Facebook's recent decision to clamp down on how brands can and can't use third party data for ad targeting is causing a boom in legal work at agencies.

As Facebook continues to wind down Partner Categories — an ad product which allowed big brands to access third-party data like household income and loyalty programs from companies like Oracle and Acxiom to deliver ads, agencies are shifting gears.

Advertisers now have the option to tap into a Facebook program dubbed Custom Audiences, which still lets them work with third parties data companies but removes Facebook's involvement in helping advertisers craft audiences.

In other words, when it comes to data, Facebook is dumping any and all consumer protection responsibilities onto marketers.

As a result, brands and data brokers now work together to create their own contracts, which are turning out to include lengthy and sometimes muddy terms and conditions, according to agencies.

Using third party data on Facebook is becoming messy, and pricey

In interviews with six agencies for this story, several execs agreed that Facebook's new guidelines around third-party data are an important — if not necessary — step for the company as it continues to seal up its platform against possible data mishaps and privacy issues for advertisers.

The heat has been on Facebook over the past year to get its ad targeting policies right, following the Cambridge Analytica mess, accusations of Russian election meddling, as well as the rollout of European Union's General Data Protection Regulation.

Some see Facebook's decision to get rid of Partner Categories as a way to protect consumers. Others see it as a way for the social networking giants to assert more control of advertising on its platform while dodging responsibility.

Besides the new moves to rework its relationships with third parties, Facebook has also rolled out transparency tools and eliminated thousands of discriminatory ad targeting options for advertisers, which are collectively geared at cleaning up the platform for advertisers by putting new controls in place.

"Facebook has forced all our hands but I think it creates a good opportunity in some ways to talk to clients about how to think more deliberately about how they buy," said Jon Taylor, SVP of global data strategy at Essence. "Going through that process is a little cumbersome because you have to do contracts — while that may seem like a drag, [it] actually forces the marketer to watch a lot more closely what they're buying."

There is a lot of uncertainty when it comes to which parties are liable for data usage on Facebook

While these changes may be making advertisers more aware of what they are actually buying on Facebook, the transition from Partner Categories to Custom Audiences has been rocky for some, particularly with figuring out how liability for data breaks down between parties.

"Selecting a segment from an audience marketplace and testing it online is quite different then putting pen to paper with a direct seller, making commitments and taking on more direct liability," Taylor said.

Plus, there are a sprawling number of ways that advertisers use data on Facebook that slightly overlap with each other depending on the use case that need to be ironed out in contracts:

Brands own first-party data like email lists and website orders. But those data sets are usually too small to run big campaigns that target millions of users.

Data providers pull in aggregated stats from surveys and store-loyalty programs to create large pools of third-party data — but it's anonymous and often meshed with first-party data from brands.

Agencies don't typically own data but they do get paid by brands to manage it for brands.

That's led to one big unanswered question that agencies are mulling as they negotiate new contracts and deals: 'Who is liable for third-party data on Facebook if Facebook is not?'

"It is this phenomenal game of hot potato where everybody in the space is trying to push the potential liability to somebody else," said Jeff Ratner, chief media officer at iCrossing.

"We've spent a lot of time looking at terms and understanding where that liability may or may not rest. As an agency, even when we're working with clients' first-party data, we're saying to the client, 'you [have to] give us your customer base, you have to validate that the information is usable in the exact use that we're proposing.'"

Agency execs are becoming BFFs with their lawyers

On August 15, Facebook stopped offering advertisers the ability to create audiences using third-party data within its platform. Advertisers that created third-party audiences before then can continue to run un-edited campaigns through October 1 when Facebook will officially turn off the spigot to the program and stop delivering campaigns.

As part of the shift, Facebook outlined the terms and conditions for Custom Audiences in May. Since then, agencies and data companies have spent hours poring over the document to understand what exactly they are liable for.

"I've had endless conversations with our legal department in the last two months," said Anita Walsh, director of social strategy at Horizon Media. "There are definite nuances around who owns the ad account, for example. Is it the client or the agency on behalf of the client?"

According to Facebook spokeswoman, "an agency acting on behalf of an advertiser must comply with our Custom Audience Terms. Those terms also require that anyone uploading a Custom Audience on behalf of an advertiser must have the authority as agent to the advertiser to disclose and use the data on the advertiser's behalf and will bind the advertiser to the terms."

Facebook acknowledged that some marketers found the terms difficult to understand and has clarified one part of it. Last Wednesday, the terms and conditions were updated with additional information about how brands can work with agencies to run campaigns.

