The difference between first-party data and third-party data

 

First-party data pops up everywhere, from government reports to university lectures to cover stories in The Economist.

But the difference between first-party data and its cousin, third-party data, isn’t always clear.

Let’s take a look at what distinguishes first-party data from third-party data, and why the future of online marketing will rely on first-party data.

First, what is first-party data?

First-party data is data that a company collects about its own audience.

Let’s say that your company is the first party we’re talking about. First-party data is collected when

  • Visitors come to your website
  • Users open your app
  • Customers make purchases
  • Newsletter readers open (or don’t open) your emails

The common thread is that all of the data is being collected from within your own ecosystem via one-to-one interactions with a visitor.

And third-party data?

Third-party data is data that is collected – not surprisingly – by third parties.

In other words, it is collected by an external source that does not have any direct relationship with the person whose data is being collected.

Visitor A lands on Website A… and their data is collected by Third Party Z.

Uh, how about an example?

Let’s say a visitor arrives at a furniture website and looks for a new sofa. That website will use analytics tools to collect first-party data about that visitor.

This first-party data might include the length of the stay, how many times that particular visitor has stopped by, how big their basket is and so on. It could also include information like the user’s email address and purchase history.

It’s all one-to-one data collected from direct contact with visitors and users.

The furniture company’s first-party data is used by the furniture company to optimize interactions – via recommendations, reminders, discounts, etc. – with the furniture company’s audience. That’s first-party data.

Now let’s say the furniture store wants to supplement its first-party data and uses a third-party data provider called Lotsa Data.

As a third-party data provider, Lotsa Data collects data from other websites – websites that also use Lotsa Data – and then makes it available to the furniture store. That additional data could be demographic information, interests, interactions, etc.

This way, the furniture store might know that a certain visitor is a male, or that they have a high budget, based on information collected about that visitor on different websites.

Similarly, the other websites using Lotsa Data could leverage information collected about shoppers at the furniture website.

For example, if a shopper spends €8,000 at the furniture store, they could be identified by Lotsa Data as a “big spender” when they arrive at a different store. Or if the shopper buys a baby crib, then they could fall into a “new parents” segment and be offered baby clothes the next time they visit a clothing shop.

And that means?

Here is the fundamental difference between first-party data and third-party data: First-party data comes from a company’s own channels, and third-party data comes from someplace else – other websites, other apps, other platforms.

As a result, a visitor’s behavior at a shoe store can be used when they visit a furniture store. Or their behavior at a furniture store can be used when they visit a car website.

That means, of course, that data from the furniture store can also be used to optimize other furniture stores.

So Lotsa Data will know if someone browses a bunch of expensive brown tables at a furniture website. A different furniture store that is also plugged into Lotsa Data’s data pool can then leverage that data and display deals for expensive brown tables the next time the shopper visits an online media outlet.

What’s so great about first-party data?

There is clearly some neat stuff you can do with third-party data. So it’s fair to ask why we said that first-party data is the future of advertising and marketing.

 Here are a few reasons:

* First-party data comes directly from your visitors and tells you exactly how they interact with your content and products, not someone else’s content and products. It’s one-to-one.

* First-party data is yours. The same third-party data can be purchased by multiple companies. Your first-party data can’t be.

* First-party data won’t bother users. When someone visits that furniture shop, they are actively engaging in a relationship with that company. It’s a first-party relationship. But when a different furniture store uses third-party data to target that same user, it might be seen as annoying or even kind of creepy.

* And finally, first-party data isn’t going to face legal or regulatory challenges. European courts have consistently upheld the idea that first-party data collection is valid. That won’t change.

What is changing, however, is how regulators view third-party data, specifically with the General Data Privacy Regulation, which will take effect in 2018.

The GDPR is complicated – it’s more than 54,000 words long – but one of the core changes will be that third-party data collections tool will need to get consent from users. This will be a big deal.

In an article on AdAge, Johnny Ryan, Head of Ecosystem at Ireland-based digital advertising company PageFair, said:

“Companies who create value only by using data and tracking people across the internet will have to find a way to build a relationship with the customer. They will have their businesses seriously disrupted….the [GDPR] is ripping the digital ecosystem apart.”

Added Stephan Loerke, CEO of the World Federation of Advertisers: “It will mostly affect companies who rely on third party data, and agency networks that serve ads on the basis of data but don't have a direct relationship with the public.”

 In other words, Lotsa Data will probably have lotsa problems. And so will the companies that rely on that data.

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