You’ve heard of first- and third-party data, its much more famous siblings. But how much do you know about second-party data?
Second-party data is a much newer entrant to the marketing and advertising landscape than the first- and third-party varieties, and relatively little is known about it as a result.
However, in the last year, many of the barriers to acquiring second-party data have been removed, and appetite is growing among brands for second-party data as a bespoke, transparent alternative to third-party data – particularly in the wake of the EU’s General Data Protection Regulation coming into effect.
I spoke to Chris Hogg, Managing Director of Lotame EMEA, about the pros and cons of using second-party data, why demand for it is increasing, and why second-party data might just be the future of digital publishing revenue.
What is second-party data?
First and foremost, what exactly is second-party data, and how does it differ from the first- and third-party varieties?
First-party data is data collected by an organisation directly from its consumers; the organisation is the sole owner and user of that data. Third party-data, on the other hand, is data owned and collected by one business which is then sold on to many others. As Hogg explains it:
“If you take the example of Tesco: everyone can go in and buy the product off the shelf that is in the store. That’s third-party data.”
Second-party data, on the other hand, is data owned by one organisation that is sold directly to another, for that organisation’s exclusive use – it’s not “off-the-shelf”. “It’s a one-on-one exclusive relationship, where a buyer goes to the seller and brokers a relationship to access that data for a particular use case or campaign,” Hogg explains.
What are the benefits of using second-party data over first- or third-party?
First-party data, gathered by a company itself from its consumers, is generally considered to be the ideal. However, not every company will necessarily have the budget or the know-how to gather good first-party data, and there may be extra insights to be gained from an external source.
Third-party data, on the other hand, is easy for companies to obtain, but it lacks exclusivity; the same data is equally available to all of your competitors, and so there’s no particular edge to be gained by using it. This is where second-party data comes in.
“If we take a very simple use case like a beer brand that wants to target users who have consumed content around the World Cup: the brand could buy that third-party data from the ecosystem. However, their competitor beer brands also have access to that data, so the argument is: does it add a huge competitive advantage?
“Whereas if this beer brand speaks to a content producer who has been writing content leading up to the World Cup, they might be able to negotiate a bespoke audience segment that would be available to them, and possibly not their competitors.”
One of the main downsides to using second-party data is the difficulty of using it at scale. Second-party data sets are by their nature smaller and more targeted than third-party data, meaning that companies might need to obtain data from a few different sources in order to reach scale.
It can also be costlier to obtain, as the lack of competition surrounding second-party data and its bespoke nature tend to drive up the price. However, Hogg is keen to emphasise that the exclusivity and quality of second-party data, as well as its improved performance, make the trade-off worthwhile.
Demand, transparency and GDPR
Hogg notes that in the three years since Lotame launched its syndicate product, industry attitudes towards second-party data have changed as brands and publishers have warmed up to the concept of data-sharing.
“In the early days of second-party data, there was a bit of a reluctance from the supply [publishers] and the demand [brands and agencies] side to work together,” says Hogg. “So instead we saw a lot of publishers trading data amongst themselves for specialist use cases.
“In the last year, however, we’ve started to see those barriers come down, with platforms like our own creating more robust systems to trade second-party data, and taking away some of the concerns around sharing it with brands.
“Many more content producers are now looking at selling their data as standalone from their inventory, and there’s certainly a lot more appetite from brands to get hold of that data – they see it as a valuable data source, for the reasons I mentioned earlier.”
GDPR has also had a significant part to play in the change of attitude towards second-party data, with businesses becoming more aware of the risks and drawbacks associated with using third-party data, and looking for a more transparent alternative.
“In the months prior to GDPR coming into effect, I think some businesses probably stepped back a little from the third-party data world while they assessed the impact of GDPR.
“By sourcing second-party data, businesses can understand exactly how that data has been collected, and know how consent has been obtained – they have a lot more trust in the transparency of the data.
“We’ve certainly seen that appetite grow in the run-up to GDPR’s enforcement, and we expect it to continue to grow now that the regulation is in effect.”
The future of second-party data
Going forward, Hogg foresees more brands and agencies reaching out to content owners and making attractive offers for the use of their data. As a result of that demand, he predicts that publishers will increasingly recognise that second-party data is a valuable revenue source, and start to formulate a second-party data strategy.
How should brands combine the use of second-party data with first- and third-party data? Is there an ideal mix?
“There’s definitely a lot of value in combining a brand’s first-party data with any second-party data that they can acquire – I think that’s a must,” says Hogg. “A brand will come with a lot of its own data, but by working with second-party data providers, they can obtain data in different contexts.
“I also think that third-party will continue to play a very large part in marketing and digital advertising, simply because of scale. It adds scale to the ecosystem – so I think you’ll find brands will use a combination of all three sets of data in different strategies.”
How can brands that want to ‘get started’ with using second-party data go about acquiring it?
“There are two main ways that brands can get hold of second-party data: first of all, they can approach businesses that specialise in second-party data solutions.
“Secondly, they can approach publishers and content creators directly, and look to see whether they’re interested, or whether they already have a strategy around second-party data, and find out how to access it.”
The benefit to using second-party data isn’t all on the brand and agency side, either: Hogg explains that forming a second-party data strategy can be of enormous benefit to publishers and content creators.
“On the publisher side, providing second-party data creates stronger relationships with agencies and advertisers. It also gives them other products to offer, makes them more ‘sticky’, and of course, there’s a revenue opportunity there as well.
“The more a publisher can do for a brand, the more they become their trusted ally and go-to source for certain types of data in the areas that they’re strongest in.”
This is especially important in an era where many publishers are seeing plummeting profits from digital advertising, as they struggle to contend with the growth of ad blockers and ad fraud, and Google and Facebook eat up the vast majority of digital ad spend.
“I think that second-party data partnerships will prove a more viable revenue strategy for publishers in the long term, and I think we’ll see lots more publishers coming together to carry out similar projects – travel brands coming together to offer second-party data at scale, or publishers in certain verticals coming together to scale their second-party data.
“In my view, the ‘pendulum’ of fairness and revenue in our ecosystem has been swung towards the demand side for a while. I think that the likes of second-party data, and even to a point GDPR, are swinging the pendulum back to the supply side – to the publisher side – because they are a great source for authenticated, transparent and consented data sets.
“Premium publisher brands are in a good position to obtain that consent from their loyal user base, and with these types of offerings, I think that publishers can take back some of the advantage that they’ve been lacking for a few years.”
Econsultancy subscribers can download ‘Second-Party Data: The Sharing Economy for Customer Insight‘.