Second-Party Data: The New Boogeyman in Ecommerce

David Allison
by David Allison 28 Mar, 2016

Even though the invention of the cookie was in 1995 and that the company DoubleClick, with its product launch of Boomerang in 1998, is almost universally seen as the first retargeting contrivance, it was not until the late 2000s that companies like, Discovery Channel, and Amazon began engaging retargeting campaigns as part of their marketing strategy.

By 2009-2010, average online consumers were unsettled or creeped out by the idea of how display ads seemed to follow them around from site to site. Many articles and news reports at this time discussed the idea of behavioral targeting being creepy or threatening one's privacy:

Panel Debates the Benefits and Risks of Behavioral Targeting (MRA, Dec 2009)

Retargeting Ads Follow Surfers to Other Sites (New York Times, Aug 2010)

The Pants that Stalked me on the Web (AdvertisingAge, Aug 2010)

This uneasiness and privacy concerns of behavioral targeting with the average consumer had found its way to the nation's capital for a Senate hearing in 2010. There, Senator Claire McCaskill of Missouri said, "I understand that advertising supports the Internet, but I am a little spooked out. This is creepy."

Fast forward to today, where nearly every mid to enterprise-sized ecommerce site uses retargeting as part of its marketing strategy and for most consumers they have learned to accept it as part of shopping online experience. Most consumers these days understand how retargeting generally works and are no longer scared by its use, but are more annoyed to down-right angry when faced with too many or ill-conceived retargeting ads (Inskin Media research, 2014).

But there is now a new digital marketing "boogeyman" over the last couple of years. Not to consumers, but to ecommerce businesses.

The new boogeyman to ecommerce businesses is second-party data. Why? Because many ecommerce companies are afraid to share their first-party data, even though they understand that no PII (personally-identifiable-information) is ever being captured.

While it is true that first-party data is still by far the most valuable data a business can have to determine business strategy, second-party data is becoming ever more important in today's digital marketing arena. In fact, according to Mike Sands, CEO at Signal writes in AdExchanger:

A 2015 survey of brand marketers by Econsultancy found that 77% of marketers that reported the highest returns on their data-related investments are currently leveraging second-party data. And 60% of marketers across the board say they will increase their use of second-party data, suggesting that many marketers are catching on to the value second-party data can provide.

But when the average conversion rate on ecommerce sites is 2-3 percent (Monetate Ecommece Quarterly, 2015) and display ads across all formats and placements is only 0.06 percent (Display Benchmark Tool) why are some ecommerce sites still so hesitant to share first-party data with other companies in an anonymous manner? This fear is unfounded.

Companies that are in this new second-party data co-op space have only anonymized data and therefore have nothing to actually steal. The cookie that is placed upon a user's browser does not capture PII, but only information about the user's session (i.e., the user went to the shopping cart page but did not make a purchase or the user viewed a product and then left the site).

In the brick-and-mortar world, Macy's is not afraid to be in the same mall as Nordstrom. This is because Macy's and Nordstrom both want to have the chance to win over consumers who may not think of their respective stores first or hope when consumers comparative shop, they choose their store over all others. But for some reason, some ecommerce sites think that if they allow their data to be shared with other stores in their segment that they will somehow be at a disadvantage.

A second-party data campaign to the naked eye may appear to be a retargeting campaign, but it is different. For example, a user goes to an online retailer to buy a watch (Timex), which is part of a data cooperative but never makes a purchase and leaves the Timex site. Instead of getting a Timex display ad (as the user would have received if Timex had a retargeting campaign) the user will be shown another watch site (Fossil), which would also be part of the data cooperative - retargeting 2.0. By putting a new business in front of a user, just as the user leaves a competitor's site, can be a very powerful tool for top-of-funnel marketing.

Small and mid-size ecommerce businesses need to start seeing that sharing their data in an anonymized pool is a good way to have a better understanding and insight to their own business. With second-party data, online retailers will truly see how they are situated within their vertical because the data they are attaining is from actual consumers who are looking for products or services that they themselves provide. With more accurate data a business can make more accurate and shrewd business decisions.

While there seems to be a movement to using second-party data by forward-thinking online businesses, there are still many ecommerce companies that are missing out on the chance at having access to thousands and even millions of unique consumers per month, by not using second-party data as part of their marketing strategy, purely based on fear of the unknown.

In 2009, online consumers had a fear that "big brother" was watching us and were frightened by this 1984 type of dystopian-reality. We have since learned that with retargeting, while annoying at times when not done correctly, is by no means scary to the average consumer.

Second-party data is not something to be feared by online retailers, but simply the next iteration of digital marketing.

Bio: David Allison is the "Marketing Guy" at Hivewyre, which is an ecommerce data cooperative in Scottsdale, Arizona that deals solely in second-party data.