Key Differences between First, Second and Third-Party Data in Programmatic Advertising

With programmatic ads, brands can now leverage rich data sets that enable them to reach target audiences at the most relevant time and place. While savvy advertisers know that audience data is at the heart of programmatic, many are often confused by the differences between the three main data types available for building custom audience segments: First, Second and Third-Party Data.

First-Party Data

First party data is collected directly from users, customers or audiences, and is owned, managed and controlled internally by brands. It is the most valuable form of data as it is reliable, accurate, detailed and driven by a consensual relationship of interaction and engagement between the user and the advertiser.

Sources of First-Party Data:

  • Mobile apps
  • Websites
  • Customer and user feedback
  • Customer Relationship Management (CRM) systems
  • Transactional activities such as product or in-app purchases
  • Contact center communications
  • Point-of-sale communications
  • Web and mobile analytics tools
  • Subscriptions and newsletter sign ups

While first-party data is mostly used by advertisers who are running re-targeting campaigns, the main drawback of first-party data is that it provides limited reach – as the data collected is exclusive only to users who interact directly with the brand. As such, this data set is not large enough to help advertisers scale campaigns aimed at reaching new audiences.

Second-Party Data

Seen as a way to mitigate first-party data limitations on reaching new audiences, second-party data involves buying from, or sharing internal first-party data, with another trusted partner advertiser who share common interests and objectives.

For example, a website selling shoes may share their first-party data with another website selling shoe polishers; or a website who sells clothes may share their first-party data with another website who sells accessories. In this instance, user cookie data may be shared between parties, whereby ads can then be served to the same user across both websites.

While second-party data essentially helps with expanding the reach and effectiveness of partner advertisers’ campaigns, promotions and user acquisition, it is still limited to the reach of your first-party data partners combined. There are also concerns on data privacy as partners do not have control over how first-party data is collected, processed and qualified.

Third-Party Data

Third-party data is collected by entities that often do not have a direct relationship with end users. This data mix typically consists of information collected externally from multiple sources, which include user site preferences, browsing behavioral patterns, interests, hobbies, demographics; and may also contain first-party data sold to advertisers.

Data from these multiple sources are then bought by data aggregators or data management platforms (DMP), who serve as a central data warehouse of third-party data. From the sheer volume and wealth of data collected, DMPs will proceed to anonymize the data and re-purpose them into many different groups of classifications or audience segments, preparing them for purchase by an advertiser looking to expand their ad targeting campaigns. Check out this DMP guide by BlueKai.

While one key benefit of integrating third-party data into programmatic campaigns is that it provides extensive reach (which addresses the main limitation of first and second-party data), the relevance of third-party data can sometimes be described as “hit and miss” – as information collected are often based on past user behavior and may not be completely representative of current behavior. Additionally, an advertiser will have no idea on the quality of data, where and how the data was collected, and if the data source is up to date.

Not all data is collected equal

When looking to partner with a data provider for your programmatic campaigns, be sure to check the quality of the data before agreeing to buying large data sets. Equipped with your understanding of first, second and third-party data, question the provider on how the data was collected and seek to determine the accuracy and reliability of the data source.

Always ask to test the data by running a small campaign and see if it delivers better metrics on click-through, engagement and purchase rates. Be aware that while buying data from one large provider that has been quality checked may be more expensive, long-term performance results will be more reliable than buying data from many smaller partners who may not be able to match the quality.

Finding the right audience segments is often a case of trial and error, as every data provider define and classify their segments differently. Be prepared to test data-sets from more than one provider and rigorously tweak your campaigns in order to find the right data partner that help maximize your return on ad spend.

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