A thought experiment from an economist perspective

I only recently discovered the many types of paid online marketing services. As a curious person I investigated a lot about different ways to earn money with online marketing programmes. As you probably know, there are companies that pay you money for advertisement on your page or blog, others pay you for links that you set, others pay you for writing articles ;-). With all those programs you can earn money, so why does this article ask if online marketing increases your wealth? Well, I am not only a curious person but also an educated economist. I am trained to look at the bigger picture and this is what I want to show you in this article.

Online marketing generates, without doubt, more or less income for those individuals, who use these instruments on their blogs or webpages. So at an individual level online marketing can generate more income. But let us look at the other side of the game. There are companies which offer online marketing instruments like for example google. Those companies are intermediaries between the publishers (those who use the marketing instruments on their webpages or blogs) and the producers of goods or services, which try to market their goods or services. Google and these other intermediaries transfer a part of the money they receive from the producers to the publishers. The other part stays with the intermediaries as profit. For the producers of goods or services the money that they pay to google or other intermediaries is an expense, or to be more exact marketing expense. This expense is taken into account when they set their prices for their products and services.

After the above outline of the mechanism let us look at a simple economy, composed of only three individuals: One producer, one intermediary and one publisher (who is at the same the only consument of the products). The producer pays a certain amount to the intermediary. This is an expense and he adds this expense to the price of his product. The intermediary pays half of the amount to the publisher/consument and keeps the other half. What is the result? The publisher now has more income but at the same time the price of the product has increased more than the income. So the consumer lost wealth and the only one who has gained wealth is the intermediary. So in this example online marketing did not increase the wealth of the publisher/consumer. Of course you could argue that this is clear since there was only one producers of the product an no need for extra marketing. That is true and leads to the only way in which online marketing increases the wealth of consumers in economies with multiple producers. This is by directing demand to the most efficient producers with the best price / value relationship. If the benefit from this sourcing is higher than the share of money which the intermediaries keep, the consumers and economy as a whole increase their wealth with online marketing.

After writing this, what is my conclusion as an economist? As we have seen, online marketing not necessarily increases the wealth of consumers. But as long as not every consumer makes use of these income sources (like in the 3 person economy), those who do make use of online marketing income sources benefit from it and increase their wealth. Those who do not engage in it and are simple consumers loose wealth (because the products are more expensive). My advice: Go out and benefit. That is the only rational choice.