1st-Party Data Is Overrated, Misunderstood

Sir Martin Sorrell, here, says the fight for marketing is for first-party data. Accordingly, he’d, “like to have a significant first-party data asset” as part of S4 Capital. So, he’s on a shopping trip. 

The problem is, when you add it all up, S4 wants to compete with the heavies, but acquiring the “data asset” will not be sufficient for success. The reasons why should be of general interest.  

What’s missing from the aspiration is the connection between data and relationships. That, of course, is value creation. Famously, agencies want to surf on value creation, but do not want to go to the trouble of actuallybuilding it. Ask any media company. 

But let’s say S4 Capital succeeds in acquiring a massive trove of first-party data.  Then comes the question of how to make money with it.  



The value in data is derived from what you can do with it, and that is a changing equation day by day, person by person, and data point by data point. Making data useful is a craft, separate from who owns it, who uses it, who added value to it, and who collected it (which “party”). 

All in all, the suggestion that success will result from mere ownership of a “first-party data asset” is misleading at best.  Consider this: retailers have more data than anyone, and we are in the middle of a so-called retail apocalypse. Why didn’t their first-party data save them? Why doesn’t S4 just buy it at the fire sale? 

In the data business, sloppy use of vocabulary is insipid.  Is data an asset? Maybe. It is not really an asset if it is not fit for its intended use, and that’s always a big if. Worse, a minor GDPR slip can render data into a liability. 


It’s easy to romanticize data, as magical or ephemeral.  I can give it to you, but I still have it. It is invisible, and weightless. Its meaning will morph with time and context. It carries the illusion of being correct because we use the word “data” as a synonym for fact. However, especially with first-party data, the truth is a lot less romantic. 

Its bark is bigger than its bite. The real cause of someone coming to your website (yielding first-party data) may not have been that they are in-market. Further, the vast majority of people with intention visit only a tiny fraction of websites in the category. 

For this reason, most first-party data has tiny reach compared to the overall demand in a category. To fix that, either reach is modeled, or data is aggregated across sites, neither of which result in first-party data. 

Ownership bias, also called Endowment effect, is clearly in play here too. People over-value what they own. It is a well-established psychological bias that blinds data owners to the weaknesses in their first-party data. What might those be?

First-party data is used to contact people who already know you.  First-party data appears to perform because you got it from someone who came to you in the first place. However, if they bought your product and liked it, they will come back without advertising. If they hated your product, advertising will not fix that. So, nominally, first-party data is useless except for cross-selling, and insights. That means network effect is the key, so …. 

Data value grows exponentially with the means to extract value, not the quantity of data. And vice versa. If you sell everything, and know everybody, every transaction enables thousands of opportunities to learn and x-sell. Look at any Amazon page.  Conversely, if all you sell is toilet seats, your first-party data can’t be easily leveraged into adjacent categories.  

But a free and open marketplace for data is precisely what FANG wants to avoid. That’s because data markets erode the relative advantages of a data-powered walled garden.  Every time regulators throw barriers at the exchange and collection of data, they are giving a gift to Facebook, Google, and Amazon, while throwing everybody else under the bus. 

Presumably, S4 Capital wants to be in the bus, not under it. To do that, the company must run a gauntlet including: FANG, who would presumably wish S4 ill, and the government, who will limit data collection and exchange under the flag of privacy. More ominous still, S4’s strategy seems to snub the basics by standing on arbitrage more than value creation.  We hope there is more to the story. 

In the meantime, know that beauty is as beauty does, and so it is with data. 

1 comment about "1st-Party Data Is Overrated, Misunderstood".
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  1. Ari Rosenberg from Performance Pricing Holdings, LLC, July 11, 2019 at 10:03 p.m.

    Ted, you are so gifted at taking this over hyped subset of advertising that everyone else wants to make sound more complex, and making it completely understandable by a third grader.  So glad I caught this piece.

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