At first glance, the recent changes in how we can target on Facebook are pretty unnerving, especially considering the number of SMBs that are solely reliant on digital advertising right now due to the pandemic. The question is…how bad is it really?
In order to understand the impact of Apple’s privacy changes and how that will affect Facebook targeting, first you need to understand the types of data a typical marketer (of whatever size) collects and how we use it. Once we’re clear on that, we can explore the impact that losing third party data will have on our marketing efforts. Finally, I’ll cover the implications. That’s what most people really want to know about, after all. What do these changes mean? And what marketing strategies will pop up to replace the old ones once the loss of cross-app/website and cross-device behavioral and intent data is realized.
Meet the data parties - 1st, 2nd, and 3rd party data
The biggest change we will all see with the new Apple privacy rollout involves the use of third party data. What is third party data? It is data that is collected from parties that are unrelated to the user or the platform that they are using. To better understand this, let’s explore what 1st and 2nd party data are and then return to 3rd party data.
First Party Data
First party data is data that you collect on your own website and your own systems. This can include your website, CRM, POS, customer service data, in-store tracking, etc. For example, using a tool like Google Tag Manager you can create custom “events” on your website that tell you about user behavior on your site. Using this you can track how far down a page someone scrolls, whether they start a form and then don’t submit it, if they watch a video and to what point, etc. This data can then be used to personalize and customize both the web experience someone has when they return to the website and the ads that they see in the future. It can also give you invaluable insight about how good of a job your ads and landing pages are doing at converting your audience into customers.
Well, good news: first party data is not going away. It is true, implementing first party data tracking systems takes more technical prowess and deeper strategic understanding and planning than other types of tracking, but it can be extremely effective in driving more conversions and ROI. According to a report from Econsultancy and Signal, first party data is the most valuable data that a business can have. What it lacks in reach and scalability it makes up for with its unmatched quality.
Second Party Data
Second party data is data that you utilize through a direct partnership or relationship. The entity that you have the relationship with has the first party data that you want. Since you have a direct relationship with the entity but you did not collect the data yourself, it is considered second party data. This data gives you more reach and scalability than first party data but is less accurate since you did not collect it yourself. This does not mean that it is not useful, but simply that it, like all data, has limitations.
What does second party data look like in action? I have two examples for you. The first is a data management platform (DMP) that has collected data directly that you can use to reach new audiences and drive acquisition. This allows you to make decisions on who to target based on data that someone else collected. You make a direct agreement with that entity and they allow you to use their data. Oftentimes this happens between two companies who would mutually benefit from one another’s data. Another model is the pay-to-play model, like with a demand-side platform (DSP) where a marketing agency will pay a premium to serve ads to a particular audience. The more valuable or precise the audience is, the more it costs to reach them. While driving up the CPM for your campaign, the increase in conversions almost always makes the cost worthwhile.
A second example would be a digital marketing agency making an agreement with a business publication. The publication would likely have data about who is reading marketing articles and could allow me to target those people for a fee. Alternatively, if we had valuable information about businesses that we had collected from a survey or evaluating our clients’ advertising behaviors, the digital marketing agency might be able to exchange data.
Third Party Data
Third party data is a completely different animal. Third party data is collected across multiple websites, apps, browsers and online activities. The data is then organized in order to build profiles. The entity creating these profiles usually has no relationship with the user whose data they are collecting.
Facebook Ads is a perfect example of this. The targeting changes at Facebook will not remove your ability to use the data that Facebook itself collects when you and other users are on their website or app. In the earlier days of advertising on Facebook, there were far more second party data options than we see today. For example, we used to be able to target people based on the specific pages that they liked on Facebook and now we can only target based on “interests.” With the rule changes, these second party data options may return again.
I know, those features alone sound very powerful. If you can target people based on how they interact with Facebook’s many groups, pages, ads, and news articles you should be able to build a pretty solid audience that will allow you to reach new people with accuracy, right? Well, it’s not wrong. But the fact is that this level of targeting does not hold a candle to how powerful Facebook’s 3rd party data offerings have been for businesses.
