In an era marked by rapid technological advancements and shifting consumer behaviors, mastering the first-party data economy is vital for any brand's success.
In this article, I’ll guide you through the essentials of managing first-party data, why it's important, and how to effectively leverage it for your brand's growth and integrity.
What is first-party data in marketing?
The first-party data economy essentially refers to the ads ecosystem, where commerce is facilitated using data. I see it as an economy because it involves transactions, much like you would find in a marketplace. The volume of transactions within this ecosystem, especially when first-party data is used on different ad exchanges, is comparable to, or even exceeds, the GDP of some countries
Spending against your own first-party data includes activities like purchasing your own branded keywords on Google search. This is a scenario where someone is already searching for your brand, and theoretically, you shouldn't have to bid against yourself.
However, it also encompasses practices like re-email retargeting via platforms like Meta, where brands upload their email lists of existing customers for loyalty campaigns.
Platforms like Meta actively use first-party data to create lookalike audiences. When a brand uploads an email list to Meta's ad system, it can assign a lifetime value to each customer. Meta's AI then identifies the highest-value customers and finds commonalities to extend the brand's reach.
A critical question arises regarding data sharing and how it benefits competitors. For instance, after visiting a brand's website, you might see an ad for a competitor instead. This happens despite privacy policies and terms of service that don't explicitly allow for such use of data.
It indicates that the data collected through website visits and pixels is being used to categorize customers or potential customers, possibly giving competitors an edge.
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The ethical dilemma of first-party data in advertising
The ethics of data usage in advertising, especially in the context of PPC (pay-per-click) campaigns, raises significant concerns. A notable example is how some companies, like Monday.com, strategically purchase ad space for keywords related to their rivals.
This practice, while clever, poses an ethical dilemma. It revolves around whether companies should have the right to occupy the top ad slots for their own branded keywords, knowing it directly influences user search intent. This issue becomes even more pronounced on mobile platforms, where many users initially couldn't recognize these as paid ads.
The misuse of ad slots, particularly in sensitive areas like politics and social issues, has already created a toxic environment in the advertising space. This toxicity is amplified by the ease of manipulating algorithms to drive specific outcomes, impacting major events and narratives in recent years.
These manipulations are achieved through strategic messaging and product placements engineered by ad tech, leveraging sophisticated algorithms and AI.
For smaller companies, this landscape poses unique challenges. It's not just about the rising costs of ad space; it's about understanding and navigating a system where money flows from venture capitalists through banks like Silicon Valley Bank, into major advertising platforms like Meta, Google, and TikTok.
This flow is driven by the need for user acquisition and the pressure to meet performance metrics. Smaller companies, fueled by VC investments, find themselves compelled to engage in this complex system to achieve their user acquisition goals, often having to rely on these advertising networks that may not always align with their best interests. This dynamic underscores the critical need for innovative strategies and ethical considerations in utilizing first-party data for advertising.
Navigating the challenges of first-party data in a third-party-dominated space
As a brand aiming to drive sales or website traffic, it's essential to engage with platforms like Google, Meta, and TikTok because that's where consumer attention is concentrated. However, brands should critically evaluate their dependence on these platforms, particularly regarding data collection methods like pixels and cookies.
The solution lies in creating a brand's own tech stack, starting with a database as the central source of truth. This database should consolidate various data points like inbound website traffic, email interactions, and purchase history. By unifying these elements within their ecosystem, brands can reduce reliance on third-party algorithms and tailor their strategies more effectively.
We are currently witnessing a shift to an AI-based economy, highlighted by the digital transformations companies underwent during the COVID-19 pandemic. The key to thriving in this new economy is having access to clean, structured, and trustworthy data to fuel AI algorithms.
The primary advantage of using first-party data is trust. This data is verifiable and directly reflects consumer interest and intent. Enriching this data with deterministic third-party information, such as shopping behaviors or event attendance, can provide a more comprehensive understanding of consumers. This approach enables brands to identify the most relevant audiences based on real-world actions.
