Understanding first-, second- and third-party data

Editor’s note: Liz March is the content marketing manager and digital research specialist at Similarweb. This is an edited version of an article that originally appeared under the title “When First-Party Data Isn’t Enough: Reasons to Look Elsewhere.”

Businesses go to great lengths to understand their customers, and for good reason. While first-party data can provide valuable insights, it isn’t always enough. There’s also a new kid on the block: zero-party data.

What is first-party data?

First-party data is defined as data that is collected directly from a company’s customers, website visitors or mobile app users. It’s collected and owned exclusively by the company that gathers it.

Examples of first-party data

  • Email addresses collected through a subscription form.
  • Phone numbers collected through a customer contact form.
  • Website engagement metrics.
  • Purchase history from an e-commerce store.
  • Demographic information from an in-store survey.
  • Customer feedback from a loyalty program.
  • Social media engagement data.
  • Referral data from an affiliate program.
  • Product usage data from an app.
  • Location data collected through a mobile app.

The pros and cons of first-party data

  • You own the data and are in complete control of it.
  • Useful for the optimization of campaigns and increasing conversions.
  • Use it to gain a better understanding of your customers and target them with personalized messages.
  • Complete visibility into the data and how it is being used.
  • Helps you gain insights into customer behavior and trends.
  • It can be expensive to collect and maintain.
  • Requires significant infrastructure to store and manage information as part of a first-party data strategy.
  • Incomplete or inaccurate information can present itself in the data set.
  • Difficult to interpret the data and draw meaningful conclusions.
  • Challenging to keep up with changes in consumer behavior.

What is second-party data?

Second-party data is shared between two parties who have an existing relationship. It’s typically shared in exchange for a service or other value.

Examples of second-party data 

  • Website user-generated content.
  • Social media posts.
  • Aggregated reviews.
  • Location data.
  • Purchasing transactions.
  • Demographic data.
  • Third-party advertising data.
  • Loyalty program data.
  • Retailers’ inventory data.
  • Online search trends.

The pros and cons of second-party data

  • Can provide access to valuable data unavailable through other sources.
  • Sourced from trusted partners and is more likely to be accurate.
  • As data is shared mutually between closed parties, it’s not freely available to your rivals.
  • Provides detailed insights into customer behavior.
  • Often more expensive than other forms of data.
  • Not always available in the quantities or formats desired.
  • A challenge to determine the accuracy or reliability of the data.
  • Can be difficult to integrate with existing systems and keep up with changes in partner data sources.

What is third-party data?

Third-party data is collected by an outside entity and sold to companies for marketing and advertising purposes. It’s often used to target ads and can be collected from various sources including online surveys and public records.

Third-party data examples

  • Online retail data.
  • Weather data.
  • Social media data.
  • Location data.
  • Demographic data.
  • Audience segmentation data.
  • Financial data.
  • Mobile app usage data.
  • Advertising data.
  • Marketplace data.

The pros and cons of third-party data

  • Often cheaper than first- or second-party data.
  • Usually available in large quantities in various formats.
  • Useful to gain insights into consumer behavior and market trends
  • Helpful if you need to target audiences with precision.
  • Some sources of data are outdated and not reflective of current consumer behavior.
  • Determining the accuracy or reliability of the data isn’t always easy.
  • Integration with existing systems can sometimes be complex.
  • It can be challenging to keep up with changes in third-party data sources.

What is zero-party data?

Zero-party data is intentionally and proactively shared by customers with companies in exchange for value. It’s usually obtained via opt-in surveys, quizzes and social media posts and can be used to personalize and enhance customer experiences.

Examples of zero-party data 

  • Social media posts.
  • Website analytics.
  • Search engine queries.
  • User survey responses.
  • Customer support tickets.
  • Browser cookies.
  • App usage statistics.
  • Video streaming records.
  • Payment transaction records.
  • GPS location data.

The pros and cons of zero-party data

  • Highly accurate and reliable as it is actively gathered from customers.
  • It is more current and up to date than most other data sources at the point it is obtained.
  • Helpful for building detailed profiles of consumers.
  • Can be used to increase loyalty and engagement based on known consumer interests.
  • Enables better personalization, both in marketing and product development.
  • Can be difficult and expensive to collect.
  • May not be available in the quantities or formats desired.
  • Difficult to interpret the data and draw meaningful conclusions.
  • Customers must be willing to share their data, and privacy concerns can be an issue.
  • Doesn’t allow you to keep up with changes in customer behavior. 

Comparing first-party data, second-party data and third-party data

First-party data is often the most valuable as it is company-specific and useful to draw insights into customer behaviors and preferences. It’s also data your competitors won’t have. However, second-party data comes into play for companies with limited access to their own customer data and need additional insights into target customer segments. If you want to enter a new market or even start a new business, you might not have relevant internal data sets to use and creating a first-party data strategy isn’t feasible nor realistic.

Let’s say you want to gain insights into consumers’ behavior and preferences, first-party data would likely be the best option. Alternatively, if you want to understand the competitive landscape, second- or third-party data could be the better choice. Ultimately, the best data for a company will depend on its individual needs and goals.

For a comprehensive view of a market, a mix of both first-party and third-party data is the best approach. By combining both types of data, you get a detailed view that accounts for your own customer data along with key market intel in tandem.

Comparing first-party data and zero-party data

First-party data is useful for those with access to customer data and who need to understand their customers, preferences and behaviors better. Zero-party data is a relatively new type of data that’s best for companies that need to collect more detailed, permission-based customer data and gain deeper insights into customer behavior, preferences, behaviors and intentions.

First-party data is just one piece of the data puzzle

First-party data is important and while it does provide valuable insights into existing customers, it is often limited in scope and accuracy.

Using a comprehensive range of data sources allows businesses to gain a complete understanding of their customers and marketplace. Additionally, by using a mix of first-, second-, third- and zero-party data, businesses can ensure that their strategies and data-driven decisions are independent of any single data source.

Having overtaken oil, data is now considered the world’s most valued resource. But just like oil, data is of no use until after it’s been mined and handled (aka analyzed) correctly

Summing it up

First-party data is valuable to any organization that has it. Making it work for you involves creating a first-party data strategy, which includes a tech stack and regular analysis. But even then, it only gives you a very small piece of the pie to review.