Who is watching you while you are on the Internet? Well, everybody. All the time. Every website you go to, every email you send, in some cases every keystroke and mouse gesture you make are being recorded. In the digital realm data is cheaply acquired, indexed and stored. And more importantly, it's valuable.
In most cases, the parties that are tracking you are either the websites you visit, advertisers who pay these websites for the opportunity to interact with you/show you an ad, and third party tools like web analytics tools that help the website understand its audience and customer base. Note that your interactions with the Internet are likely being logged by your Internet Service Provider and potentially other places along the Internet.
How do they do this?
Every time you contact a website, it sends you back HTML for your browser to display. At the same time, web servers that you interact with have the opportunity to place a cookie on your machine or mobile device. This lets the web server "tag" you with an ID or other data so that they can identify you on subsequent requests. The cookie data goes back and forth on each request and response. At the very least, most websites are tracking you every time you interact with them, mostly just trying to see how often you visit, where you came from, and what you are doing on their website.
But in most cases (around half of all websites use Google Analytics alone) websites also use many third party tools. Often inside the HTML is a link out to another server, telling your browser to request a resource from a source different than the one you typed into the address bar or clicked on. When this request happens there is also an opportunity for THAT party (called the third party in this context) to cookie and begin tracking you. They don't know much about you, at least not at first. But they can begin to gather data about you over time until you delete your cookies.
What do they want from me?
Why all of this tracking? Of course the answer is money. But let's take a deeper look at how this information is valuable. The two main tracking parties are consumers of analytical data and the ad networks. The consumers of analytical data are looking to understand their customers: where are they coming from, what do the customers want and do they like the website. Using this data they can make their websites better for the customer.
The consumers of the ad network data are looking to make the most cost-effective marketing play they can. Paying for beer ads that get placed on a barbie website is likely not the best use of an advertising dollar. So knowing their demographics they can make better ads and sell more stuff. In the mid 2000s this was articulated by Seth Godin and others as permission marketing, as opposed to interruption marketing, which does not know anything about the consumer and relies on getting the consumer's attention. This data is also monetized through sale by both the website owners and the ad networks. Not every website or ad network sells data, but it is not uncommon.
This monetization of customer data has led many people to feel violated. They did not know all of this was happening and are not used to this kind of exposure. This has led to Internet legislation and in terms of behavioral tracking a "Do Not Track" movement which many large Internet companies have decided to join.
But is there a need for concern? Since the Internet is not private in the first place will these movements be effective? Ben Kunz makes a compelling argument against do not track, and I think I agree. There are parts of the Internet that you want to be anonymous. And there are tools that you can use to limit how public the Internet is. BUt a big portion of the value of the Internet is it's very two-way nature. A sommelier at a restaurant needs to know what you are eating and your taste preferences before recommending a great wine for your dinner. Likewise some websites rely on knowing a little bit about you in order to cater your experience. If I have to go to an ad driven site, I'd much rather see ads that were relevant to me than be shouted at by someone trying to get my attention.