Data (first, second, and third-party)

What is first-party data?

First-party data is data that companies can collect from internal sources. This data comes from direct contact between customers and the company, from channels such as social media, company websites and apps, or surveys conducted by a company. It includes information about customer demographics, website interactions, purchase and search history, and email engagement. First-party data is different from other forms of data because it can often be collected for free and without the need for additional consent from customers. It is generally the most dependable and relevant form of data because of its direct source.

How is first-party data collected?

Companies collect first-party data by tracking interactions between customers and company channels. This includes implementing analytics on company websites and email marketing, tracking interactions on social platforms, and collecting sales data. Often these systems are already collecting some data from users, and the data simply needs to be aggregated and analyzed.

How is first-party data used?

First-party data informs companies about their audience and customer base, and allows them to see current trends in sales and other areas. First-party data is used in three main ways.

1. First-party data allows companies to understand their customers and tailor experiences to the customer’s needs. Data regarding purchases and other behavior shows how customers will react to different messages, so companies can optimize their marketing technique for each customer.
2. First-party data helps companies predict future trends. By taking a closer look at patterns of previous data and the resulting outcomes, companies can anticipate future outcomes, and they can understand how customer’s preferences might change over time and adapt accordingly. Companies can see what types of marketing have been the most effective and which areas may need revision.
3. First-party data helps companies understand when and how customers choose to make purchases. Understanding what steps a user has gone through before making a purchase can help in understanding the conversion process. It shows when and where additional marketing may be effective in moving customers towards purchase. 

What is second-party data?

Second-party data is information acquired from other companies and organizations who collected the data directly. In other words, it was the external company’s first-party data. Because of this, second-party data is very similar to first-party data in that it includes the same types of information.

How is second-party data collected?

Second-party data is obtained from an outside source. Occasionally, this data is shared between companies because doing so would be mutually beneficial. Partner companies, or companies with similar goals, may exchange data freely. However, second-party data is more often purchased from a data marketplace, a company or group that makes money through the collection and sale of data. This method provides a simple and fast way to get information and allows purchasers to select and pay for only necessary data. Either method provides a reasonable assurance of accuracy and trustworthiness.

How is second-party data used?

Second-party data is used in much the same way as first-party data. It provides companies with a larger dataset to compare and combine with first-party data in order to further refine their marketing tactics and gain a deeper understanding of customer needs. Additionally, it provides information on a new audience of potential customers.

What is third-party data?

Third-party data is information received from an external source that did not collect the data directly. Most often, third-party data is purchased from data aggregators, companies that collect data from a variety of outside sources and organize it for reselling. This data organization means buyers can choose to purchase data from specific categories and segments. Because data aggregators use many sources, third-party datasets are often large and have a broad scope. However, the data is available to anyone who may want to purchase it, including competitors.

How is third-party data collected?

Third-party data always comes from an outside source. These outside sources include data management platforms (DMPs) and third-party data marketplaces. These sources receive data from a large number of organizations and organize the data for sale. Buyers of third-party data should understand and consider how and when data was collected, and what audience it was collected from, to ensure the data received will be relevant.

How is third-party data used?

The size and scope of third-party data make it a valuable addition to a company’s research. However, because of its indirect and general sources, it is not as useful on its own. Third-party data can be honed and refined through the lens of first-party data. Third-party data that includes the same characteristics and demographics collected internally will help expand the scale of first-party data. It may also contain additional insights about a particular audience, or shed light on new audiences relevant to a company or brand.

How is data collection changing?

The issue of data privacy and data security is becoming increasingly important to the modern consumer. Many of the tools used to collect information about consumer behavior are being re-evaluated as more and more consumers wish to protect their data and protect themselves from being tracked and targeted by commercial advertising. Many regulations and laws have been enacted, or are in progress, that will dictate how and when data is collected and used. It is also likely that internet cookies will be removed from the browser experience in the near future, forcing companies to find new ways of collecting important data.

Conclusion

Data is an important part of how companies learn and adapt their strategies to become more effective. The most important type of data a company can collect is first-party data that comes directly from customers. Second and third-party data, from outside sources, can help to expand understanding of customer behavior and reach a wider audience. While data privacy is growing ever more important, it is essential that companies formulate a strategy for collecting and using data that is accurate and appropriately collected.