Second party data: the savior of the agency model

The death of the ad agency model is near. Or maybe the agency will survive, but the traditional agency is a dying breed. Maybe the agency just needs to reinvent itself. Whatever you think about the future of the ad agency, you can’t ignore the obvious fact: buying media inventory has become commoditized to the point where margins are razor thin. The hard truth is that media buying won’t save the agency model because data, not media inventory, is now the currency.

Marketers understand the new paradigm and they’re increasingly putting first party data first. But first party data, while incredibly valuable, has limited scale. One exciting solution is second party data. Second party data marketplaces represent an enormous opportunity for buyers and sellers alike because they help strike a balance between the need for scale and the desire for efficiency. Through the use of second party data, marketers can leverage specific and exclusive audience segments from publishers and even other advertisers. And within the marketplace for second party data, agencies can find a role that leverages their relationships and expertise.

What is second party data?

Second party data is another entity’s first-party data shared on a one-to-one basis. In an ideal world, an advertiser could rely entirely on first party data. But first party data faces obvious scale limitations, and second party data represents a way to expand the universe.

In a typical second party data transaction, the buyer makes a deal with a seller for specific data points, audiences or hierarchies on an exclusive basis. For example, an automotive publisher could license first party data around select audience segments to a luxury travel advertiser looking to reach high net worth individuals. Or a furniture advertiser could tap into a real estate site’s first party data to identify audiences of new homebuyers who are in the market for new furniture. Similarly, a movie distributor might leverage a lifestyle publication’s data to target audience segments that are most likely to have an affinity for a particular film.

Meet the old agency model, same as the new agency model

Historically, agencies leveraged economies of scale for marketer clients around media inventory—they were the biggest buyers by volume, and therefore able to drive price and selection. Technology has disrupted that business, but only to a point. Relationships still matter, especially when it comes to second party data. Remember, your client’s second party data is someone else’s first party data. Trading in that kind of information requires relationships, trust and market savvy.

Agencies are well positioned to manage those relationships, whether they be advertiser-to-advertiser, or advertiser-to-publisher deals. An automotive advertiser looking for luxury car buyers could find its audience via data from a financial news site, or it could turn to a high-end jewelry brand. Agencies cultivate those relationship, and as result, they can advise advertisers on where to acquire the first party data that best meets their needs. Just as important, agencies bring expertise to second party data relationships because they work at scale and across industries. Put simply, advertising has changed from a media business to one that’s data-driven, but on a fundamental level the agency’s role as relationship manager remains the same.

Why can’t marketers do it themselves?

Marketers absolutely could manage second party data transaction on their own. The trouble with that approach is that marketers may find it to be impractical and less efficient overall.

First and foremost, it’s more cost effective to hire an agency that aggregates those relationships rather than creating them one-by-one. Remember, marketers are already pressed for time managing their own brands, so it’s hard to see them finding the time or resources to make and manage a market for second party data.

But even if a marketing department had the time and resources to handle second party data on its own, an agency would still be more effective. In addition to leveraging publisher relationships to transact in second party data, agencies also bring a wealth of valuable third party data to the table. And no matter what type of data the advertiser is buying, an agency can leverage media spend and cross-client investment to get the best possible deal. But perhaps the agency’s most valuable contribution is its wide experience working with publishers. Agencies that understand the details of the publisher side can make the most of second party data and offer their clients strategic input and planning.

What will ultimately save the agency model is a focus on the assets that are most valuable to agency clients. Marketers have rightfully put a premium on first party data. Agencies should take notice by delivering value through second party data as well as the strategic expertise needed to leverage that data for maximum benefit.

Miles Pritchard is head of marketer solutions at Lotame. He tweets @Miles_Pritchard

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