Two Stories of Passive Income Excess
x.myles.io
x.myles.io
It is absolutely possible to run a sustainable, highly-profitable business without working 16 hours a day. But there are relatively few businesses that will run themselves completely, and people who want to spend the vast majority of their income every month probably lack many of the traits of successful business owners to begin with.
That is what many people who get into affiliate marketing don't understand. The most successful affiliates I know have 5-20 people working for them and have built a business around what they do. Most solo affiliates spend huge amounts of time trying to figure out how to do things and/or keep ahead of the churn.
Incidentally, the folks promoting the fairy tale notion of "passive income" discussed here have hijacked the term, which is well-established in the contexts of finance, accounting and tax. Virtually none of the businesses these folks hold up as passive income success stories would be considered sources of passive income for accounting or tax purposes.
Here's the kicker about affiliate marketing: the unethical practices exist because the system is set up in a way that there is no real incentive for mitigating fraud.
The merchant who pays the bottom line might have no idea that fraud is happening - they only see the traffic numbers going up without realizing that this was already coming in through other means (bought or organic).
The fact that the affiliate management or program might get their salary or bonus based on the size of the program (ie. traffic) does not help the situation at all. The largest affiliate in the program could be a sophisticated thief without anyone knowing any better!
There's also the issue of technical illiteracy from the operating parties - they all claim that they fight fraudulent practices, when in fact they might not even know what is affecting them specifically. This is obviously to lure in more affiliates, clueless-hopeless people who bought in (often literally in the form of SEO and other infoproducts) on the dream of passive income. They've read two-three books on white hat practices and are trying to compete with, say a mob of savvy blackhatters buying Pay Per View (read: adware) traffic and stealing the commission.
And don't get me started on the numbers.
And then you realize that to the merchant itself, it doesn't really matter, because the profit at the end is so high that throwing millions out the window still doesn't even put a dent in the side of the business.
I saw the same. I ended up only working with 2-3 affiliate networks, and even then only with those where I had a long trustworthy relationship with the affiliate manager.
Fraud is so rampant, sometimes all you can do to escape it is own the whole chain from top to bottom.
BTW: What's up with the "only make something meaningful" propaganda lately? Nothing wrong with profits, just keep in mind that you can't outsmart the whole world forever: like arbitrage in an efficient marketplace, your low hanging fruit are eventually picked by everyone.
2) In a career with a large creative (read: risky) component, it seems that booms and busts are the norm. I've seen this in web dev a lot- one year I'm unemployed for almost the whole year (but hey, I was the first death knight to level 80 on the server, sigh), another year you're making six figures at a hot-shot startup.
I think that the pros outweigh the cons, but you MUST be pragmatic about money and save for the downturns. I'm psyched that you enjoyed your boom times, but I think your lesson was well-learned.
Here's how you "passively" earn money with PPC affiliate marketing:
1. Get conencted with advertisers and sorting through offers to promote
2. Set up landing pages
3. (Probably) create your own ad images and/or write your ad and landing page copy
4. Identifying your target market, whether it's keyword based in Google or demographic based in FB
5. Run traffic and then split testing just about everything to increase your conversion rate.
6. Monitor stats to make sure the advertiser isn't capping or shaving you (if you don't monitor this on a very active basis you run the risk of sending traffic down a black hole and all the ad spend the goes along with it)
7. Scope out new markets/offers/traffic sources for when the existing dries up.
8. Repeat some or all of steps 1 through 7 ad nauseum.
PPC affiliate marketing is a grind.
The passive nature is that you can maintain some campaigns with 30 minutes or so per week, each. This allows you to take a break from the churn (making new campaigns) anytime you like, so long as you understand your falloff.
At one point I had 40+ campaigns running and generating a lot of cash flow. I knew that on average, 1-2 campaigns per week would fall-off (stop being profitable or worth working on due to competition). This let me take a nice vacation with my wife without worrying that much about making new campaigns, because I knew what would probably stop working in the interim and I could catch up.
It is a lot more difficult now because of the number of people competing, so the rate of falloff is much higher in general.