What I just described on Facebook alone gives us a solid view into who our audience is and what they like and prefer. But if Facebook’s second party data gives you a solid view, then its third party data gives you a seat in your target audience’s living room. By stitching together a narrative of behaviors across practically all of your online behaviors, platforms like Facebook (with their powerful algorithms) do more than identify you – they understand you and predict your likelihood to purchase something and when you might be most likely to make that purchase. This is what, for better or for worse, we are losing for our iOS users with Apple’s latest change.
The thing that many marketers will miss the most are the lookalike audiences (LALs). These are audiences that you create by uploading a list of your customers or building off of your list of Facebook and Instagram followers or engagers. Lookalike audiences are the super children of Facebook’s third party and first party data vaults that allow you to match the profiles of your customers and followers to people who are not. There has likely never been as effective of a tool to scale your audience affordably and with relatively little marketing background or skill. This is not a knock on self-made marketers – clearly, they have done well in the age of Facebook third party data targeting. But the fact is that self-run campaigns built on CRM lists and LALs may have had their time in the sun… marketers only using these tactics will now need to look at first and second party data as well as contextual marketing and SEM to continue on a similar path forward.
So, what does it all mean?
Now that we have taken a closer look at what first, second, and third party data is, let’s discuss how losing third party data will impact marketing for both small and large businesses.
One of Facebook’s claims is that Apple making this change and disallowing the use of third party data will disproportionately hurt small businesses who rely heavily on third party data for their marketing. Why are small businesses relying so heavily on third party data compared to their midsize and enterprise counterparts? Well, first party data is available to everyone but collecting it, organizing it into meaningful buckets, and then deploying it in strategies is a bit harder than one might think. It takes technical skills that are more difficult than the buttonology of Facebook’s Ad Manager tool, which is still a bit techy for many who opt to utilize the Facebook Page or deploying ads rather than the still easy-to-use but more cumbersome Ads Manager.
The second reason that small businesses have less first party data is that they generally lack of a powerful tech stack. While the adoption of CRMs and project management tools has been skyrocketing in recent years with some 87% of businesses expected to take on new tech this year, small businesses still lag behind in adopting systems like HubSpot, Salesforce, and more that could help them to merge all of their user behavior into more powerful and deployable first party data.
My prediction is that we will see a boom in the utilization of these types of tools and an emergence of companies who can understand the needs of small businesses and assist them in getting the most out of a tool that will likely cost more than what the small business owner hopes or plans to spend on tech. While price tags upwards of $1000+/mo can seem out of reach for a business that only does $200k a year in business, customizing those tools to specific business processes and leveraging automation to its fullest potential can give even small companies a serious ROI from their tech stack.
Second Party Data and SMBs
The use of second party data is yet another area where SMBs have routinely been left behind, but I would expect (and hope) for that to change in the coming months and years. As more agencies adopt business models like ours that aim to provide enterprise-level solutions at scale and with affordability with nimble teams and low overhead, you will see more SMBs leveraging the tools that have, to this point, been largely reserved for enterprise companies. Second party data is a big part of that conversation.
The best way for most companies to access second party data that is actionable is through a DSP, which leverages a DMP to provide data to customers who are buying ads on their platform. These platforms are usually more technical in nature and do not offer the easy sign-up processes that Facebook, LinkedIn, Google, Bing, and Instagram do. You need a contract to utilize their services, and if your business does not have credit and references then you also need to pay up front. Just the process alone will scare most companies away, especially if they don’t have a dedicated marketing team or have complex internal approval processes that create friction when onboarding a DSP. Small and mid-sized digital marketing agencies will likely lead SMBs and even enterprise companies who are now lost without that magical Facebook lookalike audience to second party data and other contextual solutions via DSPs and programmatic advertising. The future may not look the same but it is still bright.
Where to Next?
