[This article was updated on 8/29/2022 to clarify the distinctions between no-party data technologies and zero-party data sharing].
For more than two decades, the economic advantages of third-party firms’ collection of information on consumers stymied technologists’ dreams of giving people more control over their data and inhibiting the collection of personal information.
Now, faced with increasing privacy regulations and penalties, public agencies and private-sector businesses are leaning into the concept of “no-party data” — information that can be gathered by companies without identifying the user nor using third-party cookies. As a result, technology firms and academic researchers are developing data architectures to support no-party data technologies while giving control — and more data security — to the consumer.
In some ways similar to “zero-party data,” the no-party data movement has gained traction because of the consumer pushback against third-party advertising-technology firms, which often collect data against the consumer’s wishes, says Ant Phillips, chief technology officer for Celebrus, which announced its no-party solution earlier this month.
“Third-party data collection and data sharing is not something that consumers ever signed up for — they did not wake up and say, ‘I want to share my data with lots of companies,'” he says. “The business case [for no-party data] is around brands wanting to do the right thing for consumers because most consumers do not have a problem trusting certain brands, but they don’t want to spread their data all around the Internet.”
The Struggle Is Real
Giving consumers control over what information is collected about them has been a long struggle. In the late 1990s, pro-privacy firm Zero Knowledge Systems attempted to create a certificate-based system that could attest to certain consumer attributes — such as being an adult — without the need for personal identification. In 2008, Microsoft pursued the technology in its U-Prove system, after acquiring the company Credentica, which was founded by Stefan Brands, a former ZKS cryptographer.
For the most part, those technologies could not compete with the business success of ad-tech firms using third-party cookies.
The result is that privacy-conscious consumers actively fight against cookie tracking, and policymakers and browser developers have followed suit. In 2017, Apple announced its Intelligent Tracking Prevention, which would block tracking through third-party cookies, much to the consternation of advertisers. Since 2018, the European Union has required advertisers to get users’ consent to use third-party cookies. And in 2019, Mozilla announced that its Firefox browser would block third-party cookies; Google followed suit, pledging to phase out third-party cookies in 2023. Facing low opt-in rates, companies have resorted to the deceptive design of the dialog boxes that ask users to consent to using their data.
With significant resistance to data collection, companies have focused on engaging with consumers. No-party data allows companies to keep users anonymous, forego using personally identifiable information (PII), but tailor the user’s experience using classifiers stored locally on the user’s system. “Zero-party data,” a term coined by Forrester Research, is information collected directly from the consumer, typically through preference settings or micro-experiences, and allows a product maker or service provider to directly ask a consumer about their habits.
Both technologies forego third-party cookies, bolstering the relationship between business and customers. Such approaches that minimize gratuitous data collection are the future, says Stephanie Liu, an analyst with Forrester Research.
“The principles of zero-party data are going to be the foundation of data collection moving forward: transparent, consented, and provides value back to the consumer,” she says. “Brands are historically terrible at asking consumers for data. … But as consumer data gets harder to acquire, companies need to invest in the strategy and tech of what they’re going to ask of consumers, how, and what benefit they’ll deliver in return.”
‘Creepy’ Targeted Advertising
The battle between advertising firms and privacy advocates often centers around tracking of citizens across websites. While tracking people through their real life is usually prohibited, large online ad-tech firms are able to effectively stalk consumers across the Internet. Currently, more than 80% of US citizens believe they lack control of the data collected about them by companies and the government, and they believe that businesses collecting data poses risks that outweigh the benefits, according to a survey by the Pew Research Center.
A significant part of the problem is that, despite the data collection, advertising either seems to miss the target or is so accurate that it’s borderline creepy. In addition, ad-tech firms often catch behavior that has nothing to do with consumer buying intentions or habits, and they often use information in ways consumers would not approve. Policymakers have recognized the unintentional privacy costs of the third-party data market, passing regulations such as the General Data Protection Regulation (GDPR) in Europe and the California Consumer Protection Act (CCPA) and similar legislation in the United States.
For all these reasons, the third-party data model is broken, argues Celebrus’ Philips. Consumers do not want to be tracked, and the slight benefit of ad-tech firms’ capability to tailor marketing is greatly outweighed by the privacy risks posed by the technology and the fact that advertising firms’ predictions of consumers’ interests are often not accurate.
“From an economics view, the whole model is wasted capital — it’s an economic waste,” he says. “One misplaced ad is not going to break the bank, but in aggregate it is inefficient.”
With no-party data, the consumer can gain the benefits of a personalized experience, but in a way that allows control of the data. Otherwise, they have no guarantee that the third-party companies will not use that data in ways that were not intended.
Technology firms have started offering solutions to do just that. Celebrus’ system, for example, stores information in local storage, allowing the consumer to retain control, and does all personalization and processing on the user’s machine. On its face, the technology resembles Solid, a project created in a collaboration between Web progenitor Tim Berners-Lee and the Massachusetts Institute of Technology, which allows users to create virtual data “pods” on their systems that they can give trusted companies access to in a granular way, says John Bruce, co-founder and CEO of Inrupt, which is commercializing the technology.
“Solid allows people to make themselves known to providers without losing control of data,” he says. “Businesses are truly beginning to understand that they can better service the customer if they retain their trust and allow them to keep control of their data.”
Consumers Want Personalization
Ad-tech firms will not go away, but they will likely have less access to consumer data. Delivering personalization to consumers while at the same time limiting the collection of data will be the future, according to analyst firm McKinsey & Co., which found that 71% of consumers expect a personalized experience. Companies that excel at delivering that experience typically see 40% more profits on those services, the firm found.
The result will be that advertising will be less targeted but closer to what consumers want and with less of what we have today — annoying, creepy, and harmful uses of data, says Forrester’s Liu.
“[I]t’s not just the shoes you already purchased that still follow you across the Internet, but [advertisements targeting] those who’ve lost their pregnancies and can’t opt out of baby ads,” Liu says. “A big part of why we’re here — with Apple releasing new privacy features, a quickly evolving privacy regulatory landscape, and rising consumer awareness — is because we’ve creeped out consumers, and they are fed up.”