Why We Can't Stop Apple and Google From Selling Us Out

Includes: AAPL, GOOG
by: Lou Basenese

The recent firestorm over Apple and Google’s tracking of smartphone users’ locations isn’t the first time our privacy’s been “breached.”

In October 2010, for example, Facebook got blasted because many of the most popular applications on the social networking site were transmitting users’ information to a bevy of internet advertising and tracking firms.

And if you’re hoping for this to end, don’t hold your breath. The truth is, spying on consumers represents one of the fastest-growing businesses in the world.

Consider this: Research firm Gartner pegs location-based services (LBS) like Foursquare (which grew by a staggering 3,400% in 2010) as one of the top 10 consumer applications to watch. The group expects more than 1.4 billion consumers to willingly use LBS services – up 1,358% from a mere 96 million in 2009.

In dollar terms, we’re talking about the LBS market going from almost zero to $8.3 billion in just five years time.

While the recent revelations about Apple (Nasdaq: AAPL) and Google’s (Nasdaq: GOOG) activities have thrust LBS into the spotlight, it isn’t our mobile phones that are contributing most to our increasing loss of privacy… it’s our computers.

We’re Being Watched… Almost All the Time

Every time we go online, chances are we’re being watched. And we can blame it on the now defunct Netscape Navigator. Back in 1994, the company created the first “cookie” – a text file that stores online browsing information.

While it was originally intended to only store shopping cart information, cookies are now used to track every online move we make. And almost every website uses them.

A study out of AT&T (NYSE:T) Labs and Worcester Polytechnic Institute estimates that 80% of the 1,000 most popular websites track consumer behavior – up from 40% in 2005.

What’s worse, companies routinely skirt privacy rules by sharing consumer data with “sister firms” or affiliates. In fact, the top 50 websites share this data with a median of 93 sister firms.

Of course, most companies argue that they disclose the extent of their tracking activities in their privacy policies. But come on… not only are they full of incomprehensible legal speak, they’re ridiculously long.

Take Facebook’s privacy policy, for instance. It’s a mammoth 5,830 words long – 1,287 words longer than the United States Constitution. (Hat tip to The New Times for that insightful calculation.) It’s little wonder that nobody actually reads the darn things.

Whether we like it or not, the harsh reality is that privacy is no longer an option online. And quite frankly, companies don’t care about our desire to remain private anyway.

Case in point…

Our Personal Business is Big Business

Even the dictionary is tracking your movements.

In an interview with The Wall Street Journal last year, Dictionary.com spokesman, Nicholas Graham, said, “Whether it’s one or 10 cookies, it doesn’t have any impact on the customer experience and we disclose that we do it… So what’s the beef?”

There’s only one thing that justifies such a cavalier attitude – greed. And that’s precisely what motivates the invasion of our privacy.

At the end of the day, companies obsess over tracking our every last move online because it’s profitable. They can either use that information themselves, or sell it to another company in order to deliver targeted ads.

As David Moore, Chairman of 24/7 RealMedia Inc., says, “When an ad is targeted properly, it ceases to be an ad, it becomes important information.”

Whatever. It has nothing to do with delivering information. It’s all about increasing sales. And the numbers bear it out…

Advertisers Want Your Info… and They’ll Pay Big Money to Get It

Response rates to targeted ads check in at 6.8%, compared with just 2.8% for regular ads. So it’s no wonder that targeted ad spending is expected to jump 57% this year to $10.7 billion.

The higher response rates also explain why advertisers are willing to pay a premium for targeted ads. An industry study last year found that the average cost of a targeted ad was $4.12 per 1,000 views compared with $1.98 per 1,000 views for an untargeted ad.

If you need further proof that our loss of privacy is all about advertising and profits, consider this: Data tracking firm, BlueKai, sells approximately 50 million pieces of browsing information every day.

As the CEO of BlueKai says, “Advertisers want to buy access to people, not web pages.”

Turn the Tables on the Snoopers By Tracking These Companies

Bottom line: Our personal business is big business. Because if it weren’t profitable for companies to employ these tactics, they wouldn’t be using them.

And since Wall Street is ultimately motivated by greed, we should only expect the number of privacy breaches to increase in the name of better advertising.

So what can we do to fight our loss of privacy? Sadly, not much.

But that doesn’t mean we shouldn’t profit from the trend. In the LBS market, I’m tracking a handful of privately held innovators, including Foursquare, Poynt and SCVNGR.

Each one continues to attract impressive amounts of venture capital funding – and I suggest you put them on your watchlist, too, because it’s only a matter of time before they start filing for initial public offerings.