A powerful strategy involves enriching CRM data with additional information like job titles or business data, as seen in LinkedIn profiles. By creating new clusters or groupings from first-party data and enhancing it with reliable third-party information, brands can better fuel AI systems. This approach ensures a more targeted and effective use of data, as opposed to blindly trusting third-party data sources.
The reality of trusting third-party data and taking control of your own data
It's crucial to recognize that third-party platforms like Google, LinkedIn, or Meta may have vested interests in making their channels appear more effective than they are.
Relying solely on data and analytics from these sources raises the question of trustworthiness. Can we be certain that the data they provide is accurate, or are their metrics skewed to benefit their own interests?
One eye-opening example involves Google, where court documents in the US revealed an entire department dedicated to developing algorithms designed to maximize Google's profits while offering the lowest value to customers, yet keeping them engaged on the platform. This department, based in Austin, highlights the underlying reality of ad fraud, fake traffic, and bots, which these platforms could easily address but often don't due to financial motivations.
While it might seem ideal for marketers to unite and move away from Google, the reality is that Google and similar platforms are likely here to stay. The practical solution is for brands to take ownership of their customer data and build their in-house ecosystems.
This involves hiring data scientists, database architects, and data engineers to tailor their strategies and optimize outcomes. These professionals can empower media teams and creators to identify the best placements, creative content, and messaging.
By relying on in-house experts who are vested in the company's success rather than corporate profits, businesses can start to shift the balance of power away from these networks. It's about questioning and reassessing the value and updates provided by these platforms regarding audience interests and ensuring that data-driven decisions are aligned with the company's goals and interests.
How to leverage first-party data in advertising and A/B testing data sets
Even when focusing primarily on first-party data, it remains essential for brands to buy their branded keywords. This strategy ensures control over brand presence and visibility in search results.
It's crucial to run tests on platforms like Google Ads to understand the discrepancy between different data sets. By setting equal budget caps for campaigns using first-party data and those using third-party data, brands can gauge the performance of each. This approach involves maintaining consistent variables like the creative content, messaging, and URL across both campaigns to accurately test the data set itself.
This methodology is akin to a modified form of A/B testing, where instead of testing different aspects of creative content, the focus is on testing the quality and effectiveness of the data sets. This process helps determine which data set - first-party or third-party - results in higher click-through rates and overall better campaign performance.
This approach has been successfully implemented for notable brands like TheraBody and True Classics, particularly in the direct-to-consumer sector with higher ad spends. The key is to empower media buyers with this philosophy, encouraging them to become advocates for data-driven strategies.
As marketers, we need to infiltrate various groups and promote the importance of owning and understanding one's first-party identity graph. This enables brands to provide consumers with more relevant, opt-in advertising experiences, fostering a more effective and trustworthy relationship between businesses and their audiences.
William Skelly
Navigating data protection laws and the future of consumer data privacy
The landscape of data protection and privacy is undergoing significant changes, with GDPR-style regulations emerging globally. It's becoming increasingly important for consumers to have the option to opt-in and for businesses to be transparent about data ownership and usage. This transparency is crucial for maintaining consumer trust and compliance with new data protection laws.
The next decade will see a transformation in how personal data is handled, with growing concerns about the ability of individuals to opt out of data collection. The proliferation of AI platforms like ChatGPT, which can gather extensive information about individuals, raises serious privacy concerns. Additionally, the vast collection of genetic data by companies like 23andMe demonstrates the potential for unprecedented levels of personal data exploitation.
The concept of creating digital twins or clones, as seen in discussions about Mars colonization with Elon Musk, further complicates the conversation around personal data. Consumers are often unaware of the extent to which their data is used, shared, or stored, as detailed in the often-overlooked terms and conditions of services.
There is a growing need for a decentralized identity philosophy, where the rights of consumers are clearly defined and respected. This approach could help shift the focus from treating consumers as mere numbers to recognizing their humanity and rights in the digital space.