Passive income is one of my primary goals, so maybe that's why I feel like defending the term. Maybe the phrase just has bad connotations these days, but I don't think the idea of making money without having to actively work should come with immediate thoughts of shady affiliate programs and scummy endeavors.
Ironically here in the beacon-of-capitalism USA, these were the first areas squeezed as an extremely nasty side effect of "stimulus."
I've only ever seen "passive income" get a bad connotation in the past few weeks here on HN. People should keep in mind too that these stories are entirely survivorship-biased, so perhaps the average affiliate effort loses money, I don't know, but it's certainly more complicated than "it goes away."
Being a marketing middleman can be an honest enough niche, too.
That these particular marketing middlemen, with an intrinsically ephemeral revenue stream, would try to steal the term "passive income" to glamorize their take tells us a lot about the nature of the business, right? Fraud. Lots of fraud.
Also, why has "Passive Income" become such an evil thing around here? It doesn't have to be a scam or BS or something. It could just be someone did a ton of work on the front end and then gets paid for it over time "passively". I make money off of software that I spent lots of time on that creates value for people. The fact that people keep buying it now that it's done makes the income somewhat "passive" (still have to update things over time, but minimal relative to initial investment of time).
There is nothing wrong with passive income. There is something wrong with doing scammy fraudulent things with affiliate marketing. These 2 things don't overlap entirely so stop acting like they do. Frankly, both of these stories sound like they mostly didn't do anything scammy. They just made a lot of money and then spent a lot of money. Lots of people do that all the time with non-passive 9-5 jobs, but they don't get on the front page of HN.
In general the lifestyle business is criticized here, but ironically at the same time people who build startups are acquired by their skills/talent more than from the startup itself. At the end both are lifestyle businesses except if you are the next Google/Facebook/Microsoft/Apple/IBM or if you are Dropbox and refuse to be acquired by Apple!
Since people are interested, here's another tale of my year running affiliate campaigns on Facebook.
By the time I got into the game the competition was already heating up. I spent most of my efforts scaling my dating site campaigns internationally because global traffic was a far more fertile field, with less competition and cheaper clicks.
After I had maxed out all the nations of the English speaking world, I started running campaigns in France (and I unwittingly and unintentionally advertised hard core porn on Facebook in France for at least a month because of the geographic based redirect of the dating site I was advertising, with a US based IP you saw a tame site, with a French IP explicit hardcore porn)
My greatest success however was in expanding my operation to Latin America.
In the industry the concept of banner blindness is crucial to understand. Click through rates go down over time, both for individual ads and for entire nations. Because a site like Facebook wants to maximize its CPM, higher click through rates are the way to get cheaper clicks and profit.
I took my profitable ads in English and ran them through Google translate into Spanish. It was something simple like "Meet Hot Girls".
The hardest part was finding a dating site that accepted South American traffic. Credit cards and e-commerce have a ways to go in the global South, and therefore the traffic is of much lower value because it converts much less.
I found a tame version of Adult Friend Finder without any nudity on it's landing page. At the time Friend Finder Networks stated that they accepted traffic from almost all of the South American countries.
The first day I ran my campaigns in Columbia & Venezuela the response was incredible. Just astounding.
In an English speaking country you would be lucky to get three people out of a thousand to click on one of your ads. That first day in Columbia I was getting ten people out of a thousand to click and the clicks just cost one penny each!
I was converting at a rate that Friend Finder was paying me 14 cents per click and in that first day I made over $5000 with very little ad spend.
A small ad spend was important because I had to pay FB daily but was only paid out every two weeks and I was just out of college with very little credit.
I could have made so much more in those days with an American Express Plum card and unlimited credit.
As the South American ad campaigns went on the click through rates trended closer to the rates of their Western counterparts. It is for this reason I think I might have been the first person to run dating ads on Facebook in Columbia.
I think you have some fascinating stories - please keep writing, and not just in the comments!
I was smart, ethical and scared enough to see the hammer coming down on the industry and stayed out of all that mess, but I had a front row seat to the whole thing.
