Lesson #3 from a data scientist: The difference between first-party and third-party data
May 11, 2021
In the first two lessons of this series, I talked about how all data is not created equally and how using the correct data is what brings results. Now, we’ll shift into different types of data, particularly first-party and third-party data.
Let’s begin with a breakdown of these two different types of data.
The difference between third-party and first-party data
First-party data is data that is generated by your business. It’s proprietary and pertinent to your business because it contains information about your products, operations, and customers. Website traffic, mobile app users, customer service interactions and in-store transactional data are examples of first-party data. First party data ultimately refers to your business’ direct relationship with the customer or prospect.
Third-party data, on the other hand, is when there is another party involved in the relationship. For example, third-parties like Axciom or Lotame sell data to businesses to provide insight into consumer behaviors. This aggregation of preference or demographic data augments marketers’ capabilities when there’s little to no relationship with the customer or prospect.
The privacy problem
A lot of companies got into the habit of using third-party data to augment their first-party data. Businesses got lazy about collecting their own first-party data because they could buy customer data from a third-party reseller.
That all changed recently when new privacy laws were enacted. The EU General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA) now restrict and in some cases prohibit businesses from sharing or selling third-party data. This means that if you don’t have a first-party relationship with an individual (i.e., if they’re not your customer, subscriber, or have shared information with your business), you may be prohibited by law from using the individual’s personal data as well as transferring it. In addition to legality, the results are sketchy at best.
Most third-party data providers didn’t cultivate first-party relationships with customers. They operated in the background, scraping cookies for information and packaging that information as a service.
In addition to being increasingly difficult to procure, marketers are seeing decreasing value in using third-party data. With fewer third-party providers, companies have refocused on generating their own first-party data for marketing and personalization efforts.
Prioritize learning about your customers
The decline in third-party data isn’t necessarily a bad thing. At best, third-party data provides marginal value to what you can learn about your own customers. What’s really important is first-party data, because that’s where you’ll discover the predictive behaviors and content affinities of your customers.
The best way to use data in order to learn more about your customers is through a customer data platform (CDP). Unlike a data warehouse, a CDP identifies and analyzes behavioral signals and uses that information to create content recommendations and present personalized offers.
Closing thoughts
Third-party data is designed to tell you what a customer might do in a certain situation, while first-party data is designed to tell you what a customer will do in every situation. And data like that is worth its weight in gold.
Check out the other ‘Lessons from a data scientist’ articles here:
Lesson 1: Not All Data Are Created Equal
Lesson 2: The Right Data Gets Results
Lesson 4: You Don’t Have to Give Up the Driver’s Seat
Lesson 5: Insight without Action is Just Information
