Why Apple and Google need to stalk you

NEW YORK (CNNMoney) -- Apple, Google and Microsoft have finally cleared up most of the mysteries about how and why the smartphones their software runs track and store your location.

Here's the run-down:

Are they tracking you? Sort of. Companies that design smartphone operating systems like Apple, Google, Research In Motion, Microsoft and Nokia all collect data about your location that, the companies say, is kept anonymous and can't be traced back to you.

The information that's collected is uploaded to massive databases maintained by the companies. A very small part is stored on your phone. The information tracked is actually not your specific locations, but rather the locations of the Wi-Fi network routers and cell towers around you.

What exactly are the companies doing with your data? The information is used for two reasons: To provide a way to locate you if GPS is unavailable, and to more quickly locate a GPS signal when one is around. That information is crucial for maps and many other smartphone apps.

Your phone consults the massive databases, and, based on the Wi-Fi networks and towers surrounding your phone, Apple (AAPL, Fortune 500), Google and others can very quickly approximate your location.

"It works like this: Your phone says, 'Oh, you're near these eight routers and those three cell towers? This is where you should be,'" explained Charles Golvin, analyst at Forrester Research.

The advantage is that discovering your location based on surrounding networks is very fast. The disadvantage is that it's imprecise. GPS has the exact opposite problem: It's super-precise but can take several minutes to discover your location.

By approximating your location using Wi-Fi and cell networks, your phone can know what part of the sky to search for when it's looking for GPS satellites, significantly speeding up that process.

Why do companies need to use our location data to know where the networks are located? They don't need to, but it's faster, easier and cheaper than the alternatives.

Before the iPhone supported GPS, Steve Jobs made a splashy announcement at the 2008 Macworld conference: He said Apple had formed a partnership with Skyhook Wireless to use that company's catalogue of Wi-Fi hotspots to bring location to its Google Maps application.

At the time, Nokia (NOK) was already using Skyhook for its Ovi Maps app.

But Apple soon realized it could easily crowdsource data from its millions of customers instead.

"Apple started thinking, 'Why do we need to pay Skyhook when we have a boatload of devices out there talking to Wi-Fi networks?" Golvin said.

Microsoft (MSFT, Fortune 500), which has a much smaller user base of smartphone users, is actually supplementing user-generated data with information collected by teams that drive around searching for Wi-Fi hotspot and wireless network locations.

Google did something similar with its Street View mapping drive-bys, but the company didn't say whether that information is also used to approximate Android users' locations.

When is your location data being transmitted? Microsoft said in a recent posting that it only collects location data when an application specifically requests it.

Apple and Google (GOOG, Fortune 500) didn't comment about how often they collect location data.

Who can access that data? You can access your own location information on your device, if you have the technical know-how. Warning: It takes some digging.

If you have an iPhone, that data is also currently stored on your computer, but Apple said it will stop doing that when it next updates the iPhone's software. Apple will also soon allow you to encrypt the location information stored on your device.

How far back does the data go? Currently, Apple allows you to access all of your location data, going back months or even years. After its upcoming software update, it will only collect information from over the past seven days and delete everything else.

Google has not commented on how much information it collects. A source with knowledge of Google's location software confirmed several tech bloggers' accounts that Android collects only the last 50 instances of cell tower triangulation data and 200 Wi-Fi hotspot locations.

Microsoft, RIM and Nokia did not comment on how much data they store.

Can you stop companies from collecting your location data? Yes.

Apple automatically turns location services on for iPhone users, but it can be turned off in the settings menu. Until Apple's bug fix, however, the company will still be collecting that data, even when location services is turned off.

Microsoft and RIM (RIMM) also turn on location by default, but both BlackBerry and Windows Phone users can shut that feature off in the settings menu.

Google prompts users to opt-in to location services when they set up their Android devices, and if set-up is skipped, it automatically opts the user out. The function can be turned on or off in Android's settings menu. When it's enabled, the Android system responds with a dialog box explaining what information will be collected, asking the user again to accept or deny that access.

"We provide users with notice and control over the collection, sharing and use of location in order to provide a better mobile experience on Android devices," the company said in a statement.