Second Party Data: Definition, Benefits, & Use Cases
In the world of modern marketing, second party data can feel obscure. You may have heard how great it is for audience expansion or new marketing campaigns, but it often feels like there’s a barrier to entry that’s much higher than collecting pixel data on your website (i.e. first-party data) or using databases that allow you to drill down by approximate demographic and psychographic (oftentimes third-party) data.
We’re going to demystify second party data for you and talk through actionable ways you can use and find it for your own company. It’s not for everyone, but if you’re working for a company that is actively scaling or is realizing its existing audiences are going stale, then second party data may be the ticket to your next success.
Before we go into the details on second party data and how to best use it, let’s briefly talk through the three other data types businesses use:
- Zero party data is any consumer-owned data that is given up voluntarily by a consumer to a company in return for some benefit.
- First party data is proprietary data collected by companies directly from their customers.
- Third party data are large data collections gathered by companies who are not the original collectors of that data.
What Is Second Party Data?
Second party data is data collected directly from users by one company and then sold or given to another business. It is often sold in private deals, exchanges, and used by social media and advertising platforms to improve targeting.
Put another way, second party data is first-party data that has been packaged and sold to another business.
Common examples of second party data include purchase behavior data, age and other demographic identifiers gathered from surveys, website cookie information, emails, device data, and user behavior data like login frequency and engagement.
Second party data is most often collected and sold in what are known as second party data marketplaces — if you hear words like data stream, data marketplaces, and private data exchange, those are businesses likely dealing with second party data.
Examples of Second Party Data Exchanges
A few of the more well-established exchanges include:
Second party data has exploded in popularity after GDPR ‘s introduction and subsequent hamstringing of third-party data, and without more government intervention there’s no sign of it slowing down.
Modern second party data is reaching a point of sophistication where marketing leaders can effectively clone their existing profitable audiences at scale, and that’s a powerful driver for growth and continued innovation — plus selling data is still the primary revenue channel for most free apps.
Who Uses Second Party Data?
Anyone who has an interest in expanding their customer data information or in selling user information uses second party data. This could be anyone from data engineers, to marketing executives and consultants, to data scientists, to product management teams scoping out a potential market for a new idea.
Is Facebook Considered 2nd Party Data?
Facebook’s pixel, analytics, and demographic tools encompass all four types of data, from zero all the way to third. For example, if you’re using a pixel on your site, then that would be considered first-party data because your unique business is collecting information about your unique customers.
If you created an agreement outside of Facebook to share audiences with another business, and then they shared a custom audience with you that they directly collected, then that would be considered second party data.
The Power of Second Party Data: How Businesses Use It
One of the hardest parts of using second party data is narrowing down your choices — the extent of its capabilities is astounding. Businesses use it for everything from improving their own audience datasets to foster omnichannel marketing to mining interesting datasets for new products.
We’ll cover the broad umbrellas under which many businesses use second party data, but know that this is the shallow end of a very deep pool.
1. To Refine Existing Customer Profiles
The more channels and ways you can reach your customers and prospects, the more fragmented that marketing ecosystem tends to become. Just imagine the number of channels a modern eCommerce business that sells nationally could use:
- Facebook, Instagram, TikTok, Pinterest, LinkedIn, and others
- Google Ads
- Email Lists
- Shopify
- Specific Trade Publications
- OTT Marketing
- Traditional Print Ads
- Traditional TV Advertising
- Retargeting Sites like Adroll
Now imagine trying to coordinate a marketing effort between those channels. It gets complicated quickly — especially if you can’t tell if the audience you’re emailing is the same audience that’s getting your display ads on Google, or if the print ads are also reaching the geo-targeted email lists you have. Multiply that by country, state, and city, and you can see how the variables just spiral out of control.
Think of second party data as the flashlight that can illuminate and mend those blind spots — allowing your business to close the data gap and make sure you’re reaching the right platforms at the right time without wasting money by targeting the same customer twice or not efficiently moving them from one segmentation bucket into another.
Second party data marketplaces allow you to upload your own first-party data and combine it with other data sources to “round out” your customer profiles. For example, it could point out that 15,000 of your customers actually use Android devices and aren’t getting your Apple App install ads. Or maybe you realize that 5,000 of your users use a particular fitness app that you aren’t advertising on.
In short, if there’s data you wish you had on your customers, second party data may be the route to get it.
2. To Mine for New Audiences
Another use of second party data is finding new audiences to market to. Let’s say you ran marketing for a national music brand that sold pianos, and you wanted to find more people who would like your product. Wouldn’t it be useful to create an audience of everyone who has ever downloaded an app related to pianos and then use that to create a new remarketing audience? You could create that opportunity by purchasing that data directly from the app owner.
