Could privacy fears burst the dot-com bubble?

Vast sections of the online economy are built on a key assumption, namely that people are happy to pay for "free" services in exchange for their personal data, which is then used to target them with advertising — as well as being traded with data mining companies. It's all spelled out in the terms and conditions, everybody does it, everyone accepts it, and this is just how things are done.

It's an assumption deeply ingrained in internet business culture, and especially the venture capital startup scenes. So deeply ingrained, in fact, that the few who go against that grain — like Dalton Caldwell, who charges people actual money to use his App.Net platform — are seen as renegades.

What if that assumption were wrong?

There have been signs recently that maybe people aren't as happy with things as the industry assumes. Maybe people's attitudes to online privacy are changing as they discover more about the scale and scope of the data mining they're subject to.

Last week, a survey on consumer attitudes to privacy was released by MEF, a global trade association for companies wanting to monetise their mobile services, in association with security vendor AVG Technologies. It showed significant levels of concern about the whole pay-with-privacy business model.

Half of the total respondents do give personal info online in exchange for services, but more than a third do so "reluctantly". Some 79 percent said they'd stopped an app download because it was asking for access to something they didn't want to give. And more than half of the parents surveyed who had children old enough to use the internet were uncomfortable with their children sharing personal information online in exchange for services.

The survey covered Australia, Brazil, Canada, Czech Republic, France, Germany, the UK and the US, with a total of 4,927 participants. For Australia, N=381, so the margin of error is roughly plus or minus five percentage points. But even given that fuzziness, it's fair to say that there are plenty of people who aren't exactly happy with the situation.

The survey also showed that following all of the recent news about surveillance by government agencies, particularly the US National Security Agency (NSA) and its allies and the PRISM program, almost half of those surveyed (49 percent in Australia, 46 percent "globally" in the eight surveyed nations) are more concerned about privacy, and almost half (49 percent in Australia, 46 percent "globally") are less trusting that companies are keeping their personal data securely.

I suspect that people have only been as trusting of online services as they have been because they didn't really know or understand what was going on. When it's explained to them, they're not happy.

Last night, the Australian Broadcasting Corporation (ABC) current affairs program Four Corners showed a typical family just how much of their online life is being tracked.

When eldest daughter "Katerina" was shown how data miners could tell that she'd been looking at boutique hotels in New York, where she plans to holiday, and that she's interested in a personal loan, she was surprised. "I think it is private information and I think, you know, with, especially the financial part of it, if I was looking for a home loan. I think if people sell that information about me, then that that could be, yeah, really worrying," she said.

When father "Jim" was asked what he'd do if someone were following his 12-year-old daughter "Christina" in the physical world to the level she's tracked online, he certainly wouldn't be happy. "What would I do? I'd go crazy, probably. I'd be very upset, yeah," he said — but only after a long pause to choose his words carefully, because he was on camera. You didn't need to be an expert in body language to know the dark place his thoughts had just visited.

Four Corners' anecdotes match my own. Two weeks ago, I presented a lecture about data mining and related issues to first-year media studies students at the University of Technology Sydney, an audience mostly aged 18 and 19 and almost all heavy smartphone users. Everything I told them about, from cookies to third-party advertising sites to data mining to the trade in personal data, was brand new to almost all of them.

Now, there have always been people expressing privacy concerns — a continuous, quiet gurgling in the background. But what we haven't seen before is the coming together of these two issues, of surveillance by government agencies and online tracking by commercial entities — and the collusion of the two — in mainstream news stories, continuing relentlessly for weeks and weeks.

If people are deluged with story after story about online privacy, eventually they'll stop to think. When they do stop to think, they're likely to be unhappy. And when people are unhappy, governments act.

It seems to me that the public is starting to realise that the internet industry has been serving advertisers and the surveillance state instead of its alleged customers. And yet, the high valuation of so many internet companies is based upon users continuing to provide them with more and more personal data.

Two years ago, I speculated that even without users losing faith in the online world, the sheer number of web startups gathering personal data would create an info-glut.

What happens when the world is awash with vast databases of personal data? When every pissant little web service is trying to flog its list of 30 million names, addresses, and browsing habits? Supply, demand, etc.

There's only so much analytics that advertisers will pay for. The bubble will burst. But personal information can't be put back into the bottle. Then what?

"Then what?" A second dot-com bubble with over-inflated company valuations, plus growing concerns about the very business model that supports them?

That sounds like a crisis point to me.