Marketers love to get data about their customers, which helps them gauge patterns, predict behavior, build profiles, and serve up great content at the right time through the right channels. But there is a big difference in how first-party data and third-party data are perceived by marketers. First-party data, which companies get on their own through research, tests, and even qualitative interviews, is more trusted. Third-party data, which companies get out-of-house from other companies, is viewed with suspicion.
What causes this difference? Is first-party data dependence good for business? Let’s explore.
In the form of cookies, third-party data was once the go-to method for getting customer information. This was because third-party cookies were “the only way" companies that served ads could “track a unique browser across multiple websites,” says Avinash Kaushik, Google’s digital marketing evangelist. First-party cookies can read customer behavior on a company’s site, but they can’t track their interests off the site. Given this proven value proposition, what has caused marketers to ice out third-party data?
One possibility is modern marketing is naturally evolving. While marketers once didn’t feel comfortable investing in or hiring in-house talent to collect, scrub, and analyze data, now they do. It’s hard to pin down when the Age of Big Data started, but the New York Times first described it to readers in 2012, and Data.gov, the home of the U.S. government’s open data, first launched in 2009. We’re about half a decade into the big data craze (at least). So it’s fair to think that, at this point, the black box is opening and marketers don’t feel as compelled to outsource their data needs.
Another factor is the rise in concern over data security. Marketers worry that leaving data collection in the hands of third parties makes it more likely the data would be misreported or mishandled. These fears are founded. Facebook recently admitted that it had “overestimated key video metrics for two years” (WSJ). In 2015, there were 781 data breaches (ITRC), which is a 38% increase from 2014 (PwC). In October, Amazon, Twitter, and Netflix were taken down by cyber attacks in Europe and the US, in what popular technology site Gizmodo called “the beginning of a bleak future.”
In an ecosystem that feels this unsafe, it’s no wonder marketers want to keep everything first-party.
But third-party data is still important! While it’s justifiable for companies to start relying on first-party data more, or for first-party data to replace third-party data as king of the hill; completely ignoring third-party data limits how deep, personal, and profitable you can make your customer experiences.
Two factors cause this. The first is the interconnectivity of The Four Vs that have long defined big data: variety, volume, validity, and veracity. Third-party tools, like cookies, enable you to learn a wide range of things about customers as they surf all over the Internet—not just on your site. When you remove third-party data from your analysis, you are, by definition, reducing data volume and variety. And when you have less data and data that’s more homogenous, the data’s veracity and validity may suffer.
It helps to think of data analysis as a court trial. In both cases, you’re trying to reach a reasonable conclusion based on disparate evidence, but your hope is that the evidence can support itself, with different parts of it corroborating other parts. While one eyewitness may paint a certain picture, for example, multiple eyewitnesses can fill in gaps, cast doubt on elements you once thought factual, and confirm elements you once thought flimsy. Same is true for data. The more sources and different kinds you have, the more certain you can be that the data is solid enough to base conclusions on.
The second reason ignoring third-party data can be bad for business is that third-party data helps you understand customers beyond the narrow scope of your own industry or brand. If you tend to work in a certain sector, your first-party data—the data you get yourself—is related to that sector, of course. This is natural. But natural can also mean obvious, and solely depending on your own data can prevent you from fully understand your customers as individuals. It can limit your insight into their interests which overlap with your services in unexpected (but potentially profitable) ways.
If you’re a bank, for example, you can easily learn a customer’s credit score, debts, and tax bracket. This is natural and obvious information for you to find. But do you know if this customer wants to start a family soon? Do you know if she’s about to travel abroad? These may seem like irrelevant questions, but a bank customer who is thinking about starting a family could be targeted with ads for college savings accounts, low mortgage rates, and even wills/estate planning. A bank customer who is going to travel abroad soon can be targeted with ads for foreign currency exchange.
Another reason to think twice before ditching third-party data is this: Research shows internal agents—not third parties—are responsible for most data breaches in several major sectors. PwC recently found that 72% of security incidents at finance companies involved current or former employees, as did 62% of breaches at industrial product companies. In health care, companies “are experiencing double the average amount of internal security breaches as compared to all industries,” reports IS Decisions (in a report aptly titled “Insider Threat Manifesto”).
In other words, if data security were a horror movie… the call is often coming from inside the house. While it’s fair to wonder about cyber attacks, reality is different from perception. Third-party data collection carries risk, but so does first-party data collection.
My advice? (Third-)party like it’s 1999! Don’t stop working with other companies to get good data. Third-party data is a key piece of the big data puzzle, and without it, you may undermine the validity of your data analysis and only understand a small part of your customers’ lives. Big data is here to stay, and we can’t ignore its different types—each of which has a unique value proposition and helps us improve customer experience.
If you're a marketer, you've been taking on increasing demands; whether to use third-party data is just one of many. To better handle these demands, take a moment to download this report, The Data-Driven CMO, from Argyle Executive Forum. You'll receive insights on how leading CMOs weigh in on other challenges and leverage the abundance of available data to engage with customers.