Second-party data: What is it, and why does it matter?

 In Academy, Analytics Landscape, Big Data 101, Competitive Analysis, Consumer Behavior, Featured, Online Advertising, Popular, Tech News, Trends

We look at data all day, every day. We evaluate and slice it in a variety of ways to learn as much as we can about how people use the internet. There are different classifications of data, segmented by both quantity and quality. At Jumpshot, we primarily work with online behavioral data, and as our panel of consumers grows, so does the pool of accessible data.

Through our work with big data, we’ve been able to identify valuable data sets, such as second-party data. While second-party data isn’t new, it hasn’t been as easily accessible until now, as it typically requires companies to exchange one of their most valuable resources, their data. Second-party data is data you receive through trusted partners. It’s not sourced through a direct relationship with the customer, like first-party data, nor is it aggregated from various sources like third-party data.

Now that we know what second-party data is, why does it matter? Why is it valuable? And what is it being used for?

Second party-data may just be getting popular, but certainly doesn’t play second fiddle

Why do firms collect data?

Why is customer data collected in the first place? Why do companies want to know what demographic you belong to, what your online habits are, or what brands you prefer? It all comes down to creating a long lasting, successful relationship between the advertiser or marketer and the customer, so they can target the right person, with the right message through the right channel and further business. Anonymized behavioral data is one of the key tools advertisers use to help form this relationship. In the end, advertisers don’t want to serve you an irrelevant ad any more than you want to see it.  

What data is available?

There are different classifications of data marketers and advertisers use to reach their customers in a variety of relevant ways. The two most well known classifications of data are first-party and third-party. There’s a growing shift in the industry to find a new set of data, as first party-data is coveted by all but shared by a limited few, while third-party data is readily available from a variety of vendors, but lacks in quality and insights.

If we’ve been using first and third-party data for all this time, why hasn’t it been discussed as a strategic piece of marketing campaigns until now? Let’s start with what each of these data sets actually are, which will highlight the difficulties marketers and advertisers have faced when accessing second-party data.

What is first-party data?

First-party data results from the one-to-one relationship between a company and its customers. As data management platform provider Lotame says quite simply, “first party data is YOUR data,” ‘you’ being the company providing a product or service to your direct customers. This comes from your CRM data and from when consumers browse on your website, subscribe to your service, fill out an account profile, purchase a product, or interact with your social media channels. Any time your customers interact with you, first-party data is created and collected.

This is the most valuable type of data for marketers and advertisers, but very few companies would willingly sell first-party data to an outside firm and risk the trust customers have placed in them with their information. In a study from January 2015, Forrester Research found that 87 percent of U.S. digital marketers believe first-party data is still the most important source of customer insights.

First-party data is a mirror reflection of your customers’ interests, which your company entirely owns. It is pure and untampered with. It is also largely inaccessible, creating a void for second and third-party data to fill.

What is third-party data?

If you’re an advertiser or marketer, first-party data is tough to get your hands on even if it’s your own, which is why third-party data became the next viable option. Third-party data comes from platforms outside of your company’s own website, be it competing or complementary services, which is then aggregated and sold.

But as Forrester notes, “…using ill-gotten or badly aggregated data can be riskier than sharing data carefully and securely with select trusted business partners.” Third-party data is easily accessible and allows you to look at a large swatch of consumers, but has many drawbacks.

The data is available to all who wish to purchase it, which means your competitors are working with the same data. It also lacks the transparency and richness that other types of data offer, like first or second-party data. Third party-data is a staple of any data-driven marketer’s toolkit, but it comes in last place for a reason.

Now the question: What is second-party data?

Most simply, second-party data is “info from trusted partners,” says eMarketer. You may not have the direct relationship with the partner’s customers, as in the case of first-party data, but you’re still able to access it through a mutually beneficial relationship with another organization. The data is valuable because competitors most likely won’t have access to it and it helps form a larger, more complete view of the customer.

Forrester explains second-party data sharing as “…when a retailer, brand, publisher, or marketer gains transparent access to the website audience data of another retailer, brand, publisher, or marketer for marketing purposes – to their mutual benefit.” For example, if Apple wanted to advertise to Nike’s consumers who expressed interest in buying the iPhone 7, Nike could theoretically share its customer data with Apple, in return for Apple’s data. Nike’s data will wholly remain its own data, but Apple will be able to access customer insights that no other competitor is able to see.

Apple would get the benefit of using Nike’s first-party data, but wouldn’t have rights to the data. It would always remain Nike’s.

Why is second-party data important?

Second-party data is important because the phrase “data-driven marketing” is a fluid one, constantly growing and encompassing a new set of techniques, data and applications. The Direct Marketing Association conducted a study in early 2015 which found “43% of US marketing officials said they expected their data-driven marketing (DDM) spending to be higher in Q2 2015 than Q1 2015, and 60.2% of respondents expected DDM revenues to increase during the same period.”

While first-party data will always reign supreme, we’ll need alternative sources, such as second party-data, to supplement marketing and advertising efforts in the future. Second-party data provides additional intent-based insights, which are highly valuable to understand and act upon for marketers. Want to know when someone is increasing their on-site search activity on car aggregators, indicating they are hunting for a car? How about when someone has added a certain brand product to their cart on a marketplace, like Amazon for example, but hasn’t purchased yet? Knowing either of these actions can lead to highly sophisticated, targeted and most likely successful marketing campaigns.

Second-party data hasn’t been widely explored until now because it’s traditionally been difficult to acquire. We’re seeing an increase in its popularity because marketers and advertisers have started to create unique data sharing partnerships. With increased access to second-party data, advertisers and marketers can now supplement campaigns previously limited by third-party data insights.

The key takeaway?

Customer insights are only as valuable as the data they’re culled from. If you’re working off of poor quality data sets, the insights you glean from them won’t be as useful. Marketers can’t solely depend on first and third-party data to provide a whole picture of their customers anymore, meaning they’ll start to rely more on second-party data to provide more color.

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