Think you're being watched offline? Just wait until you fire up your browser.

I just invaded your privacy. Well, not me personally. On my website I use a social sharing tool called AddThis. It generates the Facebook Like and Twitter buttons you see. It knows a lot about you. And now that you’re reading this article, it knows that too.

You’ve probably seen these buttons all over. AddThis and competitor ShareThis package social sharing buttons into an easy-to-use widget that publishers can add to their websites. By May 2011, the AddThis widget was on nine million websites, reaching a billion unique users worldwide.

How do they make money? Let me tell you a story that I’ve seen few mainstream publications report. It’s a story that should make you appreciate how controversies about Google and Facebook privacy changes are mere details. The big picture: privacy is dead, and even Google and Facebook disappearing would do little to resurrect it.

How advertising is like the stock market

I work in digital marketing. It’s a world obsessed with performance (at the very least, superficial stats like impressions and clicks; ideally, more meaningful outcomes like conversions and sales). Performance tends to improve when you reach the right people at the right time with the right creative. You’ll hear many companies make that promise.

Increasingly, advertisers and their agencies are reaching the right people at the right time with real-time bidding. This effectively makes advertising like the stock market. Publishers dump their excess advertising impressions into exchanges. Advertisers and agencies then bid on those impressions in real-time. When they win the bid, they serve you their ad. It all happens in fractions of a second.

And there is a huge amount of excess advertising inventory. This is because few publishers sell out their inventory directly to ad buyers. Many will dump 50% or more of their impressions into exchanges. The result: impressions sold through exchanges cost advertisers pennies on the dollar compared to the same impressions purchased directly from publishers. Not great for publishers, but at least they make something off impressions that would otherwise cost them money due to ad-serving expenses.

Because of the cost-savings, and the centralized reach provided (advertisers can buy impressions across many websites from one exchange), ad exchanges and real-time bidding have taken off.

Your privacy is sold to the highest bidder

Now, real-time bidding by itself isn’t that great. It’s like randomly buying stocks on the stock market. All else being equal, advertisers prefer to know where their ads show (on what sites, and where on those sites) and who they show to.

For example, imagine you’re Honda. You have the option of buying a highly targeted click on Car and Driver’s website for $1. Or you could buy a click on less targeted websites through an ad exchange for $0.10. If Car and Driver visitors are 10 times more likely to buy a car, it’s worth the extra investment.

But now imagine you’re Honda and you can target people interested in buying a Honda within one month through an ad exchange on any website. While the contextual environment of Car and Driver might be important, what’s more important is hitting the exact audience you want to reach. Suddenly, you might pay double what you previously bid on the exchange; it’s still five times cheaper than buying directly from Car and Driver, and you’re likely to see better results.

In a nutshell: the more targeted the ad, the more an advertiser will bid and the more a publisher will receive.

You can block, but you can’t hide

Which brings us back to AddThis.

Along with real-time bidding platforms have emerged data management platforms, with BlueKai (through which ShareThis offers data to advertisers) being one of the most well-established. These platforms allow advertisers to target audiences through ad exchanges. And they allow publishers to contribute data to facilitate that targeting, both directly from their own databases, and indirectly using third-party tools like AddThis.

For example, let’s say Honda wanted to reach people interested in buying a Honda within a month. First, they would create a profile of users who fit that description; for example, users who (a) read reviews of a Honda Civic and (b) use an auto loan calculator online. Second, they would target those users online by combining the targeting capabilities enabled by data management platforms with the impressions purchased through real-time bidding.

The advantage for advertisers is clear: while they may pay more for highly targeted clicks, they also get better results. So it’s worth the investment. But there’s also an advantage for publishers: the more data they provide, the better advertisers can target their audience, and the more they’ll make from ad inventory dumped into exchanges because advertisers compete with higher bids.

And if you think you can avoid it, such as by using ad blockers or denying cookies, don’t count on it. Technologies are being developed to track your activity based on a “fingerprint” assembled from various bits of information such as your browser, operating system and internet service provider. No cookies required.

What we need: transparency and control

Is all of this evil? Am I a bad person for working in this industry? Am I being deceptive by using AddThis on my website?

First, I should say that, as you’ve probably noticed, there’s no advertising on my blog. That may or may not change in future, but I would lose too much (like credibility) by slapping up the wrong ads than I’d gain. So there’s no advantage to me of using AddThis, except that it makes incorporating multiple social sharing tools easier.

But more importantly, I’m not opposed in principle to the so-called erosion of privacy happening online. Ask anyone in a small town (or, if you had a time machine, our ancestors living in caves) whether they have privacy. Anonymity is not an inalienable right.

Furthermore, I don’t think, all else being equal, people would choose annoying untargeted advertising over useful targeted advertising. Nor would they choose (clearly) to pay for subscriptions to online newspapers rather than have them be advertising supported. Losing a bit of privacy is, in my opinion, a small price to pay for many modern marvels and conveniences.

However, that’s not to say I’m in favour of some dystopian, Big Brother, panoptican future. Rather, I think that transparency and control are key. We should know who is gathering our data and how they’re using it. We should be able to review that data. And we should be able to control what’s gathered, and who has access to it. (See, for example, what Personal is building.)

But the idea that we can be completely anonymous online, or go back to the brief era of extreme privacy when large cities existed and social networks didn’t, may be wishful thinking, and a distraction from the goal of empowering people to have control of their data and an understanding of how it’s being gathered and used online.

If you agree with me, maybe you’ll share this article with your friends. Just use the AddThis widget.

Image credit: Taz etc.