
Two Stories of Passive Income Excess - mkrecny
http://x.myles.io/19BPrtG
======
7Figures2Commas
These stories highlight the fundamental problem with the _popularized_
"passive income" approach: the goal is usually to support a lifestyle, not to
provide value to customers. This can easily result in a huge disconnect
between the business owner and the realities of the business. Unfortunately,
if you don't handle your business, it's bound to handle you.

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.

~~~
temporary201308
Yeah, when I was working on affiliate websites, I created a web framework and
then paid people to be researchers for me. I made about $3K over 4 months for
each $250 I invested into people doing research for me.

~~~
arkades
Can you elaborate on this? I don't understand what you mean by saying you paid
people to "be researchers" and made money off it.

~~~
gohrt
Finding affiliate offers from merchants who want to advertise, putting content
(ads/creative/filler) on the marketing site.

------
throwawayfraud
Ex-affiliate fraud manager here.

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.

~~~
kposehn
Thanks for bringing that side of the table to this discussion.

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.

------
OldSchool
One pretty simple lesson: Save some of your money even if it's from passive
income. Nothing lasts forever.

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.

~~~
gohrt
Of course there is something wrong with it. It is a zero-sum activity (or
negative-sum, since it takes work) that moves value around instead of creating
it.

------
iblaine
Ah, I was that guy. Doing affiliate marketing, cashing $20k checks per month
in my 20s, not saving a penny & partying endlessly. I was in the online meds
industry. When someone's site went down you didn't know if it was a network
issue or a raid by the DEA. In one example I had a series of spam sites that
represented 0.5% of all pages index by Google. Google announced they indexed
1B pages & 50M of those were mine. You could throw a dart & hit those crappy
affiliate links. Pretty funny looking back on it. Those were some sleazy fun
times.

~~~
dualogy
Cool, thanks for polluting public airwaves back in the day! Up to anything...
useful lately? ;D

------
lectrick
1) In a capitalist economy, the low-hanging fruit tend to disappear fast. This
is by design. Unfortunately, the design is such that you can't have 1 great
idea and then just rest on your laurels forever. On the bright side, this
compels you to give more to the world, even as it challenges you to maintain
balance.

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.

------
jbigelow76
I don't see how mkrecny can consider pay per click affiliate marketing
"passive income", it can extremely lucrative as Will Holloway has displayed
but it is by no means passive.

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.

~~~
kposehn
It is indeed a grind. How you make it passive is by finding campaigns that
require little maintenance once set up.

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.

------
m1ndeater
One thing I find frustrating is when people associate passive income with non-
value producing shortcuts, scams, and poor ethics. Passive versus active
income and scams versus providing real value are independent characteristics
of a business; it's perfectly reasonable to create a "good" business that
creates real value and earns passive income.

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.

~~~
OldSchool
Precisely. Bonds, dividends, and investment or collected loan interest are all
passive income. Rents and royalties are characterized as such. Done correctly,
these are the traditional low-risk rewards of accumulating capital.

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."

~~~
comrade_ogilvy
"Passive income" was once the province of people who accumulated wealth and
now were reaping the benefits of good long-term strategies. That is honest
enough.

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.

------
clarky07
Moral of the story doesn't have anything to do with passive income. The moral
is to save some freaking money instead of spending every dime you have, and
this is true whether you are making tons of money or just a little. (passively
or not)

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.

~~~
wslh
> why has "Passive Income" become such an evil thing around here?

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!

------
willholloway
It was a bit surreal to see two of my HN comments in a blog post on the front
page of HN.

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.

~~~
throwaway1979
Thank you for the details. It seems I've been living under a rock and this is
new to me.

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?

~~~
willholloway
You are correct! Not all affiliates abuse the system, there were a lot of nice
kids I met trying.

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!

~~~
mjn
There's a few niches where affiliates provide nontrivial value as well. For
example, in travel there are both kinds. A number do take the minimal, often
spammy, approach of trying to insert themselves into a sale that was already
going to happen so they can capture it. One route is to create content-farm
"travel" pages that don't really have much travel information, and exist
solely to get an affiliate cookie onto the machine of someone obviously
researching travel.

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.

~~~
oostevo
Likewise, many -- if not the vast majority of -- airline mile optimization
blogs are basically credit card affiliate machines now. (See pretty much all
of boardingarea.com)

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.

------
helipad
In what way were these passive income stories? I think the moment they went to
a conference or "obsessively" researched anything should be a fairly large
clue.

~~~
mkrecny
Creation phase vs maintenance phase?

~~~
willholloway
This is correct.

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.

~~~
cgman
I have the exact same experience. Coasted on FB viral apps for a while, some
days making 10K+ then the crash. Felt shitty when I had to find a job again
and do the 9-5.

~~~
bemmu
Which apps were these? I had one popular app in 2008 which was in the top 20
apps I recall, but certainly never had any 10K days. Best day was 720k
pageviews and I was getting paid around $1 CPM.

------
SCAQTony
This paragraph sickened me on so many levels:

"...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.

~~~
Uhhrrr
Or to Goldman Sachs.

~~~
SCAQTony
Oh GOD, you're right. Maybe it is all readying happening?

~~~
coopdog
It must be, especially considering the data is cached in many different
countries with varying degrees of oversight.

------
temporary201308
A couple of years ago, I was extremely ill and couldn't work. In my periods of
relative lucidity, I was able to hack together websites and make approximately
$4K/month, which was enough to live on if you ignored the $8K/month in medical
bills.

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.

------
stfu
I hope you have asked for the agreement of both the authors to republish these
stories.

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.

