Data brokers under fire: What does that mean for nonprofits?

Data brokers under fire: What does that mean for nonprofits?

The buying and selling of consumer data – data brokerage – is a multibillion-dollar industry that is getting a lot of attention on Capitol Hill.  Nonprofits need to pay attention to this issue because the quality of your data may be impacted.

In October, Senator John D. Rockefeller IV, chairman of the Senate Committee on Commerce, Science and Transportation, expanded his committee’s investigation into the industry, an investigation that has been going on for more than a year.  So far, lots of questions are being asked in order to better understand business practices, risks, and potential privacy issues.  It’s early … but it’s serious.

Data brokers are critical to amassing large amounts of  data that are used to understand all sorts of social trends, consumption patterns, and more.  Think of retailers wanting to build consumer profiles and develop predictive models for marketing.  The more data that a retailer can mine about prospective customers, the better the chances of selling to those prospects.  McKinsey authored a great summary article about big data two years ago that is still good reading today.

Why should nonprofits care about data brokers being under fire?

The prevailing culture in most nonprofits when it comes to data is that they do not sell donor names and information.  Nonprofits prefer to protect the privacy of their donors.  So should nonprofits care?  The answer is “yes!”  Why?

Increasingly nonprofits have been turning to big data providers to help them improve the quality of their data.  Good data management is no longer just a matter of data hygiene – data cleaning – where old records are purged, duplicative records reconciled, and corrupted records restored.  Good data management also requires data enrichment – adding useful pieces of information to your existing records so that you better understand the donors and consumers in your database.

Take me, for example.  Ten or 15 years ago, it might be enough for a charity to know that I participated in their June 5K run and made a contribution to their annual Christmas appeal.  But if they knew that I graduated from the University of Virginia or that I co-founded the Cerebral Palsy Ability Center or that I am the founder and president of a company, then that same charity might approach me differently to make the next ask.  Better yet if they knew what my other charitable interests were, or if they could identify one of their own donors who has a connection to me.

Two sides of a donor

Years ago, a charity wanting to find out this sort of information would invest a lot of time and effort in getting to know me better.  Today, while the charity might still make that effort, they can speed up the process of getting to know me by purchasing data about me and “enriching” their database.  With that new data, the charity might identify 100 or 1000 donors in their database who could be approached differently, and more successfully.

Charities today have needs similar to the retail industry that is trying to build better consumer databases.  If your nonprofit buys data from third parties, or even if you are thinking about it, then what happens to data brokers matters to you.

Am I lobbying for the data broker industry?

No.  Let’s be clear.  I’m not advocating on anyone’s behalf except the nonprofit who wants better data.

The outcome of Sen. Rockefeller’s committee activity is a ways down the road, and I have no crystal ball.  But there is the potential for greater regulation and tighter controls on this industry.  If that happens, then nonprofits – like retailers – will experience more difficulty accessing more or better data.  That means that we may need to get smarter about how nonprofits grow their databases and improve the quality of their data.  Will data pooling agreements among charities become more common?  Will the mining of data from social media sources – a challenge, to be sure – become more important?

Stay tuned.

We will continue to follow this issue and the activities on Capitol Hill.  There’s definitely more to come.  This story is part of the fabric of charity data … and at Third Sector Labs, we are interested in all things “charity data”.

About Gary Carr

Gary is the founder and president of Third Sector Labs. With more than 20 years of experience delivering software and data solutions to a wide variety of clients, Gary turned his attention to the overwhelming problem of data. Third Sector Labs is committed to making sense of data for the nonprofit industry.

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