If this weren't the affiliate marketing industry we're talking about, I would have thought that you were a pathological liar, the kind who makes up tall stories! :-)
You should write a book.
Just to make sure I understand ... the way this used to work is that you acted as an affiliate for another site (e.g. aff). They would pay you a commission for signups you generate. You then market on sites such as Facebook and get the affiliate fees.
As an affiliate, one is sort of a marketing firm for the web site. However, people abuse this setup by misleading clicks/signups.
Is this an accurate summary?
Edit: Also, how does one learn about these affiliate programs? Word-of-mouth?
You are like a digital salesman for any manner of companies and products.
The cool thing about it is the scale that is possible. For example, in the one year I ran ads, my ads were displayed over 640 million times around the world.
I got so many clicks in Columbia that 20% of the male users in Columbia on Facebook clicked one of my ads.
OK. Got to get back to work now!
But Hipmunk is another example of a site largely supported by travel-affiliate revenue, and they do it by actually providing a significant value-add service.
Very true. I've been speaking at marketing conferences for several years, and one of my core messages to affiliates is "don't build a site or campaign, build a business". If no one would miss your site if it was gone, you're not building value.
They provide a useful service for some (here's how to use your frequent flier miles), but the affiliate links in nearly every post are rumored to be worth up to several hundred dollars per credit card signup.
You haven't been living under a rock. The affiliate marketing industry is hiding under a really big rock :)
> Just to make sure I understand ... the way this used to work is that you acted as an affiliate for another site (e.g. aff). They would pay you a commission for signups you generate. You then market on sites such as Facebook and get the affiliate fees.
That is a good summary. An example is eHarmony. They paid me $4.25 to fill out a signup form on their site (first name, last name, email, gender, interested-in, location). I created a web site to tell people about them and then sent traffic to the site from various sources (Facebook, Display Ads, Search, etc.)
You don't always have to create web sites in between the ad and the advertiser, but often it helps because you can "seal the deal" by convincing them about the product.
> As an affiliate, one is sort of a marketing firm for the web site. However, people abuse this setup by misleading clicks/signups.
People abuse it through many different ways. The most notorious is Jenny's Diet Blog. An affiliate marketer made a fake blog about "Jenny" and her diet "miracle", espousing the ease of losing weight through acai berry and colon cleaning product free trials. The affiliate was paid ~$40 per signup for each.
The abuse is through misleading ads, outright lying on web pages, scammy merchants (they are just as bad) and more.
> Is this an accurate summary?
You definitely are on the right track.
> Edit: Also, how does one learn about these affiliate programs? Word-of-mouth?
There are a lot of affiliate networks that host the offers, track performance and handle payouts. They provide ways for affiliates to discover things to promote and also serve as a trusted source of payment.
LATAM was big for me too, but not with dating. The good 'ol days of Facebook ads being cheap were great. There is still a ton of opportunity there, but you've got to dig to find it.
At Affiliate Summit West in Vegas, I was at a party in the Palms. This big suite had tight security and was packed with "super affiliates". I remember at one point drifting to a group of affiliates that were wearing more money than I bought my car for. And it was not a cheap car.
I asked them how much of their income they were saving - every single one said they were spending it, but it was ok because they would make more money next month. None of them cared that the gravy train could come to an end, except one.
Pretty amazing story. To put this in context time-wise, around when was this and how long did it take for that income stream to dry up? Was there a sudden end to it, or more like a gradual decline?
I spent the whole year chasing $5000 days and could never replicate them. A lot of affiliates earned that and even more though.
With that South American campaign, AFF paid the full 14 cents per click but then said that they would only pay 6 cents a click in the future. My profit was cut, but it continued for months, slowly tapering off as the ads were clicked less and less and FB gave me less volume.
I saw someone further down saying that this would sound like someone telling tall tales if not for it being the affiliate marketing industry.
