Commentary

Will California Put The Nail In The Coffin Of Third-Party Data?

by Cory Treffiletti , Featured Contributor, May 8, 2019

It’s entirely possible that third-party data may become unavailable to marketers within the next 24 months. What impact will that have on the entire ecosystem?

There are a number of factors pointing toward this possibility. It started with GDPR and the California regulations of data privacy.

The second factor was the Facebook issues with Cambridge Analytica and the resultant removal of third-party data from its ad platform.

Next comes recent news that California Governor Gavin Newsom is proposing a “data dividend” law that will require companies that sell personal data to pay the users whose data they are selling. This proposal translates into millions, if not billions, of dollar swings in the online ad ecosystem that would put any number of data providers out of business.

If you look at the big picture in online advertising, the lion’s share of dollars are spent with Google and Facebook, while Amazon is creeping into that mix quickly. They account for between 80%-85% of the online ad dollars, depending on which report you read.

If you follow the thread, Google, Facebook, and even Amazon have a strong selection of data they can leverage that would be considered first-party data. They could easily shut down all third-party data sales on their platforms and potentially acquire a larger portion online ad dollars because they offer better targeting. The remaining 15%-20% of the ecosystem would settle on a few providers that could withstand the implications of such a California law.

If all these factors lead toward the demise of third-party data, what happens to online advertising?

For one, the ads you see on the open web are likely to become a bit less targeted. The ads served by Google and Facebook would continue to be targeted. I don’t know that they would be affected by such a law from California because these companies are not technically selling your data, but are using it for their own purposes.

The devil is in the details with that type of law because it might be phrased as a straight “monetization” of your data rather than a buy/sell of that data. This nuance would have to be evaluated by people far smarter than me, but I'm sure companies like Google and Facebook would find any crack in the armor they can in order to avoid paying out vast sums of money to people for the right to use their data.

In this future case, there could pop a broader need for tools and services for data governance and data compliance management. Consumer advocacy groups would likely start to look at how brands are leveraging data, whether it is acquired third-party or monetized first-party. This is no small task -- it could have a massive impact on the online advertising ecosystem. The ever-present Lumascape would be significantly easier to track because a large portion of the companies on that landscape could cease to exist.

I don’t think this is a good trajectory. Third-party data is valuable -- and rather than trying to stop companies from using it, there should be a better method for consumers to opt out of their data being used.

This idea has been proposed time and time again, but no one ever truly took the reins to make it happen. That was a mistake. One of the various industry trade organizations had the opportunity to try and make this happen, but that effort never got off the ground. Now that decision (or lack of a decision) could put a number of companies out of business.

It will certainly be a very interesting 24 months as these proposals continue to gain shape and/or become law.

data

3 comments about "Will California Put The Nail In The Coffin Of Third-Party Data?".

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Keith Huntoon from LiftEngine, May 8, 2019 at 4:11 p.m.
Good read, Corey. Thanks. Assuming this spreads beyond California to the rest of the states, all will suffer. The threat to online is massive. For Direct Mail, the threat is equally massive. What happens to prospect mailings that today, orginal from targeted lists provided by Oracle, Epsilon, Wiland, i-Behavior, etc. and smaller, vertical list providers? The devil is in the details (still TBD), but I'm concerned entire industries could evaporate over night. We'll go back to ZIP models based on census data, results will tank and even more people will lose their jobs. Scary times. I'm all for consumer privacy but we need to clarify for John and Jane Q there is a difference between responsible use of PII and security of PII. In my opinion, there is no harm in using 3rd party data to determine who might respond to an offer. The harm comes when Marriott or others are hacked and data is stolen. CCPA and it's ilk could kill an industry but do little to nothing to securing PII.
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Paula Lynn from Who Else Unlimited, May 8, 2019 at 5:14 p.m.

Those who create a monster are doomed to be eaten by it. Those who created selling privacy are doomed to be eaten by it or find another way to stay in business. People just may have gotten fed up selling their lives for a few pennies off an ice cream cone.

Ed Papazian from Media Dynamics Inc, May 9, 2019 at 7:58 a.m.

Very informative, Cory. I believe that the excesses and carelessness of the past are about to catch up with not only "third party" data vendors but with FB, Google, etc. as well. In other words, now that the politicians have been alerted and are getting involved, more and more regulation is in the offing---not that it isn't called for. However, what's probably coming may, indeed, sound the deathnell for the types of data based targeting that digital media is known for. In which case, the only option will be to reorganize and, for the first time, set up digital as both an ad- and user-friendly medium, following many of the rules set down long ago by "legacy media" while becoming less reliant on computers to do everything. Perhaps this may be a good thing after all.