higher than any amount of revenue that they could expect to make from actual sales of products. I believe that is the defining difference, if the sign up fees are the majority of the revenue and people make most of their money by getting others to join, not from ongoing revenues, then you are working with the next Ponzi.

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  2. OPEN LETTER TO EDGEIO INVESTORS

    Dear EDGEIO investors…

    I can understand the fact that you have spent a lot of money funding a great software and now you’d like to have at least some money back. But I believe the auction isn’t the best move for edgeio success. This is just my opinion, but I hope you consider at least thinking about “why not?”…

    Instead of doing an auction and practically killing what could be a successful classified advertising platform (there are no bids until now, and the majority of people think that the price isn’t going to be higher than 50-60k)… you could do a very important move for the web2.0 history: release EDGEIO under the new FSF GNU Affero GPLv3 license – please read that license.

    Why? In short because this license extends the rights and freedom of the “normal” gpl to remote web users, which means that if anyone improves Edgeio and makes it available online, they should provide a way (e.g. a direct link) to the new source code, thus generating a positive improvement cycle on web applications (just like gplv2 did for desktop applications years ago).

    That’s amazing now, because as you might know, successful free softwares are mostly “generic” platforms serving different markets (openoffice, firefox, mysql, pidgin, gimp…), and Edgeio has yet no parallel in the free software world (just a matter of time tough). I could go on arguing about the infinite possibilities of improvements and uses for Edgeio around the world, but I think you have a lot of ideas you’d like to see implemented… I’m sorry to say that the auction is just going to kill all of them.

    The combination Free Software + Web Applications could lead Edgeio to a renaissance in the hands of passionate developers willing to improve the system, and would enable current users to stick with their current system (maybe ask for donations – build a foundation like mozilla does) and prevent advertisers from running away before the auction finishes. Along with this changes, the need to provide support and related services will come (if still your interest or interest of your past employees) or – at least – you’ll just get some free publicity (which will probably worth more than $250,000) and a very good image around the world for your future startups.

    Well, at this point I can imagine you can’t cancel the auction. So I’ll propose something to you: if the auction doesn’t reach the reserve price, make a public call asking people to donate something (probably current users will donate something), until the donations reach $200,000 and compromise to release the application under Affero GPLv3. You get your money, everybody else benefits too. You know that if the auction fails… you’ll probably won’t get $200,000. About the servers and other “physical goods”? Easy, for every $10 donated, the donor gets one numbered raffle “ticket”. The winning tickets split the prize…

    Make History, Make Good, not money.
    I hope you investors think about it seriously…

    Best Regards,
    Giovani Spagnolo

    Support this letter at: http://webyes.com.br/2007/12/13/open-letter-to-edgeio-investors/

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  3. From my distant observation the Agloco legal / share structure was not the cause of its downfall. It had that aspect nailed down very well. It also grew a very large membership base from around the globe very fast. It seems the downfall was cause by the weight and distribution of its global members. While the deployment of Agloco technology did lag its membership base the downfall appears to be tied to the fact that few, if any, advertisers are willing to pay for the clicks and traffic of users outside their geographic market.

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  4. [...] I want to believe him, but until you ask someone to pay, you don’t really know if they’ll pay. That’s the danger of focusing on growth rather than revenue. Facebook has a slightly different model, but it’s also going through hell of figuring out how to make money from its growth without alienating users. Others who have failed to monetize users while focusing on growth include defunct companies Skinnyr and AGLOCO. [...]

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