I'm not trying to brag, all of you senior SV engineers make more per year than I did that year, with far less risk than I took on. I didn't get rich doing this, in fact I went through a good period after this finding out what life is like in America at the very bottom of the economic heap. There was even a time when I got on a plane and moved to Austin with just $900 and was almost homeless. My AirBNB rental turned out to be infested with cockroaches and I couldn't get a refund, my Boulder landlord refused to return my security deposit and a client wasn't paying me.
I pulled myself up by the bootstraps though and learned Python/Django web dev, real horatio alger style, and now I live the life of a well paid consultant in Astoria, NYC.
Affiliate marketing was pretty good for me though, being just out of college with no marketable skills in 2009, when the job market stood in ruins all around me and I was terrified of the prospect of having a real job.
FB ads are a fun game, cloakers are even more fun. It's a lot of list maint, but once you get a nice ad management system running, things get fun.
I can't (won't) go into details, but I'm currently a dev on a project like this.
edit: Passive in the sense that much of the tedium has been removed, not in the sense that you still don't have to do proper marketing.
That's not "passive". That's "marketing".
I think with the tech industry in general, things move along too quickly for these types of 'passive income' to be stable for more than a few years. After a while, if you're not keeping up with the changes, the stream will die out. Unlike, say, passive investments in the stock market (although there's more volatility there, of course).
Waking up and doing nothing for a few weeks or months doesn't hurt. Making sure you're still relevant in Google, Amazon, App store or whatever your channels is about the same as poking around in your e-trade account and managing some stocks.
If you keep the business small and automated, it's not as unlikely as it sounds. Tech needn't be bleeding edge. The economy is huge and there's a place for solving all kinds of tiny problems. You can still love the business and give it whatever you want, but it doesn't have to own all your creative and mental output.
Again, I do appreciate you sharing the stories, and I hate to call out a spelling mistake like that. Just thought it had symbolism in this case.
I actually have been to Colombia, spending only 5 hours onshore and grateful for returning to the cruise ship safely.
I was just 17, and walking down the street a group of young, beautiful women approached me and started flirting and touching my arms etc...
For a second I thought "Hot damn, I'm the man here in Colombia, these girls love me" and then I realized they were prostitutes.
Although I was obsessive at the start, once my gf at the time got out of college and we started traveling I really scaled back my efforts and coasted for a while.
There is nothing like waking up and checking your account and seeing you made $200 in your sleep, an by the end of the day there will be $500 more and all you have to do is plan your next move.
It was all quite ephemeral though. I didn't control the product or the medium and was just a middle man. You could develop a similar strategy with something more defensible, with a moat.
You have to think like an entrepreneur, and see market opportunities and use your coding skills to automate and scale your efforts.
That's my hypothesis anyway, I haven't been able to make that much money semi-passively again so take it all with a grain of salt.
"...An acquaintance in the biz once bribed a Facebook employee whose job it was to approve or deny ads on the platform. His inside man set his account to auto approve any ad he wanted. ..."
Just wait till some NSA employee starts selling gossip to TMZ or HR departments.
My experience with them suggested that you needed to go through and do an entire new thing every three months, because that's about the time it would take any efficient scheme to be overwhelmed by other people discovering the efficiency of that scheme.
I wouldn't want to see hn becoming your goto place to stuff your personal blog via copy&pasting and not adding yourself a single additional thought or idea.
I understand someone can create an actual business, a SaaS or product (not some get rich quick e-book) and make passive income like that, but when I hear of affiliate marketing it just leaves a sour taste in my mouth. It just reminds me of people ripping off others or selling them sham, snake oil e-books for their own gain.
"Learn the tricks to uncovering the top undiscovered niches for making a fortune! Click here to buy the e-book. Special offer for warriors!"
Oh yeah, another day, long ago, "Face" was not costing very much. The Face keyword shows up for 'face' and 'facebook'.
Edit: however he has gotten permission to republish, so I guess it's OK.
Imagine further that the "calf-cow" model of the web could be replaced with something more decentralized, e.g. a "content-centric" network instead of a "source-centric" one... such that there would be little room for "selling" traffic.
What needs to be improved is detection and prosecution of the affiliate scammers.
I respectfully, but strongly, disagree.