3. To Boost Analytics and Insights
Second party data can be useful for understanding how your existing and potential customers behave. For example, by being able to see what other customer lists similar to yours are paying for a type of product on an annual basis, you can better refine your customer lifetime value and get an idea of how much of the market share you and your competitors are taking.
4. To Generate and Test New Product Ideas
Let’s say you owned a clothing store and were thinking about building an app designed to connect personal stylists with your users for custom outfits. It would be useful to understand what types of people are using similar apps. By purchasing that app data, you could create your buyer personas and build your marketing plan from hard data instead of just guessing.
5. To Improve Segmentation Targeting
Tying in other data sources to your existing stream can dramatically increase your ability to segment your audience. Instead of only typical demographic and channel breakdowns, you could add in additional identifiers like shopping habits (e.g., night shoppers), app users, purchase behaviors, and more.
When employed correctly, this specificity will boost conversion rates, reduce ad waste, and help you scale in a profitable fashion.
6. To Sell Your FPD to Other Companies
Again, any first-party data that is sold or given becomes second party data, and some companies make all of their money this way. Social media companies do this most famously, but anytime you’ve heard of email lists being sold or purchase behavior information being given to complementary businesses, that’s an example of second party data.
Some second party data platforms let you upload your data to their stream, organize your bid prices, and manage your customer relationships all within a convenient dashboard.
7. To Create Lookalike Audiences
A simple way to take advantage of second party data is to work with a data provider to share Lookalike Audiences to your Facebook Advertising Profile. There are rules, but if you’re building a new product or looking for new audiences to reach out to — buying second party data from a relevant source and using it to build Lookalike Audiences can be a great way to start your campaign.
This is just the surface of what second party data can do. It is an incredible resource with the right infrastructure behind you, but getting access to this data at scale can be cumbersome and expensive.
Next, we’ll talk about the most common ways businesses access and sell second party data.
How Businesses Access and Sell Second Party Data
How can you access second party data? Well, that answer is a bit convoluted. Outside of private deals, second party data is notoriously expensive and often requires significant internal tech investments to foster communication at scale. That being said, there are a variety of players entering the market aiming to solve just that by approaching it like an eCommerce business.
Here are the main ways you can collect second party data:
1. Private Deals With Other Companies
The simplest way is to work directly with the company you want to buy from. Contact their CTO or marketing head and see if you can get a call on the books. You’ll know exactly who you’re dealing with, be able to hash out details of the agreement, and are likely to get more hands-on support with this route.
2. 2nd-Party Data eCommerce Platforms
There’s a wave of platforms that are aiming at creating “data streams” that facilitate communication, buying, and selling of second party data. By creating simple ways to sell and buy, having pre-written use contracts, and data integrations, this is likely the future of second party data.
Examples include: Narrative I/O and Lotame.
3. Google, Facebook, or SaaS Companies
A lot of second party data drives key functionality in SaaS, social media, and tech businesses. For example, Google Affinity audiences are an example of second party data. This is data on its users, collected by Google, and then shared with advertisers.
The same goes for Facebook saved audiences. Targeting users by interest, group membership, etc. is data collected by Facebook and made available to you.
Second Party Data: No Longer the Best for Marketers or Consumers
Second party data is incredibly useful. There is no denying that, and it’s still a fantastic tool for segmentation and creating better interest matching between advertisers and consumers.
That being said, second party data is far from ideal. It’s often expensive and difficult for advertisers to collect and implement, and the users themselves don’t have control or transparency into who gets to use that data and why. Their data is constantly being handed back and forth between companies, and this data is often fragmented and difficult to integrate anyway — making the experience worse for advertisers and consumers alike.
So what’s the alternative? Give users back ownership of their data and set up opt-in advertising mechanisms. By using blockchain technology to reward users for interactions they have with advertisers — of their choice — we can revolutionize the advertising marketplace by prioritizing zero-party data.
This is the beating heart of zero-party data — by creating the tools and ecosystem in which opt-in ad advertising can happen at scale, businesses get better ways to target their consumers, and consumers get ads that are more relevant to their interests. This value-exchange will decrease costs, increase satisfaction, and boost conversion rates while giving users back the data that is currently being harvested and abused by internet barons.
Think that sort of infrastructure isn’t possible? Think again.
See how Permission.io is building that world right now.
Originally published at https://permission.io on January 22, 2021.
