Many organizations are improving their analytics practices by incorporating data from third-party providers. Here's a look at the risks and best practices.

Mary E. Shacklett, President of Transworld Data

September 27, 2022

5 Min Read
a person at a laptop is holding a credit card
sondem via Alamy Stock Photos

There are many third-party data providers to choose from, and companies use third party data providers because they don't think that the data that they already have internally is enough to produce accurate results in their analytics.

One case in point is a healthcare system in Europe that wanted to determine trends for certain types of cancers; however, the organization didn't have broad enough demographics represented in its own data to perform the analytics needed.

The company contracted with a large healthcare data aggregator that had anonymized its data so records of individual patients could not be seen but allowed the trends across large swaths of diverse European populations to be seen. The anonymization was necessary because of healthcare privacy requirements and was an upfront requirement that the data purchaser had given to the aggregator before agreeing to buy the data.

Many companies like this choose third-party data aggregators to augment the data that they have in-house because it’s simply too costly and time consuming to build their own in-house diversified data repositories when there are commercial vendors that are prepared to offer turnkey data.

But how do you know that you’re choosing the best data partner? Here are five things to look for in a third-party data provider:

1. Data value

A marketing manager at a small community credit union shared this story with me:

Her marketing staff wanted more comprehensive demographic data on the individuals who lived in their community. They contracted with a marketing demographics provider in the financial space that provided them with a plethora of financial data about individuals who banked and did business in their community.

“This was great data,” she said, “But unfortunately, it wasn’t what we were looking for. What we wanted to know at the time was how many individuals in our community were underserved and unbanked? These were the individuals we wanted to reach out to -- not to the ones who already had a bank … We learned a valuable lesson. We needed to do a better job of clearly defining the business problem that we were trying to solve with the vendor at the first meeting. I believe that we weren’t specific enough when we talked to the data provider about our data needs.”

This is an important point.

While a majority of companies might be interested in market share, market promotions and product analyses, how well they are serving their customers and how they compare with their competitors, not every company wants only this.

You will only reap value for the data that you purchase if the data acquired enables you to address your business goals.

2. Data sources

A reputable data aggregator will tell you specifically where it has collected its data from, along with the size of its data samples.

This is critical to know.

For instance, if your company sells heavy duty home insulation in areas with cold, snowy winters, you might not care about what consumers in Florida want.

In other cases, you may have a mismatch with your data provider. For instance, the data sources that the aggregator is pulling from, or even how the aggregator acquires the data, might not conform with your own internal data privacy or governance standards.

One of the first steps companies should take with prospective data aggregators and sellers is to ask them for a list of their data sources so companies can determine if the data they are considering purchasing is in alignment with their own business needs, and with their data privacy and governance requirements.

3. Liability protections/audits

How often does the data provider conduct third-party audits of its data and its operations? Is the data provider willing to share the results of its latest audits with you?

Also, what guarantees does the provider offer to assure that the data it has aggregated has been aggregated legally, and that all data with the potential for infringing on individuals’ privacy has been properly anonymized? Is the data provider willing to assume liability for issues concerning its data?

4. Data quality/currency

How well prepared is the third-party provider’s data? Are there segments of data missing? Are there data duplicates or erroneous data? What about data currency? How often does the provider refresh all data, and is this enough to meet your own data currency standards?

Is the provider supplying enough unique data to make your data investment worthwhile, or is there a serious overlap between the data that the vendor is providing you and the data that you already have available in-house?

These questions should be considered during the data provider decision process.

5. Recommendations from other vendor clients

Before selecting a third-party data provider, it’s best practice to request a list of references and/or to call someone else in the industry who is already using this vendor as a data provider.

What have the business results been? Where has the data excelled in analytics? Is the data fresh and of good quality? Has the vendor been easy to work with? Has it kept its promises? What about vendor support? Has the vendor been there to help when needed, and were issues expeditiously resolved?

These questions can’t be answered in a conference room presentation, in an e-brochure, or even in a small pilot project or ‘try and buy.

The only way you can arrive at a reasonable determination of how the vendor is likely to work with you is to check with others who have engaged and know the vendor.

What to Read Next:

Data’s Struggle to Become an Asset

California Data Privacy Law Nabs Sephora, Sets Stage for Future

Quick Study: Finding the Right Data

About the Author(s)

Mary E. Shacklett

President of Transworld Data

Mary E. Shacklett is an internationally recognized technology commentator and President of Transworld Data, a marketing and technology services firm. Prior to founding her own company, she was Vice President of Product Research and Software Development for Summit Information Systems, a computer software company; and Vice President of Strategic Planning and Technology at FSI International, a multinational manufacturer in the semiconductor industry.

Mary has business experience in Europe, Japan, and the Pacific Rim. She has a BS degree from the University of Wisconsin and an MA from the University of Southern California, where she taught for several years. She is listed in Who's Who Worldwide and in Who's Who in the Computer Industry.

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