Zero-Party Data: The Holy Grail of Consumer Data
Tension exists in modern advertising. Cambridge Analytica, GDPR, and numerous breaches have prompted a privacy whiplash against brands who were careless with data, and for good reason, but users are also demanding more and more personalized experiences — requiring nuanced data.
Even when advertisers are working with the best they can get, modern data collection is littered with problems. Advertisers are often left with inferred and piecemeal data, resulting in a mismatch that frustrates consumers.
Fortunately, there are solutions being developed, and one such innovation is known as zero-party data (or ZPD). Zero-party data puts the power back in the hands of consumers and enables businesses to collect more accurate data by fostering genuine, opt-in interactions.
Before we go into why zero-party data will define advertising in the 21st century, let’s cover what kind of data we currently use.
The Three Types of Data Commonly Used Today
First-party data is proprietary data collected by companies directly from its customers.
This most commonly includes email addresses, birthdays, addresses, purchase history, etc. This is the data most of us are familiar with. From Facebook Pixel data to sales spreadsheets, first-party data is relied upon for day-to-day activities across modern businesses. It’s collected and owned by the business rather than the consumer.
First-party data is where issues are most prominent (Equifax’s staggering failure comes to mind), and it’s the reason we have regulatory bodies in place such as the PCI Security Council. User data is sensitive, and the transition into a technology-first economy has not been kind to the average consumer’s privacy.
Second-party data is first-party data sold to other companies.
It’s collected the same way as first-party data, and then it’s packaged up and sold. A common example is email lists. If you’ve ever received a random email from a company, then your email was sold as second-party data. Shared internet browser cookie data and product preferences are also popular second-party data, and these data sets can either be consumer-specific or anonymous.
Third-party data are large data collections gathered by companies who are not the original collectors of that data.
Think inferred data, psychographics, income based on zip codes, etc.
For example, in fashion, there are data reports that forecast color trends for upcoming seasons. These reports are compiled by a company that takes the time to buy or license data from a wide variety of sources, compile them, and then present them in a useful way.
More generally, third-party data usually covers demographic information like estimated household income, purchase preferences, etc., and companies use this data to educate their marketing efforts and build statistical models.
What Is Zero-Party Data, and Why Is It So Exciting?
Zero-party data is consumer-owned data given voluntarily by the user to brands in return for a benefit.
This could be anything from:
- Intention to buy
- Preferences on types of ads
- Demographic information such as gender, age, interests, etc.
- How they identify themselves
Zero-party data hands the reigns of control back to the consumer by giving them ownership of their data. Brands and third-party platforms own first-party data, and users own zero-party data. Businesses cannot package and sell zero-party data the way they sell first-party data.
While self-reported customer data like email addresses, birthdays, etc. would be considered first-party data in the past, the expectations consumers have around that data has forced a new distinction between data types.
Zero-party data is proactive and functions as an ongoing conversation between consumers and advertisers. It’s the difference between implied interest and explicit interest, and the best ZPD is constantly evolving.
Users offer valuable information in return for better personalization or via value exchange marketing, which is when users answer an ad or survey in return for something related to their experience. For example, getting a free audiobook chapter in return for filling out a sponsored survey is an example of a value exchange.
In a way, ZPD is simply the next step in the stairs of permission marketing pioneered by thought leaders like Seth Godin. Opt-ins are the pinnacle of permission, and zero-party data is exclusively opt-in. We know humans are habitually materialistic — we won’t stop buying good products if presented with the opportunity, so why shouldn’t we use technology to make the relationship between consumers and brands better?
Today’s Flawed Data Ecosystem Needs Solutions Like Zero-Party Data
Zero-party data wouldn’t be nearly as interesting if there weren’t problems worth fixing today. The issues with first-party data and modern data exchanges are many, and here are a few of them:
Consumers have little control over their data and aren’t compensated whatsoever.
In today’s digital advertising world, consumers have limited control over their data and aren’t compensated for it monetarily. Most data is collected through user consent to join a platform, e.g. Facebook. Once a user decides to join Facebook, they are subject to ads, and that is the price they pay for using the platform. But users don’t have any choice or real control over their data — they aren’t rewarded in any way apart from being interrupted.
Businesses are often working with outdated data and are fighting against a tide of anti-advertising behavior.
Second-party and third-party data can be horrendously out of date and inaccurate, and even the best guesses in targeting are based on databases of old data. If a user expressed purchase intent for a car and then purchased a car, then any auto dealer using that data to push car ads to them is wasting their money. They aren’t likely to purchase two vehicles in a short time frame.
