Third-Party Data: How It Works, Why It Matters

As an advertising copywriter, I know firsthand how understanding data helps create strong ad campaigns. Launching into the creative side of things is my first instinct when starting a new project, but taking some time to dive deep into the data often provides the missing insights I need.

That goes for the client side of things, too. Even if you’re the advertiser, understanding different types of data is key to making your campaigns work. Third-party data has been a major part of how online ads are delivered and shown to people for years, and it’s this information, collected and shared by companies separate from the advertiser or website owner, that’s helped brands reach people they haven’t interacted with directly.

Third-party data is also a bit of a third-rail topic, and we’ll get into that later. But, it’s allowed advertisers to take their reach further, expanding to new markets and finding new opportunities. Let’s take a closer look at its uses, benefits, challenges, and speculate what its future might be, too.

What Is Third-Party Data?

Third-party data refers to information collected by a company that doesn’t have a direct relationship with the person whose data is gathered. This data is then sold or shared, mainly for advertising purposes. Unlike information you collect directly, third-party data comes from an outside source, including various places online and offline, like websites, apps, or public records. The company collecting the data is separate from the one that interacted with the user in the first place.

Historically, third-party data was collected using small bits of code, called third-party cookies, placed on web browsers. These cookies helped build a picture of online activities and interests as a person visited different websites. The cookies then crumbled and were combined into groups by data brokers or special data platforms, which advertisers could then buy to target ads to expand their reach.

What Are The Different Types of Third-Party Data Available?

Third-party data comes in a bunch of different forms, each offering different insights for targeting ads. One of the most common types is demographic data, which includes facts like age, gender, income, and education. It may sound basic, but this is a huge boost to helping advertisers understand their audience’s profile.

Another is behavioral data, which tracks online actions like websites visited or products viewed. This provides those much-needed clues about users’ interests, like categorizing someone as an exercise enthusiast if they visit lots of fitness sites, for example.

Lastly, intent data suggests that a person is taking those first steps to buy something soon. This comes from specific actions, like repeated searches for a product. If someone searches for “best electric cars” — especially more than once — it shows clear intent to buy. As an advertiser, that’s the group you want to be reaching.

How Is Third-Party Data Typically Used in Digital Advertising?

Third-party data has been key for reaching more and more people using increasingly precise targeting. It helps advertisers find and connect with potential customers who fit their ideal buyer, but haven’t directly engaged with their brand (yet) by giving access to profiles of people similar to their existing customers. This expands campaigns beyond the usual immediate customers, branching out and finding new prospects, e.g., a pet supply company finding pet owners who haven’t discovered their store. The possibilities for new growth can be limitless.

Advertisers use third-party data to make audience targeting significantly better. It gives them the power to divide the online audience into specific groups based on demographics, interests, or purchase readiness, adding a level of organization and segmentation. A luxury travel company might target “frequent business travelers,” and a simple shift like that from broad to specific targeting can greatly improve an ad campaign. In my experience, more specific targeting yields better ad results.

It also provides insights into consumer behavior and preferences on a larger scale. By looking at combined third-party data, advertisers can understand what’s popular and how people typically shop, even beyond their own customers. This wider view helps create better ad messages and suggest where to place ads, shaping campaign strategy. Even if you can’t use it for your current campaign, it’s helpful information to have down the road.

But, don’t lose sight of the goal: Using third-party data is meant to improve the relevance and effectiveness of ads. When an ad is shown to someone who is genuinely interested, it’s much more likely to be noticed, clicked, and lead to a desired action. I’ve found that relevant ads feel like helpful suggestions, not interruptions, and that alone is a huge selling point for users inundated with ads.

Benefits of Using Third-Party Data

Third-party data offers strong benefits for advertisers, mainly for reaching lots more people and targeting them precisely.

How Can Third-Party Data Help Advertisers Reach a Wider Audience?

Third-party data helps advertisers reach significantly more potential customers beyond their known base. By using information collected by outside companies across multiple platforms, advertisers can find people similar to their ideal customers, even if they’ve never visited their site. This allows for a deeper market reach and helps you discover new customer groups. It’s an effective way to grow your business, find new audiences, and discover new insights and selling points.

