On giant robots and dirty laundry

A secret ceases to be a secret if it is once confided - it is like a dollar bill, once broken, it is never a dollar again. (Josh Billings, 'Affurisms. From Josh Billings: His Sayings (1865)')
Google was recently touted as 'worst on privacy' out of a sample of online organisations, according to a study by Privacy International. Whether you agree with the verdict or not, there's no doubting that Google is in a powerful position as far as sensitive user information is concerned.
Google's popularity as a search engine is so far ahead of the competition that it is almost a sure bet that you, the reader, have performed a Google search recently. But never mind the sordid secrets of your search history, Google also has information from each of their seemingly-pervasive services - email, instant messenger, your location, what you've been shopping for, when you sleep, etc - all of which builds up a comprehensive profile about you and your interests.
With information like that, and the algorithms to match, Google could very well know more about you than you think
'But how can they identify me?'
There are a number of distinct ways Google can track your activity - the most direct and simplest is by using your IP address. Whilst it is true for most people that the IP address will change over time, Google also employs the use of a HTTP cookie to track usage on a given computer - and the cookie in question is set to expire many years in the future.
With this combination of cookie and IP, Google can link you activity fairly closely on any single computer - but this system doesn't take into account situations where a user may access the internet from multiple locations, using different computers. Tracking across multiple access points like this is not so easy with IP and cookie alone - but should you use a Google service where you have to log in (such as Gmail, Google Reader, etc.), then even distinct sessions on completely separate networks can be linked together.
Put simply, for a user of Google's authenticated services, Google can track you whether you're at work, at home, or on holiday.
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