What is a second-party data partnership?
As defined by Forester, a second-party data partnership is “when a retailer, brand, publisher, or marketer gains transparent access to the website audience data of another retailer, brand, publisher, or marketer for marketing purposes – to their mutual benefit.” Another way of saying this is when another company gains access to your first-party data (data that you own) and pays for it (or exchanges its first-party data with yours).
Indeed, most companies today are focused on improving their marketing through better targeting (audiences), better messages (creatives) and better timing of activation. This is the classic ‘right place, right people and right message’ approach. But instead of chasing down the perfect leads and potential clients in their ad-tech (advertising ecosystem), there’s a shortcut to improve marketing ROI quickly and efficiently.
Why second-party data partnerships are a shortcut to the perfect clients and warm leads
Instead of trying to access your potential clients via the traditional audience route, you can leverage potential partners and companies that are upstream in your customer journey.
Think about the last time you planned a vacation (I know it has been a while thanks to COVID-19). First, you pick a destination, then you book your plane ticket. Then you book a hotel and finally you reserve your daily activities. Now, if you are a hotel chain or a touristy activity provider, how valuable would it be to know that someone just booked a plane ticket to the city you’re based in? If you think about it, what is the value of this information?
Now imagine that the aeroplane company is sharing or selling that information (in the form of an “audience”, as no personal information is shared of course) to the companies downstream in the travel customer journey. That’s a second-party data partnership: a clean and efficient way to activate the right persons in your marketing campaigns.
The proven effectiveness of Second-party partnerships
In our experience at Artefact, a second-party data partnership helps increase revenue by 40% on average compared to traditional activation. This is while also improving the ability to better calculate the customer lifetime value. Of course, depending on the context, this revenue increase might be translated into cost optimisation, when publishers prefer to decrease spend while maintaining similar results, especially at a time such as this.
On top of the efficiency benefits, second-party partnerships might also be a great way to adapt the scrapping of third-party cookies, as it is pushing companies to rely even more on first-party data. So at this point, you are probably asking yourself: how can I set up this kind of partnership?
Avoiding the pitfalls of second-party data partnerships
Between the legal restrictions and the technical requirements, setting up a second-party partnership can be a real challenge. Based on the several partnerships we have created for our clients, we have identified four common pitfalls to avoid:
1/ Starting your data partnership without defining the business objectives and use cases
You don’t start this kind of partnership just because you like or enjoy working with a partner. Early on, you need to have clarity and visibility on why and how this partnership will take place. And the more details you have for your use cases, the better it is for the rest of the journey.
2/ Try to exchange too much data
Our clients very often want to capture all the data they can instead of focusing on just what’s important for their use cases. By expanding the scope of data sharing too much, you can put the partnership at legal risk by breaching GDPR, as you are now collecting data that is not critical from a purely business point of view. You might also face ethical roadblocks down the road by holding data potential customers would not feel comfortable for you to have. We have seen many partnerships fall apart just because one of the parties became too hungry for data.
3/ Set up an unfair compensation mechanism
Today, every partnership requires a new compensation mechanism as each situation is different. Too many times, the evaluation is emotional instead of rational. If your partner can’t rationally prove the benefits of using the data, you can be certain that the partnership will end sooner or later.
As this topic is so strategic, we recommend our clients sometimes to limit their expectations as proving the value of their data is way more important than any short-term gains. Indeed, if your data is that useful, it will be easy to increase the price for it later on. By asking too much, and turning down potential partners, you will never truly know whether you can create a significant revenue stream from data.
4/ Refuse to start small and test
We have seen many companies, believing their data was so valuable, they would refuse to start small, waiting for the big golden contract. This is a huge mistake, as the only way to prove the value of your data is by testing it. On top of this, many second-party partnerships have surfaced major data quality issues and data governance problems.
The most successful second-party partnerships took risks early on, starting with small use cases and sometimes even agreeing to exchange data for free at the beginning of the partnership. They slowly but surely learnt how to value their data, solve their internal data quality problems, improve their data, package it and share them effectively. As in any business, creating a new income stream — especially as significant as data valorisation can be — requires trial and error, expertise and time.
Even if it’s not an easy journey, second-party data partnerships can create impressive financial results, while helping many companies to be even more relevant in their advertising. Any organisation should at least consider and try this type of partnership as they may have a gold mine in their data centre without realising it. The only way to know for sure is to try it out!