Ad blockers and private browsers are also becoming more and more mainstream, and the more sophisticated and ubiquitous consumer privacy tech becomes, the worse it is for advertisers. The best solution is to foster a voluntary exchange of data, and the best way to do that is to give ownership back to the users.
Businesses have repeatedly proven themselves incapable of protecting consumer data.
With breach after major breach, consumers are only becoming more protective of their data. This is accelerating the trend of consumer control, and consumers should have more choice in whom they trust with their data.
What Else You Need to Know About Zero-Party Data
Zero-party data is better for businesses too.
Zero-party data isn’t all about consumers. ZPD allows businesses to:
- Collect more accurate, relevant, and immediate data from consumers.
- Better match products to consumer interests.
- Build more brand loyalty and ad engagement by seeking permission instead of interrupting.
A consumer offering voluntary information is the most accurate form of data collection and engagement, and that’s already proven through existing first-party data trends.
Zero-party data isn’t perfect, yet.
It’s worth noting that the zero-party data ecosystem is young, and that brings challenges for brands. For one, it’s difficult to scale, although that’s being solved by technologies like blockchain and cryptocurrencies that enable permission-based engagement.
There are also some best practices businesses need to keep in mind when collecting ZPD. For example, if someone collects zero-party data clumsily, a user may feel incentivized to say what they think the brand wants to hear instead of what the consumer actually thinks. This isn’t a problem unique to zero-party data, but it can distort data integrity.
Zero-party data functions on trust, which will act as a natural filter for bad faith actors.
An interesting positive consequence of widespread ZPD adoption is a sort of natural selection throughout digital businesses. Predatory businesses currently rely on second and third-party data sources to target and take advantage of consumers. ZPD, on the contrary, is only rewarding to advertisers if they are trustworthy (or at the very least compelling) enough to benefit from your data. This will empower consumers to reward the businesses most deserving of their data and make bad-faith actors less effective.
Getting Started and Best Practices for Collecting ZPD
Zero-party data will continue to grow in this decade and beyond, eventually becoming the standard solution for transferring data between brands and consumers. If you work for a business, you can start reaping the benefits of ZPD right now.
Here are a few ways your business can start using zero-party data:
1. Integrate more value-exchange ads into your marketing strategy.
Look for publishing partnerships and ways to incorporate value-exchange ads into your marketing strategy. Try partnering with a SaaS company to offer an additional day in their free trial to users who complete your survey or engage with your video. Or perhaps you take part in the robust world of value-based ads in mobile gaming, where users are rewarded with in-game currency or items for interacting with brands.
You could also look at giving away additional content or bonuses on your site for more information (this is already very popular in the inbound marketing world), with the explicit caveat that their data will never be sold. Your options are wide.
2. Set up a cycle of giving and receiving to succeed with ZPD.
Users shouldn’t be placed into static buckets. As consumers buy and grow with a brand through ZPD, there is two-way communication which results in better buying experiences for customers and more revenue for brands. Find ways to incorporate a natural refreshing of user data, whether that’s through accruable incentives or multiple opportunities over time to update their data.
3. Use blockchain to grow zero-party data at scale.
One roadblock for businesses is the ability to achieve scalability when it comes to zero-party data. Setting up a value-exchange marketing campaign or survey seems feasible, but when it comes to big data decisions, zero-party data often falls short. That’s true, but that can be overcome with technology like cryptocurrencies that enable consumers to monetize their data and engagement.
Imagine a mobile app that’s powered by a cryptocurrency that rewards consumers in return for interacting with sponsored content. Users can then exchange or use that currency to spend it on whatever they’d like — perhaps gift cards or physical items. This lets brands collect zero-party data to better serve a target demographic while giving consumers a cash equivalent for engaging with brands they are genuinely interested in. It’s a win-win.
Permission.io is building the ideal zero-party data ecosystem for users, developers, and brands.
4. Use ZPD in tandem with first-party data for the best marketing results.
Until a full-fledged permission-based internet and app ecosystem is available, combining first-party data and zero-party data is the best approach for smart advertising. Serve ads based on the most amount of ZPD data as possible and always respect the user.
The Bottom Line on Zero-Party Data
Zero-party data is voluntary data given by a consumer to a brand, and it’s owned by the user. While the world of ZPD is still young, it has the potential to revolutionize our modern web advertising model and create a more personalized, equitable, and profitable experience for both consumers and businesses alike.
Join us as we revolutionize the internet as we know it.
Whether you’re a brand, a developer, or a user, we’re building a new ZPD-based data ecosystem that will compensate users for their data and fundamentally alter how the internet economy functions.
Originally published at https://permission.io on July 9, 2020.