Despite a Bullish Market, Data Clean Rooms Face ROI and Privacy Challenges

This year, 80% of advertisers who spend more than $1 billion annually on media are expected to use data clean rooms, according to the IAB’s 2023 State of Data report, which spans 200 surveys and 20 interviews among data decision-makers at brands, agencies, publishers and retailers. Beyond the hype, data clean room tech has its challenges, among them interoperability, proving return on investment, sharp costs and privacy issues—despite its claims to be privacy-preserving. “Clean rooms are critical for marketers with first-party party data and will continue to take a bigger seat in marketers’ data and analytics strategy,” said Delphine Fabre-Hernoux, chief data and analytics officer for North America at Wavemaker. But, she added, “clean rooms cannot become the only solution used by agencies and marketers.” To Grow This Year, Data Clean Rooms Shoot for Interoperability For data clean room use to grow, the industry needs to rally around a set of standards and explore more advanced use cases. "So far, most companies are using data clean rooms for privacy controls, matching data for collaboration and data activation," said Jeffrey Bustos, vp of measurement, addressability and data at the IAB. "But that only scratches the surface of what's possible." Limiting factors A clean room functions on first-party data, which is a limiting factor due to narrow use cases and applications, Fabre-Hernoux said, adding that more than 50% of the ad spend in the U.S. comes from advertisers who will never get PII-based first-party data. Meanwhile, many publishers and platforms are still working on identifying which data they are ready to share, and which use cases they are willing to support in their clean rooms with marketers and agencies. Survey respondents cited timeframes of months to up to two years to get up and running with the technology. “Marketers and agencies still need to get access to fast-moving metrics, which means that clean rooms will come as a solution integrated into overarching data and analytics strategies,” said Fabre-Hernoux. Comparing channel conversions Agencies, including Wavemaker, use clean rooms to evaluate the effectiveness of new channels. For one global entertainment client, it evaluated the conversion rate of over-the-top advertising versus other channels. By using the client’s first-party data, plus additional information from the Amazon Marketing Cloud, Wavemaker, through AMC analysis, identified that advertising on OTT drove an increase in purchase rate by 34%. To that, the campaign looked at five touch points before conversion, and OTT was present on top of all five conversion paths, accounting for 94% of total conversions. This led to changes in the media strategy, resulting in delivering an incremental reach of 20% and improving return on ad spend by 46%, according to Fabre-Hernoux. But less than a third of data clean room users are tapping into the technology’s advanced measurement, per the report. Most marketers have yet to lean into attribution, ROI measurement and marketing mix modeling, making proving their ROI a hurdle. “Companies need a sequential data strategy,” said Bustos. “They need to understand the cleanliness of their data, data asset and resources, and then understand what is going to deliver the most revenue.” For example, a company cannot do a reach and frequency analysis until it has executed an overlap analysis. To that, an incremental lift of sales can be done only if the first two strategies are implemented. There’s More to Clean Rooms Than Just Anonymizing Data Significant costs The adoption of data clean rooms requires a huge investment in talent, money and time—and the technology investment alone goes up $10 million per company, according to Bustos. Nearly two-thirds (62%) of users spent a minimum of $200,000 on the technology in 2022, with a quarter (23%) spending upwards of $500,000. To that, nearly half of the users (49%) had six or more employees dedicated to the technology. Often, these are data scientists whose salaries range anywhere from $300,000 to $500,000. However, these are an initial one-time cost. Over the last five years, many agencies have taken on the role of consultants, with full-time employees advising brands on data clean room strategy. These capabilities can also be built in-house. Nonetheless, marketers should consider additional interoperability investments critical to clean room expansion capabilities. While these colossal investments create an unfair market disadvantage for smaller players, they can muscle up through investing in data governance and consent management platforms, Bustos said. Disney and VideoAmp Team Up for Clean Room Integration Privacy challenges Although data clean rooms are built to address privacy concerns, protocols vary within each clean room, with 32% of respondents citing privacy as a challenge when using clean rooms. Here’s where things get technical. Most clean rooms have seven protocols in place, including encryption, redaction threshold and statistical anonymization, that work as a mutual agreement between players. “Depending on the data clean room you're using, it is up to the user to understand these privacy protocol controls,” Bustos said. “All players should agree on what privacy protocols they’re using and replace when data is shared.” This could lead to data mishandling. Further, the lack of internal expertise on these privacy controls contributes to slow adoption for more conservative companies. “These concerns mostly apply to those who decide to build their own data clean room on top of one of the clouds without an orchestration layer,” said software developer Habu co-founder and COO Mike Moreau.