At least at our agency, we have already started to shift strategies for clients to meet the challenges of these targeting changes. In fact, we were exploring new strategies before the Apple v. Facebook spat came to a head, but now we’re pouring even more resources into it. In the coming months, multi-channel marketing will replace Facebook centric campaigns and more technical marketing, leveraging the power of DSPs, will take center stage. This is how we’re getting ready for that shift with our own clients, ranging from SMB to enterprise and ecommerce to SaaS and even nonprofits.
Encouraging Better First Party Data
As I mentioned above, first party data is the best quality data that a business can have. What it lacks in scale it makes up for in precision. By deploying smart, custom tagging and tracking strategies and then leveraging that data via automated segmenting and targeting, your ad dollars will be better utilized and give you a better ROI.
In addition to better on site tagging and tracking, we are recommending CRMs to many of our clients who want to be able to consolidate their efforts with greater automation and personalization. This will not help our clients to find new audiences, but it will certainly make them more effective with the clients that they already have. That can make a big difference in any business.
Exploring DSPs and DMPs
As I have explained, second party data can be quite powerful, especially when utilized with the right tactics and a full-funnel approach. Whether you are using geofencing to build an audience or if the data collected by a DMP lets you know that a specific bucket of users are particularly sympathetic to causes for animals, second party data is a completely viable option for expanding your reach and has been for quite a long time.
Small and midsize business owners will need to educate themselves on the models used by DSPs to understand the difference in how their ad budget will be spent. Second party data costs are usually layered on top of your CPMs, adding a percentage to your CPM. While your CPMs may be higher, your click-through rates (CTRs) should be, too, and your cost per acquisition (CPA) should go down. Solid reporting, including multi-touch attribution, will be instrumental in understanding the value of your ad spend as you move away from a Facebook-centric advertising approach.
Introducing Contextual Targeting
Contextual, keyword, and intent targeting will continue to shape the future of display marketing. This type of targeting does not utilize third party data and instead uses a combination of contextual targeting and second party data to accomplish some amazing things. When we first adopted contextual and categorical targeting in late 2018 we saw an average increase in conversions from display advertising of 30%.
This type of targeting allows you to choose where your ads are seen based on the content that is on the page where the ad will be placed or the keywords that are in the URL. Placing an ad within the context of similar information increases user receptiveness and therefore increases their likelihood to notice and ultimately click on the ad. Now, contextual targeting takes strategy and experience to be done effectively. Too often, business owners will put their ads where they think the ads should be or where they would like their brand to be, but not where it actually makes the most sense for their ads to be placed.
Categorical targeting behaves similarly to contextual and keyword targeting. I like to think of this type of targeting as the middle ground between traditional display and SEM. There is intent and interest, as one gets with search engine marketing, however, the context with which the ad is received is completely different and the clicks are much cheaper as well. I encourage abandoning search marketing all together, in fact, I see SEM and contextual display as friends who are better when together.
Championing Old-School SEM campaigns
Search engine marketing might be the oldest trick in the book, but it is still highly valuable in every type of campaign we run. With a focus on user intent, it is still a great way to effectively and efficiently grow your audience. Yes, you need to ensure that you build ad groups, match types, and your bidding strategy with insight and expertise. It also takes a solid understanding of user intent and messaging – but none of this is out of reach for small agencies and even small businesses. With the boom of content marketing and inbound strategies, more people are adept with this than before, so there will be an abundance of experts to lean on and to lead the way. And, yes, expect inbound to continue to grow even more than it has with the COVID-19 pandemic. Great content will continue to be an effective way to reach new audiences.
Now you know what i think...
So that’s my take on the new targeting changes coming down the pike as a result of the iOS 14 update. Part of me is sad to see the targeting capabilities that have served many of our clients go away. Another part of me is happy to see the abuses that have been available at scale by these advertising methods go away as we usher in a slightly more transparent marketing world once again. Will these changes stifle marketing extremists? Will they only serve to irritate advertisers while making Apple’s bottom line a bit healthier in 2021? Only time will tell