Previously, the terms said that advertisers could not sell or transfer their Custom Audiences. The update clarifies that marketers can "independently work with partners off our platform to create Custom Audiences, as long as they have the necessary rights and permissions to do so."

"Advertisers routinely work with agencies and data providers to develop and manage their ad targeting audiences," Facebook wrote in a blog. "For example, data providers and agencies create, upload and then share certain Custom Audiences on behalf of advertisers. So we're clarifying our terms to make it clear that advertisers can do this."

According to Horizon Media's Walsh, the high-level rationale behind the changes were clearly communicated from Facebook. But the actual process of switching between Partner Categories to Custom Audiences has been "a bit challenging."

"The concepts were well communicated and I think everybody understood the reasoning, but the detail and the actuality of how to implement the replacement or new process going forward took a little longer than everyone would have hoped and went to the wire," she said. "The terms and conditions are long and that is one of the elements that is most confusing currently — ensuring that we as buyers who are deeply trained in buying Facebook ads are equally as trained in what we can and cannot accept."

"We have become great friends with our legal department over the last two months."

And data providers want to become BFFs with agencies

Without a direct spigot into Facebook's platform, Cliff Atkinson, RPA's svp and executive director, said that data providers are actively pitching agencies. Based on those pitches, which walk advertisers through how they collect data, Atkinson believes that data providers are liable for third-party data — though he said that the discussions are still early.

"It definitely created a shift in how we work with data providers moving forward," he said. "They are almost seen as on equal footing as our vendors or media partners now — we are doing more direct deals with them."

Facebook's US partners for Custom Audiences are Acxiom, Oracle, and Experian. All three companies either declined to comment on the record or did not respond to press queries for this article.

"These data providers are stepping up — they're reaching out and asking to have meetings, to present their offerings in a different way," Atkinson said. "They know that the availability of their data on other platforms is no longer available and they're losing out on that revenue coming in. They need to do some work and speak to agencies directly about the advantages of using their data. Once you see multiple data providers reach out, you want to get a clear understanding of what differentiates their data versus one of their competitors."

Essence's Taylor agreed that data providers are ultimately responsible for data used in campaigns. "Whatever is in that agreement between the marketer and the data provider is the backstop," he said.

Brands are waking up to the costs of data. Some are asking whether it's even worth the trouble.

Third-party data has always been murky and hard for advertisers to understand. Now Facebook is revealing exactly how much brands pay to access it, which several agencies said has caused sticker shock from clients.

Previously, a line within Facebook Ads Manager showed marketers that purchased Partner Categories a blended rate for data costs from its partnerships with providers. The language did not disclose the exact percentage that advertisers paid for data but said that up to 15% of spend went towards data costs.

Now under Custom Audiences, the cost of data is worked out between advertisers and providers ahead of time in contracts and is shown as a line item in invoices, breaking down the exact percentage that advertisers pay for data-related fees.

The move opens up transparency around fees. But it's also causing brands to wonder if paying for third-party data is worth it.

At 15%, a million-dollar campaign would total $150,000 in data fees, for example.

"There is certainly a very warranted discussion if we — the brand — are willing to pay X percent of X CPM on any data set," Horizon Media's Walsh said. "[We're] doing a lot of tests and learning approaches to learn if the results will pay back in upfront investments in third-party data."

Some marketers are rethinking third-party data altogether

To be clear, lots of advertisers don't even use third-party data in the first place and either use first-party stats or rely on Facebook's own powerful targeting tools to do the heavy lifting.

Direct-to-consumer brands and retailers collect data straight from their shoppers while automakers, CPG brands and entertainment marketers are some of the biggest spenders of third-party data because they don't have direct relationships with their customers.

"We stress and focus on first-party data a lot," said RPA's Atkinson. "We've seen that first-party data outperforms third-party data."

Before August 15 when Partner Categories ended, "a fairly high percentage" of Horizon Media's clients used third-party data. "That percentage has certainly dropped," Walsh said. "It may not drop forever and it's a significant testing period, but it's very likely to change across the board now that we see this line-itemed cost and how the new user flow works."

And with more scrutiny on data under laws like GDPR and looming privacy laws in California and elsewhere in the US, several agencies stressed that they're pushing brands to move away from relying on third-party data.

"What clients should be thinking about [is] ensuring that the data was acquired rightfully and that customer consent was given," said Guillaume Lelait, CEO of Fetch US. "Third-party data is perceived a little murky by some clients with no clear transparency of how it was acquired, so we are educating them on the right steps to take to ensure this is compliant."

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