Clean Room Technology: Future-proofing your data strategy

Author:
Nikolai Scholz
Director, Product Management
Adara, RateGain

 

 

In the ever-evolving digital landscape, clean room technologies have emerged as the ideal foundation for addressing major data challenges faced by both brands and destinations. These technologies have transcended their original purpose of linking walled gardens to first-party data, evolving to tackle pressing issues such as data privacy and preparing for the post third-party cookie world. In this article, we will explore the far-reaching implications of clean room technologies, their ability to uncover new opportunities like building sustainability or DEI metrics, and provide guidance on how to start implementing clean rooms. All the while, we want to emphasize the importance of clean room technology as a long-term and big-picture investment that caters to a diverse range of future business requirements.

The Current State of Clean Room Tech

Clean room technology has been generating buzz in the marketing world for quite some time. Initially emerging from walled garden platforms like Google, clean rooms aimed to offer previously inaccessible data while preventing leakage or misuse. Over time, this concept has evolved into a more ambitious space that empowers brands with greater control while alleviating major stresses. Now, in April 2023, we find ourselves on the cusp of the early adopter phase of the product adoption curve. What lies ahead is a competitive edge for those brands that prioritize consumer needs within their data strategies. This advantage stems not only from building trust with consumers before other brands but also from the valuable data accumulation that occurs over time, especially while third-party cookies are still around. The sooner a brand begins, the better its position will be once third-party cookies are phased out, and clean room technology becomes even more vital.

Apart from their fundamental role as an ethical data infrastructure, clean rooms serve as a versatile sandbox for brands to explore and experiment with critical issues that matter to both the brand and its consumers. Subjects such as artificial intelligence (AI), sustainability, diversity, equity, and inclusion (DEI), and other consumer-centric priorities necessitate proactive involvement from brands in addressing the challenges they face while simultaneously safeguarding consumer privacy. The potential of clean rooms is truly vast, limited only by the scope of data a brand can access and the time required for onboarding. By harnessing the power of clean room technology, brands can not only drive innovation but also create meaningful connections with consumers through a shared commitment to these vital concerns.

To better understand the current state of Clean Room we have the State of Data 2023 report by the IAB. In it, the IAB describes a Clean Room (or Data Clean Room, or DCR) as an “essential collaboration tool for audience insights, measurement, and data activation in a privacy-centric ecosystem.” The report also emphasized that clean rooms are not turnkey technologies, requiring substantial investments. Some intriguing data points highlighted in the report include:

1. 1. Nearly half of DCR users are leveraging the technology for data privacy actions. However, each of the following advanced measurement functions is utilized by less than one-third of users: attribution, ROI/ROAS measurement, media or marketing mix modeling, propensity modeling, and predictive analysis.
   2. Nearly half of DCR users (49%) have six or more employees dedicated to the technology—nearly one third (30%) have a minimum of 11 people.
   3. Respondents cited time-frames of months to up to two years to get up and running with the technology.

What these points underscore is the current state of Clean Rooms: their present usage barely taps into their full potential, and their implementation demands significant commitment and time. However, what the report does not dive into are the many varieties of Clean Rooms and the different entry points available that can simplify the journey and expedite the return on investment. Below, we have outlined not only the considerations you should take when selecting Clean Rooms, but also some simple (or not so simple) ways to calculate their return on investment.

Selecting the right Clean Room technology

When selecting or reviewing clean room technologies, there are several key considerations to keep in mind. One principal factor is whether the clean room technology is “furnished” or not. “Furnished” refers to whether it comes with all the necessary components, such as data anonymization, compliance, and governance tools, as well as the application layers to make them move-in ready from day one. This can be a convenient option for brands that want to get up and running quickly.

Another key consideration when selecting clean room technology is the level of contribution and support provided. Some clean rooms are sold as standalone products, while others are part of a larger suite of services and offerings that may include data that you would normally not have access to. Additionally, businesses should consider the scalability of the clean room technology, as well as its compatibility with existing systems, integrations, and technologies. By carefully considering these factors, businesses can choose the clean room technology that is best suited to their unique needs and goals.

For businesses that opt for an “empty” clean room, additional considerations come into play. These clean rooms require more steps and resources to set up and may require specialized expertise to ensure that all components are properly installed and configured. However, empty digital data clean rooms offer greater flexibility and customization options, allowing businesses to tailor the space to meet their specific requirements.

Businesses should also consider factors such as the data sources they will need to integrate into the clean room, as well as the specific tools and technologies they will need to process, analyze, and visualize the data. By taking a thoughtful, strategic approach to selecting and configuring their digital data clean room technology, businesses can create a highly effective, tailored space that supports their data-driven goals over the long term.

It is important to note that no matter the clean room technology, if you are looking to invest, make sure to account for the staffing requirements behind the goals that you set out for your data. This effort can always be offloaded onto the tech provider as long as it is part of the offering.

Here is a quick checklist of questions that might help you:

1. 1. 1. Do I need a “furnished” or an “empty, clean room? In other words, do I need it to work from day one or will I operate multiple systems in parallel until the clean room is completely set?
      2. Is it my priority to replace existing operations I perform with my data, or do I want to find new opportunities with my data?
      3. What is the starting capital and volume of data that I have? Is my own data stack enough for what I need it to do, or should I look for additional sources and/or partnerships.

Calculating the Net Returns of Clean Room Tech

The time-to-value of a clean room can be as little as a month or as long as two years, depending on the complexity of the data and the challenges that the brand is trying to solve. The math behind the calculation that would bring about the understanding of the “return” of a clean room is equally bound to the complexity of the challenge being solved. Unlike time-to-value, however, the value itself can be somewhat ambiguous as it goes beyond the monetary aspect of returns. To address this, it is important to look for a model that incorporates both monetary and non-monetary values.

