Third-party data is any data your organization uses that you don’t own and didn’t collect; basically, anything you buy or retrieve for free from a data marketplace, data exchange, government agency, or data services company (e.g., Circana, Acxiom, TransUnion, Nielsen). Use of third-party data is nearly universal. The business case for third-party data makes itself – in most organizations, there is no good business reason to collect all the data you need to run operations and generate insights. Third-party data is still the hottest game in town because:
- Not everyone has reliable first-party data: First-party data is a luxury enjoyed by companies that operate in environments where activity can be tracked digitally through a controlled channel, like financial services, retail, eCommerce, or logistics. As soon as an organization sells through a channel they don’t own (think B2B2C, where manufacturers sell to retailers who sell to consumers), that chain is broken – there is no longer reliable data that connects a brand to its end consumers.
- Walled gardens: Data is an asset and the handful of companies who have the most data (e.g., Google, Meta, Amazon, Apple, Netflix, Wal-Mart) aren’t so keen to share it. Each of these data owners have created ecosystems where they decide what you are allowed to know by tightly limiting the granularity of data an organization can see, building proprietary tools that define access to their data, and setting terms of use that limit what organizations can do with data.
- First-party data is only one piece of data strategy: First-party data is clearly important to any data strategy. It enables insight into how customers are directly interacting with your brand. But outside of direct interactions, visibility is significantly reduced. First-party data will never tell us how customers interact with competitors, what other types of products they like or buy, or what they do when they aren’t engaged in one of your experiences.
Despite this, Forrester survey data tells us that many companies (56%) would gladly ditch third-party data if there were better alternatives. Organizations are frustrated by third-party data because of:
- Limited interoperability and actionability: To make third-party data useful, it needs to be linked to decisions your organization makes. However, its rarely easy to tie third-party data to your proprietary data, which means the resulting insights are often hard to action.
- Concerns about data privacy and data collection. In a world of constantly changing regulations, it feels risky to rely on a third-party data provider. Every organization has been burned by data that is suddenly unavailable because of changing regulations or third-party providers that have disappeared overnight because of privacy breaches or legal action.
- A confusing ecosystem of vendors: For some types of data, there is one provider with a near monopoly (and pricing to match). In other areas, there are dozens of providers who might appear to be similar, but who often are wildly different in their operations, experience, and pricing. It takes experience and time to find reliable providers and most organizations don’t have dedicated resources focused on data sourcing.
- Mixed data quality. Not all third-party data is created equally. Most datasets will have caveats and limitations. Some will have major gaps in coverage, major biases in representation, or unseen problems around data collection and/or processing. Most of the time, you won’t really know what you’re getting until you’re 6 months into a contract.
Companies are making the best of the situation and the third-party data space is evolving some capabilities to be clearer, more compliant, and more actionable. Interested in hearing more? Join me at Forrester’s upcoming Data Strategy & Insights event, September 13–14, in Austin and online. I will be talking about third-party data and how to use it in your insights strategy.
