Third-Party Data Crunch

It’s hard out there for a third-party data provider.

Facebook announced this week that it's shutting down Partner Categories, a product that enables third party data providers to offer their targeting directly on the platform. The move comes on the heels of the social network's ongoing scandal with Cambridge Analytica, in which data was collected without people's permission for voter targeting purposes. The restriction of third-party targeting by Facebook is yet another impediment to the use of third-party data in advertising.

An additional burden for advertisers that rely on third-party data—and the vendors who specialize in that business—is that the EU’s General Data Protection Regulation (GDPR) will start being enforced in May. The GDPR states that people’s data can only be used if they give a company explicit permission.

Many marketing tech vendors, and marketers in general, don’t have direct relationships with users, so they rely on third-party data that’s often obtained without user consent. This could become problematic, because companies that are found to be in violation of the GDPR will face a fine of $24 million or 4% of annual sales, depending on which figure is higher.

Both Facebook’s announcement and the upcoming GDPR reflect how users have come to view tech companies and digital advertising more critically. Most of the UK internet users in a February 2018 study by The7Stars said the GDPR is making them question how much data companies collect on them.

And according to a separate February 2018 survey of US internet users by Axios, 55% of respondents said they’re worried the government won’t do enough to regulate the way tech companies operate. In November 2017, only 40% of those polled felt this way.

By backlashing against tech, users are sending the message that “advertising has to take the data needle out of its veins a little bit,” said Matt Rosenberg, an independent digital media consultant.

The timing of Facebook’s announcement insinuates that it's dialing back ad targeting with third-party data to improve its digital privacy policies in light of the Cambridge Analytica saga. But there’s a good chance Facebook was going to make these changes anyway to comply with the EU’s GDPR and ePrivacy directives, according to Ari Paparo, CEO of programmatic platform Beeswax.