While the ROI (Total Net Return/ Total Cost) model is straightforward, it unfortunately does not take into account the intangible benefits that are harder to quantify. These benefits can be referred to as the return on value (ROV); add a layer of time (forecast) and risk (as a result of regulation, as an example), and that makes it an entirely different formula.

Model 1

The most direct way to consider both the monetary and non-monetary factors, would be to put your best guess estimations in dollar value for each non-monetary benefit. This would result in the following formula:

ROI = (Total Net Return + Total Non-Monetary Value) / Cost of Investment

In this case, the first variable is calculated from the monetary elements just as in the original ROI formula: Total Monetary Gains – Investment Cost. The second element would be the sum of every dollar’s estimated value of the non-monetary benefits. For example, Brand A would estimate a $500,000 gain from introducing customer privacy into their data infrastructure over the course of its lifetime. This formula is very useful, but obviously has its flaws, as it is difficult to put a dollar amount on benefits that may or may not come to fruition at the scale that you anticipate.

Model 2

The second model focuses on calculating the ROI relative to your current setup and ROI estimate. In many ways, this is more relevant, seeing as clean rooms enter existing frameworks rather than creating new ones. The result of this model will help you understand if and by how much a clean room would be a better return on investment than your current setup.

Overall ROI Score = (Cost Savings x Weighting Factor) + (Productivity Gains x Weighting Factor) + (Risk Reduction x Weighting Factor) + (Customer Value x Weighting Factor)

What you are looking at is a formula that helps you calculate the weighted average overall ROI score of your potential clean room investment. This score considers several factors that are important for your business, such as cost savings, productivity gains, risk reduction, and customer value. Each of these factors is weighted according to its relative importance to your business, so that you can see which ones contribute the most to the overall score. By using this formula, you can better understand the value that a clean room can bring to your business, both in terms of financial returns and non-monetary benefits.

As an example, to calculate the Overall ROI Score for an implementation of clean room technology, we will assign values and weighting factors (Note: all weights should add up to 1), to each component of the formula:

1. 1. Cost Savings: The implementation of clean room technology allows you to save costs by reducing their reliance on third-party data providers and improving ad targeting efficiency. Let’s say you save $50,000 annually. Weighting Factor: 0.3 (30% importance)
   2. Productivity Gains: The use of clean room technology enables your marketing team to access better insights, streamline their data management processes, and make more informed decisions, resulting in an annual productivity gain of $40,000. Weighting Factor: 0.25 (25% importance)
   3. Risk Reduction: With clean room technology, you can better protect customer data and ensure compliance with data privacy regulations, reducing the risk of fines and reputational damage. Assume they mitigate risks worth $30,000 annually. Weighting Factor: 0.2 (20% importance)
   4. Customer Value: By leveraging clean room technology, you can deliver more personalized and relevant offers to customers, which enhances the customer experience and increases customer loyalty. Let’s say this leads to a $60,000 increase in customer value per year. Weighting Factor: 0.25 (25% importance)

Now, we can calculate the Overall ROI Score using the formula:

Overall ROI Score = ($50,000 x 0.3) + ($40,000 x 0.25) + ($30,000 x 0.2) + ($60,000 x 0.25) Overall ROI Score = $15,000 + $10,000 + $6,000 + $15,000 Overall ROI Score = $46,000

In this example, your implementation of clean room technology has an Overall ROI Score of $46,000 (for a single year), indicating a positive long-term return on investment when considering cost savings, productivity gains, risk reduction, and customer value.

Please note that no matter what method, the math of projecting ROI is not an exact science. There are always unpredictable factors that are either invisible today or just hard to predict. The purpose of such calculations is to get to a better understanding of how clean room values might be calculated.

How do you move forward?

Bringing in a new technology or convincing your executive team is no easy task, and there are a lot more questions that you may have at this time however there are some simple steps you can follow.

Step 1

Understand your starting point. What is the goal of the clean room to begin with and the first application (use-case) you want to fulfill:

• Future-proof your data and data strategy beyond the third-party cookie world
• Diversify your data assets to avoid dependencies on any single identifiers
• Activate and measure your data in a multi- and omni-platform approach
• Make faster decisions through streamlined analytics
• Enrich and/or share your data with data partners

Step 2

Identify all that you need to make your clean room strategy come to life:

• Solve for onboarding your first-party data in real-time and batch form via JavaScript, API, S3, GCS Bucket, or SFTP. More info available here.
• Make sure your customers’ PII gets tokenized and decentralized. You may add a salting value to ensure added encryption. More info available here.
• Have a very clear governance rules for your data at the onboarding stage to ensure oversight on the state, approved use, and lifetime of your data.
• Make sure you have flexibility to manage your own data clean room architecture for independent analyses and applications.
• Last but not the least, have easy automation workflows as well as solutions that can act on this data, measure this data and safeguard you from the deprecation of 3rd party cookies.

Step 3

Use the checklist from above and run it against your outputs from step 1 and 2 to identify the right Clean Room technology for you. Use the calculation models to help build the case.

Conclusion

In conclusion, clean room technology is poised to revolutionize the way brands and destinations tackle data challenges and seize new opportunities in the digital landscape. As a comprehensive solution for data privacy, sustainability, DEI metrics, and more, clean rooms empower businesses to innovate while maintaining consumer trust. By carefully selecting the right clean room technology and implementing a well-considered strategy, brands can ensure they are future-proofed against the phasing out of third-party cookies and ready to thrive in the privacy-centric ecosystem that lies ahead.

If you need more information on understanding how to build the right business case, showcase benefits, and have a clear roadmap for migrating to clean rooms, the team at Adara can guide your team. You can contact us here.