Simple answer? They don't for the vast majority of people who join, they're just a variation on the age old pyramid scheme.
There are three parties involved - the advertisers (like LoveFilm, Gala Bingo, Coral Betting etc), the "referal" or marketing websites (like Kudos, Freebie Jeebies etc) and the customers (like you or I).
It's all about referals. The way they supposedly work is that you sign up to an advertisers offer using a link to one of the referal websites and the poster of the link gets a referal point. If they then get the right number of points, they get a free gift. Sounds simple doesn't it?
What a lot of the posters don't make clear is that you then have to join the website and get so many referal points to get your free whatever. Those people you recruit with the carrot of a free PS3 / Ipod etc then have to recruit people below them to get enough points for their gift, and so on, and so on.
In other words.... it's a pyramid scheme (although the marketing people like to call it a "matrix scheme" as it sounds nicer.)
Companies like LoveFilm pay the marketing / referals website for the referal, the amount sometimes as little as £1, but often as much as £20, depending on the company and the type of business. The referal website uses this cash to buy you your gift. LoveFilm bank on some of these people carrying on after the free offer finishes and that's when they make the cash back. If you think about it, it's a clever way of viral advertising for a pretty small outlay.
So how come the referals website can offer me a free PS3 for just getting 13 people to do an offer - they've only been paid £260 by the advertisers? A PS3 costs £300 and even if the website is getting them cheaper, they still need to run the site and make a profit. It doesn't add up!
What the referals website banks on is lots of people never filling their totals and never getting a gift. It also helps when people spam their links all over the places like eBay and Amazon to get lots of referals because the vast majority of people never complete their totals so the websites end up with lots of income and they don't have to buy the gifts.
The reason they don't complete? Because it's a pyramid scheme and you rapidly run out of people to fill the referal totals.
By the time it's only 6 layers down, you need something like 62 million people to sign up (approx the population of the UK) so those people in the top five layers get there gifts.
Of course I'm only assuming that there is one website doing this and only for one product. In reality, there are loads of websites and they all offer lots of different stuff - iPods, PS3's, phones etc.
This means it's even harder to get enough people to fill the totals because they are spread thinly between all the sites running the promos and the numbers jump much higher, much quicker.
If you say that each site offers 10 different gifts and each gift needs 10 referals it works out that the very first person to register needs to get 100 referals to get all the freebies.
Each step then multiplies this by 100 so for those 100 people who all signed up to the first step to get their freebies, they need to recruit another 10,000 people. For them to get all their gifts they need 1,000,000 and for the fourth level down you need 100 million people.
You then need to factor in the fact there are lots of sites doing this - if we assume there are only 10, this fourth level suddenly needs 1000 million people to complete the offers for everyone to get their gifts and we are rapidly running out of people in the world, never mind those with access to the internet!
Lets not also forget that, because of the way these schemes work, those at the top don't stop collecting, they carry on to try and get more free gifts and of course we also need to take into account that most people take this kind of thing with a VERY large pinch of salt because it looks too go to be true. One other thing is that all of the marketing sites prohibit multiple accounts from the same person / address and most of the advertisers also don't allow the same person to use one of their offers more than once. In other words, you can't just create lots of email address, pretend to be lots of different people, and refer yourself 13 times.....
One of the popular sites for this in the UK admits to having over 50,000 members, all trying to collect referals, So, if they are only after 10 referals each, that's half a million people they need, with internet access, over 18 and with a belief that this works. Hmmm
But, you say, there are loads of people boasting about how they got a free this and that, how they've made thousands out of it, how it's so easy. It must work, surely? Why would all these large, known household name companies want to be associated with something that was illegal or a scam?
Well, yes it works if you are at the top or got in early, but it's obvious by the amount of these spam posts that people are already struggling to fill their totals and get their gifts. One of the easy ways to make people think it works and join in is to maybe exagerate the truth about the schemes. There's a website dedicated to this "boasting" - Exceem, in the forum of which people brag about how much free stuff they've got. So, in the five years or so it's been running, how much do you think all the free stuff their members have got is worth? Must be mllions right? Wrong - just under £330,000 which, when divided between their 25,000 or so members works out at £13 each of freebies. Not exactly the free iPhone or console you were promised, is it?
As for the companies, as far as they are concerned, it's a good, cheap way of marketing and not illegal. They get loads of people pushing their products, sometimes in questionable ways, yet they are distanced from it.
If you ever challenge the marketing websites about this, they simply claim that they can only advise their customer what not to do, they can't control them. Think of it a bit like fly posting - everyone knows that strictly speaking, it's illegal, yet all of us see hundreds of posters stuck where they shouldn't be, advertising all kinds of legit businesses like nightclubs and large, well know musical artistes like Oasis.
So how come the BBC, The Times and CNN all apparently "approve" this scheme and say it works?
Because they featured it years ago when it first started in America. Check the videos on youtube that everyone links to and notice the age of the iPods featured in it - first generation ones. back then it was new and it was, in theory anyway, a good idea. Several years later, the places at the top of the pyramid are all full and they need to recruit the lower layers, hence all the spam and links all over the net....
Like I said, pyramid scheme.
Think logically. The companies advertising are big, well known companies. They know this brings in customers for them. The marketing companies behind the schemes are making money out of this, and there is absoultely no way they could if everyone got even one free gift - the finances simply do not add up.