Mismatches between advertisements and the people receiving them have been the bane of existence for both advertisers and consumers since — well, advertising became commonplace. And even the best-matched advertisements can fall flat due to poor timing, bad execution, ad fatigue, and numerous other reasons.
Fixing interruptive, ineffective ads once and for all while protecting user data privacy is what we’re doing right now, but in the meantime, where does third party data fit into the ad ecosystem? Third party data is both an attempt to solve personalization issues and also a creator of them.
But, before we go too far into the world of third party data and how businesses should approach it, let’s take a second to define the other three major types of data businesses use:
- Zero party data is any user data that is given up voluntarily by a consumer to a business or entity in return for some sort of benefit.
- First party data is user data collected by companies directly from their own customers like email addresses, phone numbers, and purchase behavior data.
- Second party data is first party data sold or given to another business.
What Is Third Party Data?
Third party data is any data collected and used by companies who have no direct connection to the users whatsoever. Examples include past purchases and demographic identifiers which are packaged and sold to businesses through various data marketplaces.
Third party data is collected from a wide variety of sources, refined into sellable segments by publishers or data management companies, and then used by advertisers to combine with their own first party data to reach and learn about new audiences at scale.
Third party data is packaged by these data managers into customer personas or other simple identifiers. If you’ve been to sites that allow you to target “college students” or “real estate agents,” then these sets are likely some form of third party data.
Data Sets Built From Our Digital Footprints
While third party data can include offline data like offline purchase behavior and store visits, third party data became the mammoth it is today after the invention of the internet, and more specifically, the invention of website cookies and mobile advertising IDs.
Every user performing almost any action online is leaving footprints — sort of like little cookie trails. If you think of these cookies as lego pieces, then third party data aggregators collect as many of these blocks from as many viable sources as possible and build them into customer segments, profiles, and opportunities for advertisers to use.
These lego structures (collections of cookies and data) can be sold in private or public marketplaces, where publishers (the people providing ad space) and advertisers can place restrictions and quality control measures to ensure their data isn’t being stolen and is compliant with new privacy laws like GDPR, the CCPA, and the CPRA.
There are many ways businesses use third party data, but two of the most common ways are bolstering their own first party data profiles and exploring new audiences.
Who Uses Third Party Data?
Any business who wants to improve their existing advertising targeting or discover more about their target market for any reason you can imagine. This effort is usually spearheaded by marketing, sales, and data departments.
How Does Third Party Data Work in Practice?
So how does the third party data ecosystem function? At its core, there are few major players:
- Demand-side platforms (DSPs)
- Data management platforms (DMPs)
- Supply-side platforms (SSPs)
Demand-side platforms like Google Ads let advertisers purchase ad space, supply-side platforms allow publishers (like websites) to sell ad space to advertisers, and data management platforms organize, collect, and package the data that DSPs and SSPs use.
Third party data is threaded through all of these platforms, but they are all aimed at doing the same thing: facilitating efficient advertising from companies to potential consumers. This is made possible by integrations and partnerships between these platforms, the providers of that data, and the aggregators of that data. Some platforms prioritize publishers, others prioritize advertisers, etc.
In the first wave of digital advertising, DSPs were where most third party data lived, but SSPs have been picking up more of the share in recent years due to ad inventory being more transparent.
A Real-World Use of Third Party Data
Let’s look at an actual use case for third party data.
Let’s say you (the user) went to Zillow.com and checked out houses and then went to 4-5 different blogs about home ownership and home buying. Based on this information, you may be tagged and placed into a data set called “potential home buyers,” which then a company like Rocket Mortgage could buy.
Rocket Mortgage could take that data and combine it with their internal data sets. They may have had a tag on you showing that you had read one of their blogs, but perhaps they didn’t know that you were also between 35-44 and married.
They can take that info, create a more complete picture of you, and then use that as a creative starting point to make more specific advertisements to you and others like you via social ads, TV placements, or any other ad channels made available by the data set.
The accuracy of that data will depend on the purity of the ad sets Rocket Mortgage purchased, and that’s what makes the entire ecosystem even more complicated. There are layers of private and public platforms from which to purchase third party data that have varying degrees of quality control and audiences available.
