First-Party Data VS Third-Party Data; Finding a Lasting Solution to Data Privacy
Every year, data privacy becomes a prominent topic in government, tech spaces, and among consumers. In 2018, the General Data Protection Requirements (GDPR) became effective for companies operating in Europe. In January 2020, the California Consumer Privacy Act became effective. In 2021, Apple released iOS 15, reducing the access companies have to consumer data by allowing iOS users to opt out of data collection.
You can see that the world is realizing that giving companies unchecked access to consumer data leaves consumers at their mercy. Thanks to scapegoats like Facebook that made it obvious that companies can and will collect and exploit consumer data for monetary gains. Not to mention possible prying by the government, terrorist groups, and other unwanted parties consumers would otherwise not give access to their personal data.
As a business owner or marketer, continuous restriction of data collection is a nightmare that can disrupt your personalization strategy. And there’s a need to learn how to manage should there be a complete cut-off from third-party consumer data. So, let’s talk about first-party data versus third-party data.
What is First-Party Data
First-party data is the consumer data a company collects directly from its customer base with the aim of using it for advertisement. As a business, if you track and observe the behavior of the people who interact with your website, social media pages, apps, etc., the generated data is first-party data. Since the company is responsible for setting up the datasets and data collection, the data is stored in the company’s domain. Consumer data such as name, location, job role, interests, gender, age, and location are first-party data.
Insights from first-party data can help you;
• Create retargeting campaigns
• Engage and nurture leads
• Learn more about your customers in order to create a better experience for them
• Optimize your website and app
• Create better content
How to Collect First-Party Data
Data collection is similar to first-party data and third-party data, but the difference is that you are responsible for setting up the data collection methods. You can create signup forms, install pixels on some pages on your website, and use analytical tools to collect historical data. Of course, you can’t do these manually. Instead, you can use tools such as CRM software, email management software, and website analytics software such as Google Analytics for your first-party data collection.
You can collect first-party data from
• Your website
• Email campaigns
• Customer relationship management (CRM) software
• Social media
Factors to Consider When Collecting First-Party Data
It is time-consuming: unlike third-party data, which you can start working with immediately after you buy it, you are responsible for first-party data collection from beginning to end. You will find that designing even a form can be time-consuming, and sometimes you have to run A/B tests to determine which designs are more effective. Additionally, after collecting first-party data, you must check it for errors and analyze it before use.
Accuracy is a concern: third-party data providers use high-quality tools and technologies and have data experts that constantly collect consumer data, which reduces errors. But as a small or medium-sized business, first-party data collection is one of the issues you address. Hence, you may not have enough budget for premium technologies or a host of data experts to collect and make meaning of consumer data. As a result, there are bound to be errors.
Consistency is also a concern: because you are working with consumers from different backgrounds, many will participate in your data collection process in unique ways. For example, two consumers from New York may enter their locations differently; one says NYC, and the other says New York City. When collecting first-party data, prepare for inconsistency and find a way to reconcile them to avoid generating different results for issues that are actually the same.
It requires technical knowledge: first-party data can be complex, as you’ve seen in the factors above. Other elements that make data collection complex is that you also have to do segmentation, documentation, data funneling, etc. Hiring a data scientist will save you unnecessary hassle.
What is Third-Party Data
Third-party data is gathered by another company or organization for the purpose of selling to or sharing with multiple companies that can use their insights for creating ad campaigns. Third-party data is treated like a commodity, some selling for $0.45 per consumer data. In fact, some companies’ entire business model is the collection and selling of third-party data. Third-party data collection tends to infringe on consumer privacy by sharing their data with multiple organizations without the consumers’ consent. For example, some third-party data, such as the Bureau of Labor Statistics and the US Census is public. Data brokers and other third-party data providers tend to collect data, such as online browsing history, purchase history, demographics, and firmographics.
Factors to Consider When Choosing a Third-Party Data Provider
Besides concerns such as the cost of buying third-party data and the fact that other companies have the same datasets, these are the factors to consider when choosing third-party data providers.
Breadth: third-party data usually lack unconventional depth. You can’t rely on third-party data for nuances that can give you competitive advantages.
Accuracy: research a bunch of third-party data providers to learn about their data collection methods. You will find that data accuracy varies among data providers.
Data decay: you don’t have to keep buying data from a third-party provider if you’re not guaranteed recent datasets. Data decay is the rate for measuring the life span of data considering changes and circumstances which can render the data obsolete. Ensure to choose a data provider that can supply you with new datasets.
Isn’t There Second-Party Data?
Second-party data is similar to first-party and third-party data, but it’s sold to or shared with select businesses. Second-party data was originally first-party data, but the company that collected it decided to share it with a few trusted partners who find the datasets beneficial.
Can’t You Avoid Collecting Any Data At All?
Oh yes, you can. Many small businesses rely on zero-party data, whereby instead of actively trying to collect customer data, they wait for customers to volunteer their data by themselves. For example, customers can fill out a form stating their email address and other relevant details to be added to a company’s newsletter list. However, this usually works when customers believe the business can give them value, which makes them eager to volunteer their data in exchange. Not to mention that only a handful of customers will volunteer their data that easily, and other companies are collecting zero-party data too.
But if you, as a business, have no intention to collect any type of data from your customers and target audience, your marketing strategy is in for a bumpy ride.