Despite rhetoric from advertisers about investing in first-party data as privacy laws erode traditional means of targeting — the reality is much more difficult, according to a recent survey on programmatic attitudes.
“Whilst 2021 showed first-party data was the priority for advertisers, agencies, and publishers in 2021, this is now ranked third behind second-party data (the most popular priority averaging 57% with agencies leading at 60%) and third-party at 49%,” reads the report from IAB Europe.
Gaps between promise and performance
Daniel Knapp, chief economist at IAB Europe, noted how the collection and activation of first-party data is a multidisciplinary effort that may help marketing departments achieve their KPIs but can set alarm bells ringing from legal teams, and finance controllers.
“There is a gap between the theoretical value of first-party data and its practical availability,” he wrote in an emailed statement. “If data is available in principle, it is hardly available in readily refined and useable form.
“The financial cost of getting a robust data corpus, complexity of vendors and tools, and not least the required perseverance and grit to overcome cultural obstacles within the organisation [sic] may sometimes dampen marketer enthusiasm.”
Kevin Bauer, data and identity lead at Prohaska Consulting, echoed Knapp’s thoughts, pointing out how first-party data comes with a premium, especially compared to earlier years when third-party data was readily available and widely used.
Simply put, the infrastructure costs involved in the shift from data management platforms to using customer data platforms and data clean rooms all adds up. “This shows that brands are focused on understanding but not necessarily activating (at least off-network) first-party data. I think this shows that first-party data may be being used less as a targeting element, but that is potentially different than growing its use in insights, personalization, and retention. Given that budgets tend to favor acquisition, this shift starts to make sense,” he added.
Scale is a challenge
Meanwhile, in the U.S., the IAB’s State of Data report observed that while marketers there are “collecting a wide range of first-party data and enhancing it with third-party data” doing so at scale is a challenge.
One source, who works inside the media department of a global gaming company explained some of the dynamics at play to Digiday. “I’ve got first-hand experience of just being in rooms with many big brands, who don’t have data at the core of their business and just struggling to figure out how do we scale efforts by their assets,” said the source, who declined to be named as they weren’t cleared to speak with press.
“You need to make sure you have the data privacy regulation, governance, and compliance framework within your organization to handle process and use that data. So before me and you even get excited about taking a data segment pushing into the demand side platform to be bought. There’s so much more work that needs to be done to get to that point.”
Ruben Schreurs, group CPO at Ebiquity, observed how the scale of the challenge facing any given marketing team can depend on what business vertical their brand is operating in. For instance, those in e-commerce, financial services and gaming etcetera are likely to have a rich trove of (consented) customer data they can use as the basis of their comms strategies. This is because companies in these verticals often require prospective customers to volunteer information such as an email address or income levels, as part of their service.
Compare this to the teams at brands whose customer contact is often through an intermediary such as a retailer, or automotive dealership — although Schreurs spoke of first-hand experience of car marques that have made great strides in this regard recently — and the difference in the scale of the challenge facing such marketers becomes apparent.
“You also have a lot of big CPG brands or clothing manufacturers that have signed global contracts for DMPs and CDPs but they’re starting to devest because they’ve got all this first-party data that’s great in terms of utility that it could bring but it’s just not relevant to their business model,” added Schreurs.
“Many are thinking, ‘We can’t invent a new way of doing our commerce [such as direct online sales] for the sake of fueling a database’… one of the few examples of brands that have done so very well is Adidas which has created an incredibly robust owned and operated e-commerce strategy.”
The rise of second-party data
Liz Salway, principal, business consulting at EPAM Systems, explained to Digiday how IAB Europe’s recent findings were indicative of “overblown expectations of the first-party data opportunity.”
Both Salway and Schreurs told Digiday that, as an alternative, marketers are increasingly sharing what consented first-party data they do have (and can “activate”) with select partners, such as niche publishers or relevant e-commerce outfits, to scale. This is often referred to as second-party data.
The adoption of such tactics helps with a multitude of areas of marketing practice, such as prospecting or retargeting, and this is on the rise — IAB Europe’s survey observed how advertiser respondents ranked second-party data as their most favored type of data to use, rising from 40% in 2021 to 63% in 2022.
“All the big U.S. retailers [such as Amazon and Walmart] have built out good capabilities for data,” added Salway, noting how clean rooms are a big part of such investments, “and CPGs want to work with them for that reason.”
Brands’ marketing teams, or more aptly their colleagues in the legal department, are concerned over the compliance of third-party data with IAB Europe’s survey noting how advertisers’ usage of such tools dropped from 77% to 40% between 2021 and 2022.
However, given their increasing predilection for pairing with alternative outside parties for data enhancement, the question must be asked: Do second-party data collaborations also invite legal jeopardy?
“You have to make sure the consent is in place from the company that you’re buying it from and that you also you have the consent to use it,” explained the source who works within a gaming company. “That’s an additional layer, a CFO at a company once said to me, ‘If there’s more paperwork, that’s more things that can go wrong… if you have to sign things off twice, that’s two opportunities for things to go wrong.”
Salway noted how any potential compliance checklist that marketers may want to put in place prior to drafting in their legal department should address areas such as “permissioning” and whether data is actually “intermingled.”
Meanwhile, Ebiquity’s Schreurs advised how marketers can start to differentiate between consented first-party data and more readily available, not to mention risky, third-party data by asking questions regarding audience deprecation processes, and how often it is refreshed.
“Third-party data isn’t owned by, generated, or governed, from a company that’s trying to sell it to you, so they’re an intermediary whereas the second-party data infrastructure means that a marketer goes to, say, a publisher that is directly accountable and can be held liable for appropriate and compliant conduct with regards how they gather and manage data.”
Rumors of third-party data’s death greatly exaggerated?
So, with all the public declarations of preferences for marketing strategies based on first-party data, as well as candid disclosures over its challenges and pragmatic workarounds, third-party usage is not long for this industry, right?
Well, not so, according to data published last week by “flexible data solutions provider” Lotame which asserts that demand for “high quality third-party audience data” increased by 25% between 2020 and 2022.
“As an industry, digital advertising overachieved on a global scale last year with marketers upping their investments while consumers were largely at home,” according to a press release statement attributed to Andy Monfried, CEO of Lotame. “What remains constant, however, is the enormous opportunity for third-party data enrichment of marketer first-party data.”
Regardless of the data, and however it is sourced, defined and applied, what is, without doubt, is that governance is of the utmost concern for brands’ marketing teams and legal departments as authorities in Europe increasingly find their teeth and the likelihood of a more robust U.S. national privacy law looms ever closer.
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