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May 15, 2018

6 min read

Opinions expressed by Entrepreneur contributors are their own.

In the digital era, data is as good as currency. With more and more companies getting their edge from the ability to collect unique customer data and insights, data’s gold standard has never been higher.

Related: Facebook to End Targeted Ads Built with 3rd-Party Data Mining

There are also a number of ways companies can collect it. Some rely on proprietary research or information collected from their own systems. Others leverage data from third-party providers, like Acxiom, that collect consumer data through various passive and active methods, then sell it to marketers.

With limited time and resources, however, these marketers need to seriously consider the value of the data they source, and which methods of collecting that data are the most reliable. Recently, due to a number of public blunders, third-party data has been coming under fire. Facebook’s recent Cambridge Analytica scandal, as reported here by the New York Times, added fuel to that fire, causing consumers to get serious about holding companies accountable for what happens with their personal data.

Regulations

Outside of the kinds of blunders that attract media attention, regulatory agencies are also cracking down on third-party data collection. As reported by CNBC, the European Union will soon be rolling out its General Data Protection Regulation (GDPR), which is a series of restrictions and guidelines for how companies can collect data from their consumers online.

Related: Here’s How to Check If Facebook 3rd-Party Apps Have Access to Your Personal Information

One of the chief changes GDPR will bring is that companies must “directly” inform consumers of what data they are collecting, how they intend to use it and whom they intend to share it with. The consumer must then “consent” to the collection, use and sharing of that data. This could significantly reduce participation in current data-collection processes.

As Elizabeth Denham, the U.K.’s Information Commissioner, shared in a recent speech on ICO.org, “The new legislation creates an onus on companies to understand the risks that they create for others and to mitigate those risks. It’s about moving away from seeing the law as a box-ticking exercise, and instead to work on a framework that can be used to build a culture of privacy that pervades an entire organization.”

For marketers, changes like the GDPR could spell the doom of third-party data usefulness, which is precisely why it’s time that companies start relying on internal or proprietary data instead.

Issues with third-party data

While regulations pose a real threat to third-party data usage, third-party data has a host of issues that make it less valuable to marketers than first-party data. In most cases, third-party data is a waste of money, is unreliable or at least unverifiable and may create consumer trust issues.

For marketers looking to leverage data to maximize revenue growth, first-party data is a better option, because those marketers can verify its source and methodology, and test alternative approaches.

With third-party data, in contrast, the information is coming from the digital equivalent of a black box, and there’s no way to vet its quality.

As Vijay Chittoor, CEO and co-founder of Blueshift, put it to me while discussing the topic, “The biggest issues with third-party data are around data reliability and timeliness, which often lead to failures in personalization efforts.

“In the cases where marketers have a chance to validate third-party data against trusted first-party sources,” Chittoor continued, “they [marketers] often find that the third-party sources will incorrectly classify attributes such as gender or household income for a large number of people.” 

Using such unreliable data in your personalization can cause embarrassing failures. As an example, Chittoor pointed to this public tweet about The Gap. Marketers don’t have any use for data that isn’t reliable, especially if it’s going to cause this sort of PR mishap.

Another reason third-party data may be subpar is that it’s often outdated by the time it gets to the marketing team. This is problematic because consumer needs shift quickly in digital settings. Chittoor elaborated on this issue with a slogan, declaring that: “In today’s connected world, where the purchase window is shrinking,’If you’re not in time, you’re out of mind!’” In other words, with more and more emphasis these days on a real-time response, marketers can’t afford to be working with old information.

In a recent article, Parker Morse, CEO of H Code Media, added his own take on why third-party data is a poor use of a marketing budget. “Brands need data to conduct advertising campaigns,” Morse wrote, “but if the data is poor quality, then brands are wasting money on something that won’t do them much good.”

Marketers know that if something can’t be tested or verified, it’s risky to be wasting your limited budget on.

Why you should switch to first-party data — now.

Even in cases where they don’t rely on third-party data, companies may not be leveraging their first-party data to its maximum potential. A survey by Blueshift and Techvalidate found that 54 percent of marketers polled were using only half of their customer data. This is a huge problem because more and more marketers are turning to AI to scale their efforts; and that fact makes data a vital component of any marketing strategy.

Norm Johnston, chief digital officer for Mindshare, also explained in this Digiday article why AI is gaining traction with marketers, writing that, “The rapid evolution of AI in media will enable our people to focus on innovation and intelligence rather than repetition and reports.” 

A Forrester study reflected this rapid evolution, finding that 78 percent of surveyed marketers expected an increase in their spending on AI solutions over the next 12 months.

Without access to data, then, marketers will find it impossible to deploy advanced artificial intelligence. While 80 percent of marketers report using AI (as depicted in the Blueshift report), just 16 percent are using it for advanced segmentation capabilities.

One of the biggest ways to increase the flow of first-party data is by creating a collaborative relationship between marketing and IT. Marketers who increase their access to first-party data in this way will be able to leverage more current and valuable consumer insights.

Related: 10 Questions to Ask When Collecting Customer Data

For companies looking to to take their marketing efforts to the next level through the use of data and sophisticated AI technologies, it’s time to let go of questionable third-party data practices and instead rely on first-party data. Making this shift now will prevent any future upheavals in your company’s marketing activities that may occur as regulations controlling third-party data grow tighter and consumer tolerance for its use diminishes.

After all, nobody wants another Cambridge Analytica.