In the United States, while consumers can request data removal, the efficacy of these requests is questionable. Often, companies may claim compliance without actually fulfilling these requests effectively. The reliance of many platforms on consumer data for profit underscores the critical need for a shift in how first-party data is managed and respected.
As marketers, media buyers, and data scientists, there is a responsibility to advocate for and facilitate this shift. It's time to empower consumers to maintain their humanity in the face of an increasingly data-driven world. By supporting changes in data privacy and protection, we can help ensure that personal data is used ethically and respectfully, keeping the human element at the forefront of digital interactions.
Patrick Reynolds
The role of marketers in shaping ethical data practices and protecting consumer data
Recent data scandals have highlighted the catastrophic effects that mishandling data can have on communities, individuals, and brands. Despite the rollout of GDPR and other data protection laws, there is still a tendency for people to share their data with companies without much thought. As marketers, we have a responsibility to educate people about the dangers of indiscriminate data sharing.
Marketers play a crucial role in leading the charge to change. It's about forming a collective belief system among marketers worldwide to support the principle of helping consumers regain control of their data.
We need to advocate for a global adherence to ethical data practices, ensuring that companies like Google can't exploit customer data for their benefit or the benefit of competitors.
While ethical considerations are crucial, it's also important to communicate the financial implications to company leaders. Explaining to CFOs and CEOs the cost benefits of managing first-party data effectively can be a persuasive argument. By reducing reliance on third-party data and avoiding enriching the data graphs of companies like Google and Meta, businesses can see a decrease in advertising costs.
The idea is to move data into a 'black box' controlled by the company, not third-party platforms like Meta. This approach allows companies to maintain detailed insights about their customers, like their purchases and preferences, without sharing this data externally. It's about seeing customers as humans, not just numbers, and using this perspective to guide marketing strategies.
Our role as marketers extends to helping businesses we align with to empower their customers. This involves leading the way in taking back control of digital identity and data, treating it as a valuable asset that belongs to the consumers and the companies, not to third-party platforms. By doing so, we can maintain the human aspect in our digital interactions and ensure ethical use of data in the digital landscape.
Steps for brands to take control of their data and future considerations
Setting up a robust data infrastructure
The first step for brands, especially larger ones, is to establish their own servers and data processing capabilities. This move towards self-reliance is crucial for handling and analyzing their data independently. Brands should consider partnering with cloud services like AWS to facilitate this transition.
Hiring the right talent
It's essential to bring in skilled database architects and engineers who can lay the groundwork for data scientists to work effectively. These professionals play a vital role in structuring data to leverage the full potential of digital transformations that many companies have already undertaken.
Shifting the mindset about data value
We need to reverse the mindset that has been prevalent for the last two decades – the notion that data isn't valuable or that we must rely on tools like Google's pixels and analytics without alternatives.
Companies need to recognize the new era we're entering, one where AI can serve as a guide to structure and utilize the company's data for better marketing outcomes.
Educating CEOs, owners, and shareholders
It's crucial to demonstrate to company leaders and stakeholders the benefits of this new approach. By using AI and other advanced tools, brands can more effectively guide their marketing strategies, leading to better sales, user acquisition, and customer loyalty.
Golden rules for considering the first-party data economy
- Remember that behind every IP address is a human being, not just a numerical hash. It's important to treat data as something inherently human and handle it with respect.
- Consider the implications of digital inclusion. Protecting people's information and identity should be a top priority, as we would expect the same for our own personal data.
- Marketers have a responsibility to help their customers navigate and protect their digital identities, stepping up as advocates for ethical data use and privacy.
This approach towards data emphasizes the need for a more human-centric and ethically-driven marketing strategy, focusing on the value and protection of personal information in the digital age.
A little about me
I'm Nick Venezia, founder of Centillion Group Inc. and Chief Data Officer at DeepPod. My journey has been focused on the intersection of identity and marketing, exploring how brands can connect more meaningfully with their customers.
