Lesson #3 from a data scientist: The difference between first-party and third-party data

In the first two lessons of this series, I talked about how all data are not created equal and how using the RIGHT data is what will bring results. (You can also watch the quick videos to hear from me directly.) This comes into sharp relief when we consider first-party data and third-party data. Before we dive in, though, it’s probably helpful to explain exactly what the distinction is between the two.

The difference between third-party and first-party data

First-party data is data that is generated by your business. It’s proprietary and very pertinent to your business because it contains information about your products, your operations, and your customers. Your website traffic is an example of first-party data. Mobile app users, customer service interactions and in-store transactional data would be other examples. It’s called first-party data because you’re the first party in the relationship; it’s all about your business’ direct relationship with the customer or prospect.

Third-party data, as you’ve probably guessed, is when there is another party involved in the relationship. For example, third-parties, like Axciom or Lotame, sell data to businesses in order to provide more insight into consumer behaviors. The idea is that this aggregation of preference or demographic data can help augment marketers’ capabilities when there’s little to no relationship with the customer or prospect.

Privacy spoils the third-party party

A lot of companies got into the habit of using third-party data to augment their own first-party data. In fact, you could say that businesses got lazy about collecting their own first-party data because they could always buy customer data from a third-party reseller. That all changed about recently, however, 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. That sounds a little confusing, so let me explain what that means. If you don’t have a first-party relationship with an individual (i.e., if they’re not your customer, subscriber, or have otherwise opted in to share information with your business), you may be prohibited by law from using the individual’s personal data as well as transferring it.

This is important because 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. With fewer third-party providers, companies have been scrambling to generate their own first-party data for marketing and personalization efforts.

In addition to currently being legally questionable, the results are usually sketchy at best. One third-party data provider believes in one browser that I’m a 30-34-year-old Italian graduate student, with teenagers and elderly parents in the apartment I’m renting. The same product tells me from a different browser that I’m a 55-64-year-old male, earning over $500,000 annually and act as the female head of household in the house that I own. It’s no wonder that, in addition to being increasingly difficult to procure, marketers are seeing decreasing value in using third-party data.

Knowing your customers is your responsibility

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. You can’t buy that kind of data. You need to grow it at home.

The best way to cultivate valuable data 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. And therein lies the big difference between third-party and first-party data. 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.

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