Google's privacy challenge

NEW YORK (CNNMoney.com) -- When dealing with privacy, Google often finds itself walking a tightrope.

After all, the company's mission is "to organize the world's information and make it universally accessible and useful." Sticking with that mission while guarding your privacy needs can put Google in quite a pickle.

"Our mission statement inherently leads to privacy being an issue for us, and we want to acknowledge that" said Mike Yang, managing product counsel for Google. "The underlying rationale for most companies is to keep the minimum amount of data on hand about its users, but our company's business model relies on data."

Google makes money by collecting mounds of data from and about users, and putting it to work by providing better products and ads that users are more likely to click on. So if all Google users prevented the company from logging their information, the search engine would be useless and the company wouldn't make money.

The conflict came to a head in recent weeks after Google launched Google Buzz, its social networking foray. A confusing one-two punch in Buzz's default settings automatically followed Gmail users' most e-mailed contacts and then posted those contacts publicly after a user "buzzed" about something.

After a public uproar, Google (GOOG, Fortune 500) made a fix to Buzz's defaults within two days of its launch that largely satisfied the concerns of users and organizations dedicated to information privacy. But the wonky controls led some to wonder if Google's interests lay more with making money than with ensuring users' privacy.

The company insists that Buzz's privacy problems represented a one-off issue, and it never intended to confuse its users. Google stressed that giving users control of their privacy, though often in conflict with the company's data collection needs, is still crucial to its business strategy.

"User trust is paramount, because if the transparency is not there, then they lose their trust in us, and they're not going to use our services," said Yang.

In that spirit, Google unveiled a new privacy initiative in January that consists of "ensuring transparency, providing control and furthering privacy education for its users."

The company said it strives to tell users exactly what information it is collecting and give them "meaningful" choices about what kind of information is gathered as well as letting them know why information is being collected and how to make informed choices about their privacy.

For search, the data Google collects is fairly basic. Every time a user enters a search query on Google, the search engine logs the search itself, the date, time, computer IP address, browser type, operating system and the identification number of the "cookie" text file that Google saved on the user's computer.

Google's cookie allows the search engine to know what the user's preferences are, such as getting results in English and how many results per page a user wants.

Multiply that information by the billions of searches that Google logs and that gives the company a big bucket of data that it can analyze to make changes to its search engine. For instance, over the years Google has added functionality like suggested results, spell check, translation services and search trends.

And last year, Google introduced interest-based advertising, which uses information about a particular user to target display ads to them. Google does that by storing recently viewed articles in cookies, allowing it to broadly determine a user's interests and then show ads that are more relevant to that user.

Google also collects data from its subscribers who have Google accounts. For instance, the company collects Web search history, and can use that information to target ads to that user.

In line with its new privacy goals, Google recently unveiled products like Google Dashboard, Data Liberation and in-ad notices. Those services give users easier access to privacy controls and to their data stored on Google.

For instance, if you are a Google account holder, Google Dashboard shows every Google service that you are subscribed to, with links to privacy controls for each service. Data Liberation allows users to easily export their information out of Google and, if they choose, into a different service provider like Yahoo.

And Google's interest-based ads contain icons within the ad's image identifying the ad as "by Google." Users can click on that icon and control the information is being collected about them, including an option to download browser software that permanently opts users out of receiving advertising cookies on their computers.

"That was not an uncontroversial decision to include us on their real estate," said Christine Chen, policy spokeswoman for Google. "But we thought it was important to give people visibility into this."

Google said that it had the capability to run interest-based ads years ago, but waited until last year to unveil the program so that it could ensure users' privacy. By increasing transparency, the company said it can ensure privacy controls while still getting users to share information.