How Can It Enhance Audience Targeting and Segmentation?

Instead of showing ads to everyone, advertisers can buy specific groups based on detailed criteria like “people looking to buy a new car.” Detailed grouping makes ads highly relevant, and with increased targeting, leads to more efficient ad spending and a higher chance of connecting with interested people. This level of detail truly helps campaigns succeed.

Concerns and Challenges Associated With Third-Party Data

If I’m making third-party data sound great so far, that’s because it is…for increased targeting. But, this article wouldn’t be complete if we didn’t talk about its drawbacks as well. Along with all the advantages, third-party data brings serious worries and challenges, especially regarding privacy and data reliability. These issues are especially noticeable nowadays, and are changing the landscape of digital advertising fast.

What Are the Key Privacy Concerns Surrounding the Collection and Use of Third-Party Data?

This is the big one we need to talk about. The main privacy concern is the lack of clear permission and openness. When outside companies gather data, people often don’t know what’s collected, how it’s used, or who sees it, which can make them feel uneasy and like they’ve lost control of their personal information. The idea that without permission, an unfamiliar company knows their age, income, and browsing history, not to mention whatever else they discover, feels deeply intrusive. This worry has led to public outcry and the passing of some major new laws across the world.

How Do Regulations Like GDPR and CCPA Impact the Use of Third-Party Data?

You’ve probably heard about, or seen a popup about, one or both of these when visiting a website. Rules like GDPR (General Data Protection Regulation) in Europe and CCPA (California Consumer Privacy Act) in the United States have fundamentally changed how third-party data can be collected and used by giving people more control over their data. GDPR requires clear consent, and CCPA gives consumers rights to access, delete, or opt out. They’re not flawless, but they help, and we absolutely needed some regulations in place. From the advertiser’s perspective, though, these rules have made using third-party data much more complex and risky without strong compliance, and has pushed them to be more careful overall.

On top of that, data accuracy and quality are real concerns, too. Since this data is pulled from many different places without consistent checks, its reliability can be questionable, and it isn’t always correct. Profiles might be old or interests wrongly guessed, for example, and using incorrect data wastes ad money and creates a bad user experience as a whole. It’s hard to ensure data is clean when you don’t collect it directly.

The lack of transparency in data sourcing is a big problem. Advertisers often buy audience groups without knowing exactly where or how the data was collected, and that makes it hard to check its quality, legality, or ethics, creating risks. Not knowing the full story is a real challenge if you’re trying to practice responsible advertising.

Finally, relying too heavily on third-party data carries risks. It can mean targeting the same groups as competitors, raising costs. Also, as laws get stricter and technology changes (like the removal of cookies), a strategy built mainly on third-party data becomes unstable.

The Future of Third-Party Data in a Privacy-Focused World

Third-party data is a field that’s changing fast due to privacy concerns and internet technology shifts and growth. So, what does its future look like? Hard to say for sure, but one thing I’m pretty confident of is that it’ll have to be about adopting new ideas and moving away from traditional tracking.

How Are Changes in Browser Privacy Settings Affecting Third-Party Data Usage?

The biggest change is the ongoing removal of third-party cookies by major web browsers (looking in your direction, Google Chrome). These cookies were the main technology for third-party data collection for years, allowing tracking across websites, and getting rid of them means the old way of building user profiles across multiple websites for advertising will largely stop. It’s a major shift, forcing advertisers to rethink how they’ll need to find and reach audiences.

What Are the Emerging Trends and Alternatives to Third-Party Data?

As the industry moves to a cookieless online world, new ideas are popping up and gaining traction, all focused on privacy and user permission.

One key shift is a bigger focus on first-party data. This is the information your company collects directly from your own customers and website visitors, the big difference being that there’s usually clear permission. It includes measures you need to know, like purchases or website visits, but because you collect it, you own and control it, and it’s seen as the most valuable, accurate, and privacy-friendly data. First-party data might be your most reliable asset moving forward.

Zero-party data is even more direct, i.e., information customers willingly share, like preferences or personal details. This comes from quizzes or surveys, making it accurate and trustworthy since it’s straight from the source.

