Farhad Manjoo has a very interesting article posted earlier this week on Slate about online privacy (Google privacy: The good things that happen when Web companies use our personal data. - By Farhad Manjoo - Slate Magazine). It presents a view that you don't often hear, but really needs to be listened to.
The reality is that most online services are awesome because they can understand how their users interact with the service and learn from it. This requires collecting user data.
Here's a very simple example: How does Google know that the word you've entered is misspelled and offers you the corrected search query? Because it knows that other people who mis-spelled it the same way then went on to correct it. An aborted search followed by the correct search. It can only know that if it closely analyzes the search queries of its users.
Another easy example: If you search for "GEDS", you'll get a different result if you searching from Canada. (In Canada, GEDS is the acronym for the Canadian government's online employee directory.) Google knows that people in Canada who search for GEDS choose to go to the online directory. So it's the first result for Canada.
And it needs to be said that most of the internet is free because of advertising. Google spent $18 billion dollars offering mostly free services last year. Yahoo! spent about $5 billion. People, servers and bandwidth are all expensive. The reason why it's mostly free is because it's advertising supported. It's very simple. Advertising depends on knowing the general demographics of who is being presented with what ad. When more personal information is used to produce more relevant ads, the greater the return to the advertiser and to the service hosting the ads.
People are often suspicious of what they don't understand and most consumers don't understand how online advertising works. Many users find it creepy when they see an ad on Facebook that is apparently custom made for them. They assume that Facebook has disclosed their personal information to an advertiser. That's not the case; Facebook doesn't sell user information to advertisers. They simply don't. The reason why you seeing a particular ad targeted at your particular demographic and your particular interests in your particular city is because Facebook knows that information (because you told them) and because it is Facebook who is choosing the ad. The advertiser only learns about the number of times it was presented and how many times it was clicked on. Much less creepy. If Facebook couldn't present relevant ads, the service would not be free.
Part of the bargain is that consumers should expect honesty and transparency, and that the company follows fair information practices. There are bad actors out there, but people need to be discerning so that not all of them are tarred with the same brush.