While you or I might be able to find what we are looking for, we cannot extrapolate this to mean that "users" (in the general sense) can do the same. Moreover, I'm not satisfied with the status quo of locating stuff on the internet. It's better than it used to be, but I believe we can do better - much better.
But since you mentioned it, it's not unfathomable to think that NSA could help the situation. The search technology they develop, e.g. Binney's work with B+ trees, is funded with tax dollars. Maybe the public should be allowed to use it (not the data, necessarily, but the software). I wonder who would argue search technology is some sort of weapons-grade "munitions" like was claimed about cryptography.
The benefit might be a dramatic reduction in internet crime without the cost of (over) regulating the internet.
Seeing "Passive Income" I don't automatically assume affiliate marketing as the income source.
Will's experience is so akin to many people that got into affiliate marketing around the same time as I did. It ended up getting to the point where people slammed into the industry so fast that the only way to stay alive was to seek every competitive advantage you had.
$20,000 * 12 * 7 = $1,680,000
I wonder what he was buying that made him run out of cash so quick!
Then, it goes for 2 years at the peak, and then 3 years of slow death, probably a whole last year with close to zero income.
so, 12500 + 125,000 + 2420,000 + 1210,000 + 125,000 + 12500 = $760,000 in 7 years =~ $110,000/year. Not a millionaire.
2) CA income tax (note that he was in CA) on $240k income as an unmarried taxpayer is about $20k. I suspect it wasn't much lower back then, if lower at all.
I'm assuming "unmarried" given the "girls" in the description of the lifestyle.
So as a start the after-tax number is closer to $157k * 7 = $1,099,000.
Then you have housing: a "beautiful apartment" in Santa Monica. http://www.trulia.com/for_rent/Santa_Monica,CA/1-2_beds/APAR... suggests that will probabably run you $3k/month at the low end of the scale for a nice place, and as high as $16k/month if you go for luxury. Figure $252k if it was a cheap nice apartment.
The "nice car" mentioned was presumably at least 2, over the course of 7 years, and presumably cost $50k or more each.
Assuming he didn't do much cooking and just ate out all the time, and didn't worry too much about the cost but also didn't go looking for expensive, figure another $20k/year or so ($50 per day is a pretty typical per diem for a highish-cost-of-living area like that). So that's another $140k.
That still leaves about $600k to spend on various other things, of course. But notice that I low-balled both the taxes (e.g he had another $100-120k of FICA over 7 years, given that he was self-employed) and the rent, and I suspect the cars, and that it's pretty easy to spend a lot of money on some of the other things on his list. Oh, and he might have bought health insurance too; that would run him somewhere between $20k and $100k over 7 years, depending on what he bought...
Once you get serious about not watching how you spend money, it's pretty easy to spend a lot of it quickly. :(
$20k was at the peak. $14k was average.
Story 2 seemed unrelated to passive income until I clicked through to the original HN comment and realised the blog post author hadn't quoted the line about Ziad being a passive income hacker.
I find these stories reinforce my (already negative) impressions of the "passive" income/affiliate business; if the purpose of this post/blog is to promote the "hacker's guide to passive income" book-in-progress, it certainly failed.
If you want a space and its profits all to yourself, pick something that has a high barrier to entry, and isn't easily scalable. The more something takes time, effort, money, skill, talent, and endurance the less competitors you'll have.
It seems to me that the illusion of working hard for some months, writing a master piece, be ackonwledged a great writer, then, every 5 years writing a new hit and be wealthy forever while working on a bucolic house very similar to the passive income dream.
This is going to be my plan for the next few years, assuming my first book[1] does well. It drops in 13 days!
1. While I know its hard to replicate the $5000 day, how hard is it to profit $5/day consistently? How much effort would that require?
2. As a student working my way through college, any income that doesn't require an all day desk presence sounds very lucrative! Can anyone point me to where I can get started?
3. Searching the web for affiliate marketing seems to take me to the scary underbelly of the Internet which I'm afraid to scratch. Any definitive resources? Where does one find websites that offer money for clicks? Is there a standard platform or does it work company by company?