We live in a Post-Big Data-Era. There’s data flowing from your site, your app, and your email service provider. There’s known customer data and anonymous visitor data. There’s single opt-ins, explicit opt-ins, double opt-ins, and opt-outs. There’s data you can borrow, data you can share, data you can buy, and data you can leverage, but not actually see or own. There are also data scandals that rock the world, where people data is stolen, breached, or misused.
So how do brands make sense of it all? The bottom line is simple: the most important data is your own. Unless you are making deep investments in your first party customer data, you are failing to take advantage of the gold mine you’re sitting on, and opening yourself up to huge potential risk and underperformance as a marketer. In this post, we explain why.
What are first, second, and third party data?
First, let’s look at the overarching data categories: first, second, and third party data. These categories revolve around who owns the data and with whom it’s being shared.
First party data
First party data is your brand’s data. It has been directly collected by your company, describes your customers, users, and visitors, and is obtained during any number of interactions with your brand. You own it, and it has the fewest restrictions for use. It’s also the most relevant data you can get your hands on, because it tells you about your customers as individuals and how they interact with your brand, not the world at large.
Second party data
Second party data belongs to another brand, but is shared with your brand in an exchange that both brands directly negotiate. For example, a luxury car company might share data with a luxury watchmaker and vice versa, because they both sell to affluent customers and would mutually benefit from audience expansion. For this to be legal, customers must have opted-in to this type of data sharing somewhere in the fine print.
Third party data
Third party data is the biggest and most diverse category. It generally refers to data aggregated and owned by an entity like a government, data company, or charity. These entities profit regularly from selling access to the data they collect and own. This is also the most restricted category based on privacy laws, commercial interests, and characteristics of the dataset.
The dark sides of 3rd party
It’s just so tempting. Pay money and get lists and information about your potential and existing customers. What could be the downside? Well, there are several.
Low quality data
The data that’s for sale by third parties is seldom as high quality as the data you can collect yourself. I recently looked up my own anonymous profile based on the browser I’m using to write this post. These are some of the attributes assigned to me:
Marital Status: Single
Marital Status: Married
Female Head of Household
Male Head of Household
Net Worth: $25,000-$49,999
Net Worth: $50,000-$74,999
Net Worth: $75,000-$99,999
Net Worth: $100,000-$149,999
Net Worth: $150,000-$250,000
Net Worth: $500,000-$749,999
Net Worth: $750,000-$999,999
According to this 3rd party data provider, I’m single AND married; female AND male, and my net worth is ALL values between $25K and a million dollars. This means that if, for example, you’re using 3rd party data to target singles, you’ll be paying to reach me and a whole lot of other married people. Useful, huh?
If the data is for sale, your competitors are also buying and using it. There really isn’t much more to say other than: your competitive edge lies in your own first party data, not third party.
Growing concerns, controversies, and restrictions
Every I had a nickel for every time I heard GDPR last quarter, I’d be able to send my kids to Harvard. While that last sentence might be an exaggeration, the growing concern over data and privacy is not. The EU is ahead of the curve with privacy restrictions, but with controversies like the Cambridge Analytica – Facebook fiasco which affected 87 millions users, the US might soon see stricter laws around surrounding people data as well. This is bad news for 3rd party data, which circumvents direct opt-in.
Powerful tech companies are fighting against these practices too. Apple, for example, released new tracking restrictions in Safari 11.0 that chop the lifespan of 3rd party cookies down to a mere 24 hours. That’s 1/20th the lifespan of your typical housefly.
“‘Apple believes that people have a right to privacy — Safari was the first browser to block third-party cookies by default and Intelligent Tracking Prevention is a more advanced method for protecting user privacy,’ Apple said in a statement given to The Verge. ‘Ad tracking technology has become so pervasive that it is possible for ad tracking companies to recreate the majority of a person’s web browsing history.’
Apple is talking here about a distinction between first-party and third-party cookies, with ITP targeting the latter. ‘This information is collected without permission and is used for ad re-targeting, which is how ads follow people around the Internet,’ the company adds. ‘The new Intelligent Tracking Prevention feature detects and eliminates cookies and other data used for this cross-site tracking, which means it helps keep a person’s browsing private. The feature does not block ads or interfere with legitimate tracking on the sites that people actually click on and visit. Cookies for sites that you interact with function as designed, and ads placed by web publishers will appear normally.’”
Note that Apple isn’t targeting 1st party cookies or data, just 3rd party. This is because 1st party data is the result of a consensual relationship between a brand and its customers. Apple would never mess with that.
The data-rich get data-richer
When you think about your Facebook advertising program, do you think “I’m leveraging 3rd party data”? No? Well, maybe you should. Every time you advertise on Facebook, you are leveraging the social network’s vast black box of user profiles. Those aren’t your users, they’re Facebook’s. And data about interactions with your ads doesn’t come back to you so you can better zero in on the most effective campaigns. This information belongs to and remains with Facebook.
Brands like Facebook are data-rich, and the more you use 3rd party data for marketing and advertising, the more data-rich they become. I don’t mean to imply that you shouldn’t advertise on Facebook or Google. You absolutely should. But you should do so in a way that intelligently leverages your own 1st party data and balances your data investments.
Take the online toothbrush brand, Quip, recently profiled by news network Fast Company. The brand advertises exclusively on Facebook and has invested little in building its own 1st party customer database. The title of the article is “This Startup Built Its Brand On Facebook. Now It Can Never Leave.” Don’t make the same mistake.
First party data: your winning bet
What’s better? Hemorrhaging money to social networks and other 3rd party data providers till the end of time, or building a durable first party data foundation that pays back dividends, ensures a healthy long-term future, and secures your competitive edge? The answer is obvious. There’s just one hitch.
In the past brands have struggled to make the most of their own first party data because it’s messy, disorganized, and spread across a bunch of disconnected systems that were never meant to integrate. Fortunately, there’s a whole new category of software designed to help brands harness their data: Customer Data Platforms (CDPs). In our next post we will dive into how you can use a CDP to invest in your own first party data, while using 3rd party data in a healthy and balanced way.