Contextual advertising is also returning strongly. Instead of tracking users, ads are placed on web pages with content that’s directly related to the ad. For example, a hiking boot ad on an outdoor adventure page. This method doesn’t track individuals, so it’s naturally good for privacy. It’s an older idea, but it’s coming back with smarter technology.

How Are Advertisers Adapting to a Cookieless Future?

Advertisers are adapting by changing their data and their overall thinking. This means focusing on collecting, managing, and using their first-party data, and building customer data platforms (CDPs) to combine information and create a full audience picture. They also try to create engaging experiences to encourage users to share zero-party data.

What Role Will Data Clean Rooms Play in the Future of Data Collaboration?

Data clean rooms are becoming important for safe data sharing. These are secure places where companies can combine their direct customer data for analysis and to find matching audiences, without showing actual private user data. It allows for valuable insights and audience use, while protecting privacy, promising safe data sharing in the future.

Best Practices and Considerations for Using Third-Party Data

The shift away from traditional third-party cookies is shaping up to be pretty clear, but third-party data in other forms may still play a role, so understanding how to use it remains important.

What Are the Best Practices for Responsibly Using Third-Party Data?

Even as the data world changes, the basic rules for responsible data use are vital, and show your audience that you care about their online privacy. Always be clear and get permission to ensure data was collected with consent, and that its use matches user expectations. Pay attention to data quality and accuracy, since bad data wastes your time and effort, too. Also, check your data sources, understand collection, and test how well third-party audience groups perform. Finally, mix it with your own first-party data — strong strategies will always combine outside insights with what you know directly about your customers.

How Can Advertisers Ensure Compliance With Privacy Regulations When Using Third-Party Data?

Making sure you follow privacy rules like GDPR and CCPA is extremely important now, and that starts with thoroughly checking your data providers. You’ll need to ask about their data sources, how they get user consent, and how they comply with privacy laws themselves. Also, set up strong data management rules within your own company, including regular checks and employee training on privacy.

What Due Diligence Should Be Performed When Selecting Third-Party Data Providers?

When picking a third-party data provider, do a thorough check. Ask about their data sources and consent methods. Understand their data cleaning processes and how often the data is updated. Also, ask about their privacy policies and how they meet rules like GDPR and CCPA, and if they offer clear ways to opt out. Lastly, consider their reputation and ask for client references. Trust is key when relying on outside companies for sensitive information.

What Are Some Ethical Considerations for Using Third-party Data?

Beyond legal compliance, ethical concerns are increasingly vital. One concern is potential for unfairness or bias: If data reflects societal biases, targeting could lead to unfair ads. Another is user control and choice: Ask yourself if using this data aligns with user expectations, and if there’s an easy opt-out. Lastly, consider the impact on user trust: If there are unclear or intrusive practices, that can reduce credibility in your brand and the online landscape. Building and keeping trust is incredibly valuable in a world where it seems like that’s being eroded everywhere.

Key Takeaways

Third-party data has been central to digital advertising, providing broad reach and scale for audience targeting. It helped advertisers find and group users from outside sources based on their demographics and behaviors. However, the industry is changing due to privacy rules and technological shifts, especially the removal of third-party cookies.

This evolving landscape means a focus on privacy-first approaches. Advertisers are investing in first-party data strategies, collecting direct, consented information from their customers. Zero-party data, willingly shared by consumers, and smarter contextual advertising are key alternatives. Data clean rooms are also emerging as secure ways for companies to share data while protecting privacy. While traditional third-party data’s role is changing, understanding its past, benefits, and challenges is important for the future of digital advertising. The focus is now on reliable, privacy-aware data foundations for effective audience connection.

Frequently Asked Questions (FAQs)

Is third-party data still a viable option for digital advertising?

The role of third-party data in digital advertising is definitely changing a lot, but I wouldn’t say that it’s disappearing entirely. The traditional way of using third-party data depended heavily on cookies that tracked users across different websites, and that’s being phased out. Google Chrome’s move away from these cookies is a big part of this shift, and means that tracking individual users anonymously across many websites is going to become much harder — even impossible, in some cases.

