Is Privacy the New Online Currency?

They say that one of the defining features of the web is that you can get anything you want - email, content, social networking - for free. But is that really the case? Daniel Lyons of Newsweek, in an article titled "Google's Orwell Moment," makes a compelling argument that our privacy actually serves as the true currency in the online world.

If you think about it, he's exactly right.

On the Internet, our personal information is valued almost as much as our pocketbook. Lyons argues:

"What's happening is that our privacy has become a kind of currency. It's what we use to pay for online services. Google charges nothing for Gmail; instead, it reads your e-mail and sends you advertisements based on keywords in your private messages.

The real holy grail is your list of friends. With that information, marketers can start sending more targeted messages. If you like a certain movie, or album, or mountain bike, your friends will probably like those, too. So they'll be good targets for ads for those products. Of course, your friends are not going to buy everything you do. It's not pinpoint accuracy. But the data helps marketers "narrowcast" their advertising. And it sure beats buying commercials on TV or splattering ads all over the Internet.

The genius of Google, Facebook, and others is that they've created services that are so useful or entertaining that people will give up some privacy in order to use them. Now the trick is to get people to give up more—in effect, to keep raising the price of the service."

The recent evolution of Facebook is a prime example of this. The site entered into a partnership with other popular sites across the web that allowed users to "Like" content from those websites and beam that information back to their social network. In essence, Facebook is making it easier (and more appealing) for its users to give them information on their individual browsing habits. That information is a goldmine for Internet companies and their advertisers.

It's no surprise, then, that privacy has become a major issue in the social media space over the last year, with two of the biggest names on the Internet both getting into trouble with their users. When Google introduced its Google Buzz social networking widget to users of Gmail, it automatically created a public contacts list featuring those contacts users emailed the most. Its user base erupted at this invasion of their privacy. When Facebook unrolled its new privacy settings, many users unwittingly ended up sharing more personal information with more people than they would have liked (in some cases, the whole Internet). User backlashes have made major headlines and prompted governments around the world to start cracking down on the use of private data on the web. A draft version of an online privacy bill in the U.S., released this week, would force websites to receive explicit permission from users before collecting any personal information about them (IP addresses included).

Is the revolt around privacy issues an aberration or the norm? The people at Facebook, of course, argue for the latter: the notion of private vs. public information is no longer relevant on the web, and people will be more than willing to give up their personal data and preferences in order to access an enhanced Internet experience. The movement reflects the "shifting social norms around privacy," according to one spokesperson. "People are not only sharing more information but also are becoming more comfortable about sharing more information with more people." As Lyons puts it:

"Maybe it's a generational thing. People my age (nearly 50, a.k.a. "the olds" in blogosphere parlance) would probably rather part with a few bucks than with our personal information. Younger people don't have as much money, and don't care as much about privacy. So they're happy to go along with the deal being offered to them by Google and Facebook.

The genius of Google, Facebook, and others is that they've created services that are so useful or entertaining that people will give up some privacy in order to use them. Now the trick is to get people to give up more—in effect, to keep raising the price of the service."

It's clear that as long as people continue to find value in these services, they'll continue to give their privacy away - likely a lot quicker than their money.