~~~
ZiadHilal
Mine too.

~~~
StavrosK
I upvoted you just to reverse this thread so it makes less sense.

------
alxndresp
Hearing the term "passive income" just reminds me of the Warrior Forum. What
an ugly place. Especially when affiliate marketing is mentioned.

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.

~~~
johnward
There are a bunch of legitimate affiliates out there who aren't spamming "get
rich quick books". There are also infoproducts that do create value for the
people that buy them. It's a shame that "affiliate marketing" has this
negative connotation associated with it because of things like WaFo.

~~~
alxndresp
Oh, I don't doubt there are. The reputation of affiliate marketing has
definitely been sullied by those crooks, though.

------
1337biz
Maybe it is just me, but this threat feels like I just walked into a socket
puppet theater.

------
ambiate
My biggest potential profit was during the American Idol reign of terror. At
the time, the keyword in Adwords was 1/cent a click. You read that right.
Literally, 200,000 impressions/minute with a click-through rate of 1.3%.
Nearly 150,000 clicks in one hour. Given a dance related affiliate product, I
could have turned $6,000 into $250,000 in less than a day. Sigh.

Oh yeah, another day, long ago, "Face" was not costing very much. The Face
keyword shows up for 'face' and 'facebook'.

~~~
bemmu
And why didn't this pan out?

------
tomrod
Sounds like passive income involves a lot of work.

~~~
chmike
I would assimilate it as writing a book. Writing the book is a lot of work,
but when done it becomes "passive income" in the sense that you earn money
while you sleep. Consider it as the opposite of earning money by installing
radios in cars. There is no money earning while you sleep.

~~~
snoonan
This is exactly what it works like in practice. Sometimes you need to write a
2nd edition or another book if you want a raise.

------
radley
Anyone else feel like this post is simply a marketing scheme to sell a "make
money in your sleep as a hacker" book?

~~~
jacques_chester
Yep. It's blogspam, in my opinion.

Edit: however he has gotten permission to republish, so I guess it's OK.

------
shams93
I don't have a goal of passive income, rather trying to turn my personal
obsessions into an actual business. The nice thing about the OCD approach is
you're going to do that hobby anyways. Job gets demanding I just take a break
from the project but still I get 100 new users a month, which isn't tough for
a free product but using the google play store I have no hosting costs for my
app. Plus 100 users a month builds out a base for me to market my much more
complex commercial app to once I've competed it.

------
jingo
Imagine if the navigational system of the web could be improved to the point
where most users could easily find what they were looking for... so much so,
that there was little room for middlemen ("affiliates").

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.

~~~
gohrt
The web _is_ improved to that point. But there is also a seedy underbelly of
selling scams to idiots.

What needs to be improved is detection and prosecution of the affiliate
scammers.

~~~
jingo
"The web is improved to that point."

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.

------
welder
The title should be "Two Stories of Affiliate Marketing Excess".

Seeing "Passive Income" I don't automatically assume affiliate marketing as
the income source.

~~~
mkrecny
The second story is not about affiliate marketing - it's about a SaaS CRM.

~~~
ZiadHilal
Was a downloadable CMS.

------
kposehn
Interesting!

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.

------
andrethegiant
"After a couple years of work, I was bringing in 20k a month... It lasted for
7 years before it hit the bottom... At that point I was burnt out and was
running low on savings."

$20,000 * 12 * 7 = $1,680,000

I wonder what he was buying that made him run out of cash so quick!

~~~
ZiadHilal
$4,300 apartment lease. $1,000 car lease ($700 lease + $300 car insurance).
Huge sum spent on high end restaurants. Taxes Also ended up hiring a few
contract workers to take care of misc work such as customer support.

$20k was at the peak. $14k was average.

~~~
bzbarsky
Ah, so I low-balled the apartment indeed, but was high on the car and probably
somewhat low on the food. ;)

------
jlees
Meta-comment on the article itself:

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.

------
shams93
In other words tackle a really difficult problem that is aligned to your
personal obsessions, such as in case A instead of doing marketing to fund
movies, learn to develop cloud based video editing software to fund making
movies instead because you have to make movies to test your edits anyways and
that niche is extremely tough to code for so the competition while its there
is very low.

------
holdenweb
"I've learned that luck and timing are definitely part of the equation." A
lesson for us all there, if we choose to listen to it.

------
ChrisNorstrom
Suddenly that advice from Paul Graham about "do things that don't scale" make
even more sense.

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.

------
soneca
I wonder, a successfull writer would be considered a "passive income" example
here in HN?

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.

~~~
snoonan
There are certainly accidental hits in every field. There are also pragmatic
writers that write a book to a market instead of magically land a market for a
book. I would still call a few months a year of writing base hits a really
great outcome.

~~~
zrail
> a few months a year of writing base hits

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]: [https://www.petekeen.net/mastering-modern-
payments](https://www.petekeen.net/mastering-modern-payments)

------
SpookSEO
I've met a lot of affiliate marketers as well that can't handle the money.
They're like athletes who are paid millions of dollars but still end-up broke
in the end because they do not know the value of saving and preparing for the
rainy days.

------
deedubaya
You can't expect a source of passive income to last forever without regular
maintenance. Just like you can't plan on staying on the road forever after you
let go of the driver's wheel or stop putting gas in the tank.

------
schappim
It seems the OP himself is generating passive income by creating an ebook on
generating passive income. See:
[https://leanpub.com/passiveincome](https://leanpub.com/passiveincome)

~~~
mkrecny
Actually I run [http://followgen.com](http://followgen.com) ... eBooks aren't
an interesting form of passive income to me as there's no real potential for
recurring revenue. SaaS all the way, please.

------
mkartic
I have a few questions. I am hoping to implement/try out making some passive
income here, as I have enough free time to invest.

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?

------
livestyle
I do love how there is at least room for discussion regarding these important
topic.