The main idea of getting useful information about audiences from outside sources is the primary goal, though, and that’s not gone, not by a long shot. What we’re seeing now are new, more privacy-friendly ways to share and combine data, like data clean rooms, which let advertisers and publishers securely combine and look at their own direct customer data (first-party data) without actually sharing private user information. Methods like this create combined insights that can still help with ad targeting.

Also, companies that provide third-party data are changing their approaches, finding new ways to identify users with their permission, using information about the context of web pages, and creating smarter data models. So, while buying broad, general third-party audience groups might decrease, the ability to get valuable insights from outside sources (through more privacy-friendly methods) will likely continue to be a part of smart advertising plans.

What is the difference between first-party, second-party, and third-party data?

Before you get started experimenting with any version of these, it’s best to understand them at a high level. Each type is defined by where it comes from and its connection to your business.

First-party data is the information your company collects directly from its own customers and website visitors. This would include data from your website, mobile app, customer records, email lists, or even in-store interactions. When you think of first-party, consider what products they’ve bought or pages they visited on your site, since you collect this data yourself and you own it, control how it’s used, and typically get clear permission from the user. It’s seen as the most valuable, accurate, and privacy-friendly data you can have, and it represents a direct connection with your audience, too.

Second-party data is essentially another company’s first-party data that they’ve agreed to share or sell directly to you. It’s a direct, agreed-upon exchange between two companies. For example, an airline might share its anonymous passenger data with a hotel chain. Much like first-party, this data is generally high quality because it comes from a reliable source, and the sharing agreement outlines how it was collected and how it can be used. It’s a go-to trusted way to gain insights about audiences beyond your own direct interactions.

Third-party data is what we’ve covered most here, and as discussed, it’s data collected by a company (a data broker) that doesn’t have a direct relationship with the people whose data is being collected. This type of data is gathered from many different places and then sold or shared with multiple advertisers, but has its positives and negatives. On the upside, it offers broad reach and a wide range of audience groups, but it often comes with questions about its accuracy, where it came from, and whether it follows privacy rules. This type of data has traditionally been the broadest and easiest to access for expanding reach, but its future is changing a lot due to new privacy standards and limits from web browsers.

How can I assess the quality of third-party data?

This one can be tricky since you don’t control how the data was originally gathered. Even so, there are some key steps and signs you can look for. First off, thoroughly research the data provider’s sources and methods. Do they clearly state where their data comes from and how it’s collected and updated? Providers who are open are generally more reliable, while a lack of clarity here is a big warning sign.

Second, consider how recent the data is and how often it’s updated. Is it refreshed regularly, or is it old and stale? Outdated information can quickly become useless and lead to wasted advertising dollars. Third, ask for examples of performance or case studies from other advertisers who used the data. While results differ, a provider sharing success stories might offer more reliable data. Finally, and maybe most importantly, test the data yourself. Start with a small budget to run campaigns targeting these groups. Watch your key performance goals. If the data doesn’t perform well, it’s likely not worth the investment. Remember that your own results are the best way to judge data quality.

What are data brokers and what role do they play?

Data brokers are companies that collect, combine, process, and then sell or share information about people and groups. Their main business involves getting huge amounts of information from many different places, such as public records, commercial websites, and mobile apps, and then organizing it into various groups for advertising and marketing purposes. They’re kind of like the middlemen of the process, connecting companies that have data with companies that want to buy it.

Their role has historically been to help advertisers reach a wide scale — by buying data from a broker, an advertiser could access audience groups they couldn’t collect directly. This was helpful for new businesses or those trying to expand into new markets without having a large customer base. Data brokers create the “third-party data” products that advertisers use, offering ready-made audience groups like “people planning to buy a new car,” and ultimately saving advertisers time and effort.

The role of data brokers going forward is facing a lot of review and potential changes though, since their practices have been criticized for not being clear about where their data comes from and whether they have user permissions. With more privacy rules like GDPR and CCPA, and the removal of third-party cookies, data brokers are being forced to change how they collect data to meet stricter privacy standards. Their future role will likely shift towards more privacy-friendly methods of sharing, or focusing on insights from consented, combined data sets, rather than tracking individual users across multiple websites.