The Power of Third Party Data: How Businesses Use It
There’s no end to the ways businesses can use third party data, but generally speaking, third party data allows them:
1. To Deliver Personalized Ads at Scale
The more accurate a segment is, the more personalized advertising can be. This is the key appeal for all data in the marketer’s mind — the chance to say something to the right person at the right time to spur action.
Third party data and its large and dense data sets, in effect, hand what is unique about individuals to marketers en masse. Advertisers then take these insights and use them to educate their campaigns.
2. To Mine for New Audiences
Third party data is also useful for mimicking existing audiences — i.e. create a lookalike. If you know that your top customers are 18-24 and play college baseball, what could you do with the chance to reach 100,000 more of them?
3. To Enrich Existing Customer Profiles and Segments
Third party data is most effective when used in tandem with first party data. The combination of data you can trust with larger sets is one of the best paths to personalization.
4. To Optimize Product Experiences
Third party data can be useful when examining user behavior at scale. If you discover that your target demographic prefers video content to text, then that can change your entire marketing approach to that segment.
Third party data also helps companies understand how their potential and existing customers behave, which they can then use to shape their core offerings and services. For example, data scientists could mine third party data to understand how best to build an app’s UI (user interface).
The Most Popular Third Party Data Sources and Providers
Third party data is used all over the advertising world on different platforms. Some are DSPs, some are SSPs, and your choice in platform will depend on the data they have available, what advertising opportunities are made available, and the type of business you are.
Here are a few major examples of third party marketplaces or platforms that use third party data:
- Social platforms like Facebook, Google, Pinterest, and TikTok
- Public government survey data
The Downsides of Third Party Data
While third party data can sound exciting to advertisers and publishers, there are many issues to be aware of. Here’s what to keep in mind when approaching third party data:
You could be using data that isn’t compliant with GDPR, CCPA, or CPRA.
Data privacy laws like GDPR hold businesses responsible for their entire data apparatus — not just what they have direct control over. In other words, businesses can be held responsible for data violations that occur via any partnerships or integrations.
If you plan on using third party data, you need to ensure that the data you purchase was gathered with express consent for the purpose it is being used and that the company you are working with isn’t violating any existing laws.
Cookies are on the way out, and this will hamstring a lot of third party data collection efforts.
Google, Safari, and Firefox have all vowed or already started to leave cookies in the past[*]. While this won’t destroy third party data — there are still a wide variety of ways you can collect and sell it, it will (at least temporarily) affect data availability and integrity.
Companies like Google do have other solutions in the works that are less invasive than cookies but still allow for effective targeting[*].
Juggling a lot of data sources can be difficult.
Third party data, especially at scale, requires consistent technical labor to utilize efficiently. While the marketplace is making it easier and easier for businesses to take advantage of third party data, there is almost always technical work involved when combining data sets.
Accuracy is often overestimated and ill-defined.
Not all third party data is gathered equally, which is another reason why taking the time to vet your provider is important.
For example, if you were a wedding website company, and you bought a packaged audience of people who are newly engaged or in long-term relationships, poor data management could mean that people in that audience are stale and have already gotten married, making your advertising irrelevant and a waste of money.
Your competitors could be using the same data.
Since third party data is packaged and sold, there is no guarantee that your competitors aren’t using the same data to target customers.
That doesn’t mean you can’t do a better job with messaging and product-market fit, but it is something to keep in mind.
Third Party Data: An Advertising Practice in Decline
While third party data is still a widely used and important resource for businesses, especially at the enterprise level, it is clear that many forces at work will diminish its effectiveness — and for good reason.
User data should be owned by the users themselves, not the companies they interact with online.
If we accept this, then the existing ecosystem that promotes company welfare over user privacy is fundamentally broken, and products that exist due to the exploitation of user data (like many third party data marketplaces and products), need to be sacrificed and adjusted to create a better, safer, and more democratized internet.
In other words, we need to discard the old internet advertising model and give users back ownership of their data while setting up opt-in advertising mechanisms that compensate users for their data. If this sounds impossible, it isn’t.
By using the capabilities blockchain makes available to us, we can reward users for interactions they have with advertisers of their choice. This approach will revolutionize the data-dependent advertising marketplace by prioritizing zero party data, which gives businesses better targeting/ROI and enables consumers to receive compensation for their data and engagement and receive ads that are more relevant
Think that sort of advertising model isn’t possible? Think again.
See how Permission.io is building that world right now.