As data analytics and data-driven decision making become more inherent to everyday business, many companies are looking to external data sources to stay ahead of the competition. These efforts may include opening up information sharing with partners and even competitors, as well as purchasing data from third parties—an estimated $200 billion market. While the opportunities to improve business intelligence with external data sets can be exponential for companies, they do not come without risk. For executives today, knowing how your employees obtain and use data—both internally and externally—is critical to ensuring that your company is protected from outside threats or a failure to meet privacy regulations and compliance.
To help get a handle on this increasingly popular trend, a recent Harvard Business Review article looked at how data is bought and sold, who’s using it, and why. Whether you’re a marketing leader, CEO, or line-of-business manager, the article provides useful insights, including some dos and don’ts for purchasing data from external sources.
To summarize the main point of the article, data marketplaces are fueled by data brokers that collect consumer data wherever they can, including public records, social media posts, loyalty cards, and web-browsing behavior. Using artificial intelligence and machine learning, algorithms crank out profiles and audience groups based on an infinite range of factors—such as age, interests, and location—that can then be sold to companies.
A key aspect of purchasing data is trust. But the process by which data brokers create segments is kept secret for competitive reasons, according to the HBR article. For businesses, problems can arise when marketers, for example, end up purchasing data that can’t be trusted as accurate, leading to poor outcomes.
If trust can be established, companies should next focus on data quality. According to the HBR article, “Consumer information sold by data brokers varies greatly in quality.” To help overcome this challenge, companies should aim to get visibility into the data they are getting before buying it and avoid targeting broad segments by focusing on more narrow demographics.
If you’d like to read more, digital sovereignty is a topic we cover regularly on the APEX of Innovation, including posts on what’s next for personal data marketplaces, the role of blockchain and AI, and why you need sound data management.